It’s no longer enough to give 1% of profits each year — and push others to do the same — in order to save an Earth that Patagonia’s adventurous customers consider their playground.
Almost 50 years after its 1973 founding, billionaire Yvon Chouinard and his family will surrender all ownership of the privately held outdoor-clothing retailer, valued at about $3 billion, to two entities that will divert profits toward combating climate change and protecting undeveloped land, the rock climber–turned–executive said in a letter Wednesday.
Chouinard, his wife and two adult children have transferred their ownership to preserve the company’s independence and ensure that all of its profits — some $100 million a year — are used as they intend. Going forward, all voting stock, about 2% of the total, is now controlled by the Patagonia Purpose Trust, while the other 98% falls under what’s called the Holdfast Collective.
Chouinard told his management team and staff that he mulled other ways to increase capital and profits to eventually steer more toward environmental and resource-saving initiatives, such as a public stock offering, or an outright sale of the company. But he said those options could not guarantee the survival of Patagonia’s values. Going public was never truly an option, he said, thanks to Wall Street investors’ SPX, -0.72% ceaseless pressures to create short-term gain, sometimes at the expense of long-term responsibility. In fact, “Reimagining Capitalism” is the blurb that announces the company’s change.
From the archives (June 2020): Patagonia joins North Face, REI in ad boycott over misinformation and hate speech on Facebook platform
The new structure is, to say the least, unusual, but there’s at least one high-profile example — Ben & Jerry’s fight with its parent company, Unilever ULVR, -0.64% — that mirrors some of the same do-good intentions, alongside the complexities in seeing those efforts survive as intended.
Still, the action sent ripples through retail and philanthropic circles.
“Yvon Chouinard will provoke every company with any sense of moral conviction to rethink their engagement with the environment,” said Fred de Gombert, CEO and co-founder of Akeneo, a product information management platform working with over 600 brands and retailers, including Carhartt, Forever 21 and Sephora. “We should all learn from this that it’s not enough to just be ‘worried’ about the environment, but that companies and the people who work in them should participate as actors in the care of the environment.”
Worrisome data adding up
The extreme weather recorded in recent years may have swayed Chouinard’s decision.
The ravages of heat, drought, flooding and more largely pinned to climate change and the burning of fossil fuels CL00, +0.34% have picked up faster and with greater intensity than earlier data indicated, a new report combining the efforts of the World Meteorological Organization and other climate-change monitoring bodies said earlier this week.
The past seven years were the warmest for Earth on record. And looking forward there is a 48% chance that during at least one year in the next five the annual mean temperature will temporarily be 1.5 degrees Celsius higher than 1850–1900 average. That’s the temperature limit set at a Paris global climate conference, and it’s the goal that guides most climate-change policy these days. But even with that target in mind, as global warming persists, breaching “tipping points” in the climate system, such as a major Arctic thaw, cannot be ruled out, the group’s findings warned.
“‘Instead of “going public,” you could say we’re “going purpose.” ‘”
While the report noted global pledges among countries and corporations to cut emissions does show some realization among leadership of the risks ahead, those plans may fall short, it warned.
An original ‘benefit corporation’
In the letter posted on Patagonia’s website, Chouinard detailed company efforts to date to help preserve the outdoors that his customers are drawn to. That includes products using materials that cause less harm to the environment, donating 1% of sales each year, and establishing the company as a certified B Corp and a California benefit corporation. In fact, many observers believe Patagonia is why benefit corporations exist at all. In 2018 the company’s purpose was rewritten as “We’re in business to save our home planet,” and Patagonia is famous for offering “flex time” that encourages its employees to hike and climb when they might otherwise be at work.
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But Chouinard said he realized these efforts would not be enough.
“We needed to find a way to put more money into fighting the crisis while keeping the company’s values intact,” he wrote. “Truth be told, there were no good options available. So, we created our own. Instead of ‘going public,’ you could say we’re ‘going purpose.’ Earth is our only shareholder.”
Sustainability-minded observers generally cheered the significant gesture. Some, however, wondered if the action fell short of compelling the fasion and apparel industry to rethink practices.
“Although this move lays a blueprint for other owners on what they can do to support the environment, it doesn’t provide a blueprint for how the apparel industry as a whole can reduce its environmental impact,” said Raghav Sharma, co-founder of Perfitly, which creates a virtual reality/augmented reality software meant to help shoppers buy clothes that fit.
“The best way apparel companies can reduce their oversized carbon footprints is to reduce the waste associated with production, logistics and their often toxic by-products, not to mention encouraging more sustainable consumer consumption,” Sharma said.
From the archives (February 2022): Patagonia, REI, North Face and others threaten to boycott major outdoor show if it’s moved to Utah
Also (March 2022): Outdoor Retailer show moving to Utah next year despite boycott threats