Being an ethical business can reduce the negative impacts on people, animals and the environment. But, as Kat Alexander from The Ethical Company Organisation explains, it can also help to boost your bottom line
What is an 'ethical business'?
One that considers the ethical impact of its actions, products and services with regards to the environment, people and animals. Ethical businesses demonstrate this through their products (eg fair trade, organic, cruelty-free, etc), but their behaviour is another key consideration. So, for example, a business might sell organic pasta, while being involved in environmentally destructive practices in other areas, such as using unsustainable palm oil, in which case it wouldn’t be considered ethical.
Are ethical businesses a new phenomenon?
No, they’ve have been around for a very long time, although communicating these ethics is becoming more commonplace because consumers now understand more about ethical issues. Big business has certainly jumped on the ‘ethical bandwagon’, realising that it’s popular with consumers. A good example is fair trade coffee, which was first launched in the early ‘90s by a few specialist companies. Now, most UK supermarkets sell their own-brand fair trade coffee.
Why set up or become an ethical business?
As already mentioned, consumers have become more aware of what ‘ethical’ means and they’re voting with their wallets. Ethical businesses have the potential to become very successful and examples include Cafédirect and Good Energy. The Good Shopping Guide is a really helpful guide for consumers that shows the best (and worst) businesses when it comes to ethical trading. Within the 70 different product sections, consumers can find out which brands to buy and which ones to avoid.
How big is the UK’s 'ethical business' sector?
The Co-operative publishes an Ethical Consumer Markets Report and the most recent version [2012] estimates that ethical spending (ie “spend on ‘green home’, ethical food and drink, ethical personal products, eco-travel and transport, community and ethical money”) in the UK in 2011 reached £47.2bn – a huge increase from just £13.5bn in 1999. Significantly, the value of ethical markets has continued to rise, despite the recession.
Are customers really attracted to ethical businesses?
The Co-op report suggests that 50% of consumers avoided a product as a result of a company’s ‘bad reputation’. According to The Fairtrade Foundation, the total value of fair trade products sold in the UK rose from just £63m in 2002 to £1.5 billion in 2012. This proves there is strong consumer demand for products from ethical trade businesses.
Do businesses trade ethically for moral reasons?
A truly ethical business usually starts up with the best of intentions, usually driven by the owner’s personal beliefs and a lack of market alternatives. However, sometimes these businesses ‘sell out’ to less-than-ethical businesses. Everyone can benefit from businesses trading ethically: the consumer, who feels better about the product they’ve chosen; the supplier, who receives a better wage/working conditions; and the business, which feels good about what they are doing, while making a profit by offering an ethical alternative.
But don’t ethical business usually trade in a limited number of sectors?
Ethical businesses now operate across all sectors. We offer independent Ethical Accreditation to truly ethical business and our members operate in a wide range of sectors, including food and drink, fashion, health and beauty, finance, energy supply, office supplies, furniture, you name it.
Does being ethical mean I'll pay more for my supplies?
Depends on what your business does, but even if you do have to pay more to your suppliers, generally speaking, consumers are willing to pay a bit more for ethical goods, so you don’t lose out.
What three key pieces of advice would you offer to someone who wanted to set up or operate as an ethical business?
Firstly, make sure there’s a market for your product or service. Secondly, communicate your ethics to you consumers and trade partners. Finally, stick to your ethical principles.
Further reading:
Setting up a social enterprise
Sophi Tranchell of Divine Chocolate on how to set up a successful social enterprise
Profile: The Flip-Flop Philanthropist
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