Many global firms are grappling with sustainability issues in their supply chains, but for Andrea Illy, chairman of illycaffè and co-chair of the Regenerative Society Foundation, this is nothing new. He tells fDi why sustainability goes beyond protecting the environment and how it can create value for a firm.
“Sustainability for us is the triple bottom line. More than 95% of people believe sustainability is the environment, but it’s not! It’s economical, social and environmental,” he explains. “Supply chains are under pressure because the world is reaching the limits of everything. We have a health crisis, a climate crisis, an economic crisis, a social crisis and even a military one.
“With the complexity of our system, it’s important to maintain the fluidity of supply chains. Within Illy, we have been impacted in coffee: there have been significant climate crises in Brazil which have impacted the coffee price. On top of this, there has been a shortage of shipping containers. The net result is we’ve gone from $1.20 per pound of coffee at the beginning of last year to $2.50 in March 2022. This is also true for packaging, electronics and other items in logistics. And it will only get worse with the Ukrainian war.”
Mr Illy says illycaffè has been on a 30-year sustainability journey. At first, he says, it focused on economic sustainability: “We started offering a 30% premium to our growers for much better quality and this created a significant growth journey for the company.”
The firm spent its second decade concentrating on social sustainability built around the University of Coffee, illycaffè’s centre of excellence, which it established to share knowledge with coffee growers and to deliver standards that are better than the official market ones.
It is now focused on environmental sustainability following a 2015 prediction that up to 50% of land currently suitable for growing coffee will no longer be usable by 2050 because of climate change. The firm’s approach is to ensure coffee security based on more investment in improving agronomical practices at plantations, and new, more resilient cultivars.
“In 2018, I started looking at how to decarbonise the company by insetting the non-compressible carbon emissions of the industrial part into the same ecosystems where we grow our coffee,” he says. “The outcome has been a concept of virtuous agriculture, which has been regenerative and beneficial. We want to demonstrate that if you grow coffee in a regenerative way, you’ll then also have some nutritional benefits in terms of absence of agrochemical residues and the presence of more phytochemicals, which are good for health.
“We are now experimenting with these regenerative agriculture practices in plantations in Ethiopia and Guatemala, and the production knowledge is immediately transferred to all the other growers through our University of Coffee.”
Mr Illy points out that more firms are moving towards sustainability, driven by customer demand for sustainable goods as well as a push by regulators and finance providers towards environmental, societal and governance factors. “You cannot have a speculative approach in your business and not take care of the environment and society,” he says. “If you are not proving that you are sustainable, you will be punished with a much higher cost of capital and probably less capital allocation. And you will have competitors who will have the first-mover advantage with this.”
The Regenerative Society Foundation, an independent non-profit organisation that he co-chairs with economist Jeffrey D Sachs, aims to transform society and develop a regenerative socio-economic model and framework to help companies to make their ecological transition.
“The best transition is moving from the past and present extracting model to a regenerating one,” explains Mr Illy.
“Companies need to do something,” he concludes. “If you do something smart with sustainability, it can be an enormous value creator.”
This article first appeared in the April/May 2022 print edition of fDi Intelligence. View a digital edition of the magazine here.