The decision of Yvon Chouinard, founder of the outdoor fashion brand Patagonia, to give away the company to a charitable trust in order to fight climate change and environmental risk, has shaken up the investment community across the world and potentially launched a new era for sustainable development.
Chouinard’s move means that any profit that is not reinvested in Patagonia will be redistributed as dividends to protect the planet. In order to do this, the Chouinard family has transferred all ownership to two new entities, the Patagonia Purpose Trust and the Holdfast Collective.
The Patagonia Purpose Trust is now the owner of all the voting stock of the company, which is about 2% of the total stock, while the Holdfast Collective owns the remaining 98% (all the non-voting stock).
The plan is that the Holdfast Collective will utilise every dollar received from Patagonia to protect nature and biodiversity, support communities and fight the environment crisis. It is estimated that it will pay around $100m as a dividend per year.
Will Patagonia move lead to a new era for ESG?
With this move, Patagonia has raised the stakes when it comes to ESG, but what impact will it have?
First, Chouinard said that “instead of extracting value from nature and transforming it into wealth, we are using the wealth Patagonia creates to protect the source. We’re making Earth our only shareholder.” Thus, Patagonia is looking to protect the nature that is primarily the source of the company’s clothes, instead of only using nature as a way to create wealth.
Second, this is an example of a prominent business figure leading by example. It is now hoped that this move will influence more business leaders to embrace the world’s ESG challenges in a more meaningful way, as opposed to seeing addressing these issues as merely a tick-box exercise.
Third, all eyes will now be on the types of projects the Holdfast Collective backs to help the fight against climate change, and in which sectors and regions.
Patagonia has been proactive in helping communities move away from fossil fuels, and it has transformed the way it does business in order to cut its carbon emissions. The data below shows that the bulk of the company’s emissions come from its supply chain and materials manufacturing.
The fashion industry is considered to be one of the largest polluters globally, as it is responsible for 10% of annual global emissions. It would therefore be hugely significant if more companies from the apparel sector were to follow the example of Patagonia when it comes to cutting down their emissions, opting for sustainably sourced and organically grown materials, and reinvesting at least some percentage of their profits in the fight against climate change.
Chouinard's announcement garnered Patagonia columns and columns of good publicity, but this move was no gimmick or attempt at greenwashing. The gesture may have an impact, or it may be too little, too late. It has, however, certainly raised the bar when it comes to just how far a company can go with its commitment to all things ESG.