What is an ethical business?

The need for sustainable and ethical business practices seems more prevalent than ever. World leaders, celebrities and other influential personalities are beginning to vocalise their support for ethical trading and an increasing number of huge corporations have come under fire over their ill-treatment of workers, animals or the environment.

And being a ‘good business’ is becoming more popular and profitable as the market and entrepreneurs start to react to this gathering movement. For instance, the UK’s renewable energy market has exploded with both commercial and government support – PWC’s market review found that £29.8bn of investment was pumped into the industry in 2010-2013 and this is expected to rise to over £40bn by 2020.

Moreover, it’s not just investors and business support networks that are backing ethical traders, consumers are also becoming more conscious. Mintel’s 2015 UK consumer report found that 76% of UK adults say that the ethical and sustainable credentials of their products and the reputation of companies or brands are important when making a buying decision.

Here, we take a look at what it means to be an ethical trader, the advantages and disadvantages, and why launching a business which limits its negative impact could be the right option for you…

What does it take to be an ethical business?

An ethical business is one that considers the impact its actions, products and services have on the environment, people and animals. This includes the end product or service, its origins, and how it’s manufactured and distributed.

This may sound like a basic choice every business should make but it’s not that simple. For instance, if you choose to outsource your production in a factory overseas, for example China or Bangladesh (both cheaper manufacturing countries), where employment and environmental regulations are less comprehensive, there are requirements to follow. You must ensure to outsource in a way that empowers, rather than exploits workers, and guarantees that employees or contractors are given rights in line with international labour standards.

Also, if you want to stay sustainable, you have to be careful about how your products are created, what they are produced using, their distribution and their manufacturing processes. For instance plastic, and plastic-derived materials like polystyrene, is one of the cheapest and convenient materials yet it’s also extremely toxic to our planet.

Basically, in order to deem yourself a completely socially responsible and people-friendly business you must keep to a rigorous set of criteria. You’ll need to ensure that your products are made in safe, healthy environments where workers are treated and compensated fairly, and that your firm’s implementing a variety of eco-friendly measures to minimise its environmental footprint.

The downside of running an ethical business

Running an ethical business is no easy game. Unless you launch a charity or a social enterprise, which are both primarily focused on social goals, then your business will not receive any special funding. And as you may have already gathered, it’s also an industry where it’s not easy to scale fast and where you might have to sacrifice profits in order to remain ‘ethical’. Ensuring that your business is produced by workers who are paid fairly, and who work in a liveable environment will mean your business pays more – there’s a reason industry leaders like Apple and Primark use overseas manufacturers.

James Boon, founder of ethical product business Elephant Branded, admits his firm had to turn down investment and revenue to stay ethical:

“There are challenges, for instance, we find sometimes we simply cannot meet the margins required from distributors and some large retailers. Our margins are too tight and we sometime miss out on opportunities as we are simply not prepared to devalue the ladies we work with, or cut back on the school kits we deliver to the children around the world for every EB bag sold. 

“I once had an investor tell me, why don’t you just make your products in China? You could get a much bigger scale and it would be a lot cheaper […] Well I can safely say we declined and stuck to our core values!” 

More people are waking up to the need for sustainability however and big companies are starting to follow a sustainable route with many leading fashion companies like H&M launching eco-friendly initiatives. There are also plenty of successful businesses who are also deemed ethical, like construction giant AECOM and phone company HTC.

And although this might all seem unrealistic to a young business or aspiring entrepreneur who’s also trying to keep up with red tape, funding, talent and cashflow issues, don’t underestimate your ability to make a big difference with a little change.

Where the ethical business opportunities lie

No matter what type of business you run, there’s an opportunity to be sustainable and ethical in at least one way – be it eco-friendly, animal friendly or people-friendly. For instance you could keep your manufacturing purely in Britain – and gain the valuable ‘Made in Britain’ trademark – or you could use exclusively reclaimed, vintage, and upcycled materials which would also help keep costs down.

Many businesses choose to partner with a co-op or communities in developing countries which aim to create sustainable and fair employment opportunities that provide important revenue streams and are trying to lift people out of poverty. Startups 100 member Pact Coffee, which deliveries fresh coffee and was set up with the mission to make coffee a force for good, is one such example.

The start-up has a policy of ‘Direct Trade’ and makes sure all the growers it works with are being paid fairly – at least 25% more than the Fairtrade price – and it works together with farmers to help increase the quality of their crop.

Head of Coffee at Pact, Will Corby, said: “There is the potential to really improve coffee farmers’ lives by managing the supply chain better and trading directly with the farmers themselves. It has taken a couple of years for us to get there but we now have direct trade going where we can be sure we get the highest quality coffee and pay the growers really well for it.”

Another route aspiring ethical entrepreneurs could take is to launch a business that sources local or sustainable producers. The organic and traceable food movement has been gathering traction for years with many consumers demanding to know the origin of their food and firms like Green & Black’s providing a shining example of how to get this right. Young Gun company Friska, which runs a healthy and ethically sourced fast food restaurant, say that having a positive impact has also helped them stand out in a competitive market place with co-founder Griff Holland adding, “Customers care about where they spend their money. They expect businesses to be responsible and ethical, but we don’t just do it for those reasons, we genuinely believe it’s important to give something back when you can.”

Business support and why you should consider going ethical

And although there may not be funding agents specifically for ethical traders, there’s a big community of supporters. Group’s like The Ethical Company Organisation, which gives companies an Ethical Accreditation and runs the Good Shopping Guide, acts as the bench mark for sustainability in business, and the Fairtrade Foundation works with and promotes firms with ethical practices – also offering a seal of approval. Eco-Age, which is run by Livia Firth, wife of Colin Firth, works with businesses to help them improve their sustainability – with Firth utilising her celebrity status to promote the ethical fashion movement.

Furthermore the B-Corp, an American born initiative, has just launched in Britain. Firms must fall within the groups criteria but once a member, you become part of its network of 1,400 companies that span 41 countries – which according to UK branch director James Perry – opens up doors to new partnerships and trading possibilities with both UK-based and overseas members that include Ben & Jerry’s and Etsy.

Finally, being an ethical business can be hugely beneficial to your business’ culture, and core values are one of the main reasons businesses launch with an ethical focus. According to Boon this is what drives the business forward:

“Pry is my business partner in Cambodia, he is the genius behind the up-cycled bags. He grew up in a poor family who had just come out of the Killing Fields of the Khmer Rouge. With no money in his pocket he learnt to fix motorbikes and got enough money together to become a tuk tuk driver. One night after dropping some tourists off at a hotel he met and fell in love with his wife Mey who was making silk bags at the time. He liked the bags and after a few experiments with different materials he eventually hit on the idea of making bags from recycled cement bags and shorty after we met. That was really how Elephant Branded was born and we have slowly grown from there.”

“For myself, it is that real life element that makes it all worthwhile. In my mind, this is the value of business, it is about family, trust and loyalty. One of the few things in life which bridges race, religion and culture to allow people all over the world to work together and enhance their own lives.”

“While this may only be a small change, and Elephant Branded is certainly not going to change the world, my hope is that we can show that you can turn a profit and do some good in the world. My dream is to see others taking up to gauntlet and really change the world for the better through business.”