Can Patagonia make capitalism climate-friendly?

Can Patagonia make capitalism climate-friendly?

Patagonia founder Yvon Chouinard may be the world’s most reluctant billionaire.

For 50 years, the mountaineer and environmentalist has tried to chart a difficult course, becoming a poster child for an unconventional form of capitalism that seeks to balance profit and purpose.

Patagonia is now one of the world’s most successful outerwear brands, with sales of fleeces, windbreakers and flannels exceeding $1 billion a year, according to New York Times. But it has also paved the way for responsible business practices; the company has donated 1 percent of all sales to environmental groups since the 80s and was among the earliest companies to qualify for B-Corp sustainability certification. Patagonia’s motto: “We’re in the business of saving our home planet.”

Now the 83-year-old Chouinard has found a way to maintain and push this commitment even further: he is giving away the company. Going forward, almost all of Patagonia’s shares will be owned by a non-profit organization whose mission is to reinvest the profits (estimated at around 100 million dollars a year) in combating the climate crisis.

“Jorden is now our sole shareholder,” Chouinard wrote in an open letter posted on the company’s website.

It is an almost unprecedented move that sets an exciting new benchmark for responsible business models. It also points to how broken the existing system still is.

Chouinard’s attempt to reshape capitalism in the service of the climate comes at a time of turmoil for corporate crusaders. Although the notion that companies should consider people and the planet alongside profit is increasingly mainstream, the extent to which companies and investors actually live up to lofty commitments to incorporate this into spending plans and strategies is increasingly under scrutiny.

In announcing his decision to structure his succession plan as what amounts to a massive donation, Chouinard also discounted other, more traditional, exit options.

The founder could have sold the company and donated all the money, but then there would be no guarantee that the new owners would continue to operate in line with Patagonia’s existing values. A public listing was a non-starter. “What a disaster that would be,” Chouinard wrote in his open letter; public companies face too much pressure to prioritize short-term profit above all else.

“There were no good options available. So we created our own,” Chouinard said.

Here’s how the new structure works: while Patagonia will continue to operate as a for-profit company, it will be owned by a combination of a trust and a non-profit organization.

The trust, which will control the company’s voting shares (two percent of the total), will be responsible for ensuring that Patagonia continues to balance profits while serving the planet. The non-profit organization will own the rest of the company, and receive any profits that are not reinvested in the business as an annual dividend to be used to fight the climate crisis.

In the transfer of ownership, Chouinard and his family have given away shares worth around $3 billion, according to The times, which was the first to report the news. Even more unusually, the transfer of ownership was not organized for tax efficiency (often companies or individuals will receive significant tax benefits from external altruistic initiatives). The restructuring will actually cost the Chouinard family about $17.5 million in taxes, The times reported.

Coming up with a structure that would both protect Patagonia’s current operating model and guarantee ongoing funding for environmental causes took two years, Patagonia CEO Ryan Gellert said in a statement.

Whether this new structure can inspire wider change remains to be seen. “This isn’t ‘woke’ capitalism. It’s the future of business,” Patagonia CEO Charles Conn wrote in Forbes.

It certainly offers a new template that could have previously been unimaginable to many in the business world. Chouinard has form in turning radical actions into established models; Patagonia’s practice of donating one percent of sales each year is now formalized in the 1% for the Planet movement and has nearly 5,000 business participants.

But companies that are publicly owned or lack shareholders with the same values ​​as the Chouinard family are unlikely to be able to follow Patagonia’s radical restructuring – the approach is unique and not easily replicable for conventional businesses.

Patagonia must also prove that this new model can deliver a balance between profit and purpose – and grapple with the tension that still exists between the sales that fuel its profits and their contribution to the very problem it fights to solve.

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