Ikea has long wowed us with their surprising low cost, visually appealing, and seemingly high quality furniture since its inception in 1926. With a lean value chain and mission to ‘create a better everyday life for the many people’, Ikea has proven its ability to adapt and create, no matter the decade, solidifying their place as leaders in the furniture industry. This shouldn’t come as a surprise, however, given you know the history of their owner, Ingvar Kamprad. Just read this excerpt about him as a child from Ikea’s historical timeline:
‘At the age of five Ingvar Kamprad starts selling matches to his nearby neighbors and by the time he is seven, he starts selling further afield, using his bicycle. He finds that he can buy matches in bulk cheaply in Stockholm and re-sell them individually at a very low price but still make a good profit. From matches he expands to selling flower seeds, greeting cards, Christmas tree decorations, and later pencils and ball-point pens.’
With an entrepreneurial spirit as strong and innate as that, a bright economical future was already in sight for Ingvar heading out of his diaper days.
Today, Ikea continues to grow as it expands throughout Asia and Russia, and with increased focus on sustainability too, or so it seems.
In its ‘People & Planet’ sustainability strategy for 2020, Ikea states:
‘A sustainable world that provides a great quality of life for many people, respects human rights and protects the environment is possible. We can provide economic opportunities and empower people so they are able to better provide for themselves and their families. We can utilize the massive potential of renewable energy; we can develop exciting new products and services that help people live a more sustainable life at home; we can transform waste into resources; and protect our forests, farmlands, seas and rivers for future generations. We can help lift people out of poverty by providing good places to work throughout our value chain and contribute to creating a fairer and more equal society for the many people. IKEA can be a small, but significant, force in helping to create this more sustainable world.’
To accomplish these goals, Ikea claims to be doing the following:
- Launched the IWAY (Sustainability, Environmental, Economic, and Social Well-being) code of conduct for its suppliers in 2000,
- Installed 550,000 solar panels on 100 stores in nine countries and utilized energy from 96 wind turbines effectively producing renewable energy equivalent to one third of its total energy consumption,
- Banned PVC from its products, lead in its mirrors, and optical brighteners in its textiles,
- Reduced the use of formaldehyde from lacquers and glues,
- Apply a waste to resource model, with less than 15% of the waste generated in its stores now going to landfills,
- Buy Forest Stewardship Council-certified wood and source two thirds of their cotton from sustainable sources (are members of the Forest Stewardship Council and the Better Cotton Initiative),
- Transform would be waste into new boards for wardrobes or bookshelves.
That’s not all. In its strategy moving forward, Ikea puts forth its commitment to increase the percentage of sustainably sourced materials that they use, attain an energy independent supply chain and increase energy efficiency in its operations, and develop a reverse material flow for waste materials to close the loop on key product components. Ikea is also developing a few programs – ‘circular store’, ‘reverse vending machine’, and ‘second life for furniture’– where customers can either resell their used Ikea furniture, recycle it, or even repair it.
On the surface, Ikea appears to be doing a lot. But it’s not all roses for the world’s largest furniture retailer.
Mosaic of Ikea founder Ingvar Kamprad by Tord Sollie.
Low Price Comes at a High Cost
Ikea has an obsession with low prices, consistently seeking to be the lowest priced furniture retailer on the market and oftentimes putting pressure on its suppliers around the world to keep costs down.
And while Ikea puts in evidence its commitment to preventing both child and forced labor, the immense amounts of pressure it applies on suppliers forces their hand to engage in illicit business activity.
In 2012, the Independent reported that Ikea was found to have ‘been aware of the potential use of forced labor by its suppliers in the former Communist East Germany in 1978, and its continued sourcing of furniture from the German Democratic Republic until the fall of the Berlin Wall’.
Additionally, as a consequence to maintaining a frugal approach, Ikea has cut corners and overlooked areas in its supply chain, leading to even more scandals over the years.
In 2013, Ikea withdrew meatballs from a batch of stores after tests conducted by the Czech authorities revealed traces of horsemeat in its Kötbullar line. Later that year, Ikea faced another food scandal, as the company promptly withdrew its chocolate almond cake from stores in 23 countries after it was found to contain sewage bacteria. From what appeared to be a stern commitment to “serving and selling high quality food that is safe, healthy and produced with care for the environment and the people who produce it”, Ikea’s actions are contradictory to that.
Ikea’s Non-Profit Status
Yes, you read it right – Ikea is a non-profit organization. It’s insane to think about that considering Ikea rakes in billions in revenue annually, 35.1 billion in 2016 alone. To understand how Ikea has first off attained and secondly kept this disproportionate status, we have to look at the man himself, Ingvar Kamprad. After all, the apple doesn’t fall far from the tree.
Despite being one of the wealthiest people in the world with an estimated net worth of 43.2 billion euros as of 2013, Ikea founder Ingvar Kamprad might be the most frugal of his kind. In 1973, when Ikea was an empire on the rise, Ingvar fled his homeland of Sweden and moved to Switzerland to avoid paying taxes and continue building the Ikea brand. He spent 40 years in Switzerland until finally moving back to his homeland, which at that point had a much lower tax rate and reform than in the 1970s, no doubtedly serving as one of the cornerstones for his return.
As his company, Ikea is no different. The organization itself was accused of avoiding up to 1 billion euros in taxes between 2009 and 2014 by transferring profits between various Ikea owned entities, which reduced its overall tax payments.
Fortune.com reports that “Ikea would do so by paying royalties, interest, or other charges to its own subsidiaries and sister companies, for example, Ikea in high-tax areas would pay a 3% royalty fee to a sister company, Inter Ikea Group in the Netherlands — which has no taxation, the report claims. In doing so, Ikea would pay taxes on just 35% (for Belgium) to 64% (for France) of its actual profits.”
To understand Ikea’s complex grid of holding companies, Fastcodesign.com has graciously made a short video (seen below) which lays it all out. If you’d prefer to read it with your own eyes, however, here’s their summary:
- Ikea Group operates 290 stores across the world.
- Ikea Group is owned by Ingka Holding. (So far, that’s a pretty typical company/parent-company arrangement.)
- But Ingka Holding is owned by the nonprofit Stichting Ingka Foundation.
- The Stichting Ingka Foundation is estimated by The Economist to be even larger than the Gates Foundation, which has $37 billion in its coffers. (The Economist estimated the Ingka Foundation at $36 billion in 2005, but that figure has probably grown.)
- Money isn’t trapped inside Ikea’s foundation. The Ikea trademark and concept is owned by another private company, Inter Ikea Systems. So just to operate Ikea stores and use the brand name, the nonprofit has to pay each year–payments that, while obscured by corporate structure, most likely make their way back to Ikea founder Ingvar Kamprad and his family.
How much wood can a woodchuck chuck?
Although Ikea appears to be making an effort to source its raw materials from sustainable sources, there’s no doubt that it consumes a hefty amount of materials each year. Particularly wood, where Ikea sat upon the mountaintop as the number one consumer of wood in the world, using a shocking 1% of the world’s wood in 2013.
To its credit, however, in its ‘People & Planet’ strategy Ikea has pledged to grow at least as much wood as it uses by 2020 in addition to increasing the amount of certified sustainable wood it uses by 2017.
While a step in the right direction, we shouldn’t forget that in 2012, despite it’s so called commitment to sourcing certified wood, it was discovered that the Swedish furniture retailer was using large amounts of wood that was obtained by clear-cutting old growth trees in Karlia, Russia, an area that is already battling a shortage of old growth forests.
Following this incident, Ikea was briefly suspended by the Forest Stewardship Council.
But is it wood, really?
While Ikea consumes 1% of the world’s wood, how much of that is in the furniture itself?
‘Ikea wood’ consists of a squishy center composed of glue and wood fibers plated with either a hard sheet of plasticified wood or a thin layer of wood itself.
This also helps to keep prices low, but at nature’s expense, as the use of glue makes the ‘wood’ itself neither compostable nor recyclable.
I’d define corporate sustainability as the balance between economic, social and environmental prosperity through organizational leadership, transparency, and commitment to earning responsible revenue, benefiting communities, and eliminating the environmental effects of business operations throughout the entire product life cycle, from inception to disposal.
Ikea has failed in many ways according to this definition. As one of the largest companies in the world, Ikea has a responsibility and an obligation to do the right thing in all facets of business – economic, social and environmental. On an economic level, Ikea avoids paying its share of taxes. On a social level, although creating many jobs, Ikea puts immense pressure on its suppliers and has been a part of many bizarre scandals because of it. This is downright deceiving behavior that really sheds light on Ikea’s unhealthy obsession with low prices. And on an environmental level, Ikea participates in deforestation, using an exuberant amount of wood and other materials, many of which aren’t sustainably sourced, unlike its claims.
Mistakes are made, and I get that. But for a company that has and continues to be in the negative spotlight as much as Ikea has over the years, it’s very difficult to give them a good sustainability rating, especially because the bigger the picture becomes, the more we understand that Ikea is in fact greenwashing, hiding behind their environmental and social initiatives and apocryphal mission to ‘create a better everyday life for the many people’. It’s ‘less bad’ behavior that shouldn’t be rewarded.
My final take on Ikea is that they will most likely never be truly sustainable, and that’s mainly due to the fact that their business model is predicated on a philosophy of, and obsession with, low cost not the right cost.
That being said, I’m placing them on the positive side of ‘pitifully sustainable’ because they are nevertheless seeking to make bigger impacts on an environmental and social level in the coming years, so they say. Let’s keep an eye on the developments and hold Ikea accountable should they falter, as they’ve proven in the past.
Until next time, The Sustainable Guy out.