AMDP Final

 TO: Clark Hansen, CEO, AMDP

FROM: Pedro Reyes, Research and Development Analyst

DATE: September 30th, 2020

SUBJECT: Proposal to Invest in Ikea

 

As a Research and Development Analyst, my responsibility is to identify and research possible investment and funding opportunities for AMDP. Our company prioritizes investing in companies that are socially responsible, environmentally sustainable, and profitable. I highly recommend AMDP invests in IKEA. Ikea is a Swedish furniture retail company that designs and sells furniture, kitchen appliances, and home accessories.

 

 

AMDP INVESTMENT STANDARDS

 

Before going into detail about the company, I think it is important to first reemphasize our investment standards.

 

Triple Bottom Line

A belief that companies should commit to focusing as much on social and environmental issues as they do with profits. Instead of one bottom line, there should be three: profit, people, and the planet (Kenton).

 

·  Profit: Measures how companies can look at their profits and stimulate economic growth to help the broader community.

·  People: Measures businesses’ impact on people everywhere. Has a responsibility not only to shareholders, but as well as employees, vendors, and customers.

·  Planet: Measures how environmentally responsible a company has been.

 

Corporate Social Responsibility

This is a type of business self-regulation with the objective of being socially accountable. Companies are more conscious of the impact they can have on the public, the economy, and the environment (Schooley).

 

Social Enterprise

A business that has specific social objectives to serve a primary purpose. Social enterprises usually look to maximize profits to fund social programs and benefit society (Barone).

 

Carbon Footprint

This is the total amount of greenhouse gas emissions that are released into the air through the production and usage of a product/service. It includes carbon dioxide, methane, and other gases that trap heat in the atmosphere, leading to global warming. Reducing carbon footprint can save our planet from global warming and prevent premature deaths from happening (Albeck-Ripka).

 

 

ABOUT IKEA

 

From being a tiny Swedish business in 1943, IKEA has grown to become of the world’s most successful furnishing brands. Ingvar Kamprad, founder of IKEA, first started the business as a mail-order catalog when he was 17. His business model was simple: to sell low-priced, simple products for the masses. In 1958, the first IKEA store opened in Sweden. The first stores outside of Sweden opened in Norway in 1963 and soon expanded across Europe. There are hundreds of IKEA stores all across the globe that sell home accessories and interior design items. There are currently 433 IKEA stores in 53 countries. The company has gained its reputation for its modern designs, eco-friendly products, and low prices.

 

 

FINANCIAL TRACK RECORD

 

In 2019, IKEA had global retail sales of $45.5 billion. This ranks at the top of other furnishing retailers. 2019 saw a 6.5% increase in sales from the year prior. The company sold more than 2000 new products. In this same year, 12 new IKEA stores opened around the world. The company estimated they had about 1 billion visitors throughout the year. Around 2.8 billion people visited their website and the company saw their e-commerce sales grow by 43%. The company is planning to continue opening new stores in countries like Puerto Rico, Chile, and Mexico (IKEA Continues..).

 

The company has made investments in helping improve its digital presence with customers and spending on renewable energy. These investments have decreased IKEA’s profits for the short term but still managed to earn a profit of $2.5 billion in 2018. The company is making this business decision to finance its business transformation in order to become more sustainable and innovative. Despite the decline in profit, sales are still expected to increase. IKEA has implemented a successful business model where the company can continue to produce sustainable and good quality products at low prices (Clifford).

GOING GREEN

Throughout the last couple of years and even recently, IKEA has taken initiatives to go green and make eco-friendly business decisions. The company has taken steps to transform its business to become more climate positive and have a positive social impact. Some examples include the company starting to use more renewable and recycled materials and eliminating waste from its operations.

At the end of 2019, IKEA announced it would be spending $220 million on green energy, reforestation, and forest protection projects. This is an aim to become more climate positive and to build a sustainability strategy within their business model. By 2030, the business wants to remove more greenhouses gases from the atmosphere than it produces to help in the fight against climate change. Coincidentally enough, this matches one of AMDP’s biggest investment standards: carbon footprint. IKEA is taking steps in helping reduce carbon footprints within its productions of goods. The company will be working with suppliers to help ensure the usage of 100% renewable energy through its supply chain. The company will invest in projects aimed at removing carbon through reforestation and responsible forest management (Cuff).

 

By 2030, IKEA wants to use only renewable and recycled materials within their products. At the moment, 60% of IKEA’s products are renewable while 10% contain recycled material. This is another approach the company is taking to reduce climate change. It is evident that the company is taking steps in making its operations and products more environmentally sustainable (Ringstrom). The company is going all-in having a positive impact on the climate through renewable energy investment, energy-efficiency measures, cutting supply chain emissions, and making product changes. It operates about 314 wind turbines and has installed 700,000 solar panels throughout its stores.

Another initiative IKEA has taken up is removing all non-rechargeable alkaline batteries from its stores by the end of 2021. This is another attempt to reduce energy consumption and environmental waste throughout the company. Studies show that alkaline batteries have a big impact on the environment. IKEA Sustainability Development Manager Caroline Reid said this move is to afford customers an “affordable and convenient solution to prolong the life of products and materials and reduce waste”. The company believes moving to rechargeable batteries could see global waste reduced by as much as 500 tons (Hodge).

 

 

EXPERT OPINION

 

Mark Griffiths is the global leader of the Climate Business Hub at the Worldwide Fund for Nature and has taken notice of IKEA’s actions. Griffiths has said that IKEA can “have an impact on its own because of its size” and that similar companies should follow suit. He has looked over and reviewed the company’s plan on changing how it uses energy with factories and the types of products they make. He has said that their plan and timing are very “aggressive”. The company is making major efforts to have an impact on climate change and wants the impact to be felt immediately (Peters).

Globescan, an opinion research consultancy, conducted a survey and found IKEA as one of the top companies for their sustainability and leadership. The survey was based off global expert opinions on the sustainability of companies and their ability to innovate new business models for the future. The opinions came from over 700 experts across 71 countries. Having IKEA include sustainability as part of their core business model and setting ambitious goals in fighting global warming has made the business stand out. These experts remain impressed by seeing the company combat climate change and seeing its leadership take steps in changing the way they conduct their business to become more sustainable.

 

 

IKEA A SMART INVESTMENT

 

It is evident that IKEA has invested a lot of money and has changed parts of its business model to focus on sustainability and becoming more climate positive. IKEA has shifted to greener initiatives while continuing to provide low price products for consumers. All these examples go hand in hand with AMDP’s investment standards. This is would be the perfect company to invest in.

 

 

 

Works Cited

Albeck-Ripka, Livia. “How to Reduce Your Carbon Footprint.” The New York Times, The New York Times, www.nytimes.com/guides/year-of-living-better/how-to-reduce-your-carbon-footprint. 

Barone, Adam. “The Aims of Social Enterprises.” Investopedia, Investopedia, 29 Aug. 2020, www.investopedia.com/terms/s/social-enterprise.asp. 

Clifford, Catherine. “Meatballs and DIY Bookcases: The Psychology behind Ikea's Iconic Success.” CNBC, CNBC, 5 Oct. 2019, www.cnbc.com/2019/10/05/psychology-behind-ikeas-huge-success.html. 

Cuff, Madeleine. “IKEA to Invest $220 Million into Becoming 'Climate Positive'.” Greenbiz, 2 Dec. 2019, www.greenbiz.com/article/ikea-invest-220-million-becoming-climate-positive. 

Hodge, Rae. “Ikea Is Saying Goodbye to Non-Rechargeable Batteries.” CNET, CNET, 30 Sept. 2020, www.cnet.com/news/ikea-is-saying-goodbye-to-non-rechargeable-batteries/. 

IKEA Continues to Grow While Developing for the Future. 25 Sept. 2019, newsroom.inter.ikea.com/news/ikea-continues-to-grow-while-developing-for-the-future/s/2621831f-91ed-45ac-b31e-86f5854d3dc0. 

Kenton, Will. Triple Bottom Line (TBL) Definition. 16 Sept. 2020, www.investopedia.com/terms/t/triple-bottom-line.asp. 

Peters, Adele. “How Ikea Plans to Be Climate Positive by 2030.” Fast Company, Fast Company, 8 Jan. 2020, www.fastcompany.com/90448729/how-ikea-plans-to-be-climate-positive-by-2030. 

Ringstrom, Anna. “IKEA to Use Only Renewable and Recycled Materials by 2030.” Reuters, Thomson Reuters, 7 June 2018, www.reuters.com/article/us-ikea-sustainability/ikea-to-use-only-renewable-and-recycled-materials-by-2030-idUSKCN1J31CD. 

Schooley, Skye. “Corporate Social Responsibility.” Business News Daily, 26 June 2020, www.businessnewsdaily.com/4679-corporate-social-responsibility.html. 

“2020 Sustainability Leaders Survey Results: GlobeScan Report.” GlobeScan, 10 Sept. 2020, globescan.com/unilever-patagonia-ikea-interface-top-sustainability-leaders-2020/.