Patagonia Is Going Big On Climate Change By Going Purpose

Yvon Chouinard’s decision to direct Patagonia’s profits toward environmental causes reflects a long-standing commitment to protect the planet while making money. This latest purpose-driven move could inspire a broad shift in how companies structure themselves in more planet-friendly ways for the common good as the climate crisis calls into question the current system of unbridled capitalism that has set the world on fire.

​​In 1953, Paul Newman was an up-and-coming actor who had served in World War II and studied at Yale Drama School and the Actors Studio in New York to hone his craft. That year, he would make his Broadway debut. The following year, he co-starred with Frank Sinatra and Eva Marie Saint in a live color TV broadcast and nearly won a part opposite James Dean in East of Eden

Meanwhile, across the country, a 14-year-old boy named Yvon Chouinard began climbing with the Southern California Falconry Club in 1953. A simple lesson in how to rappel down cliffs sparked a lifelong interest in rock climbing. Chouinard soon began to teach himself how to blacksmith, a skill he used to make his own climbers tools and sell tools to other climbers. 

In 1965, Chouinard went into business with a climbing partner to sell equipment that was stronger, lighter, simpler, and more functional than competing products. Chouinard Equipment soon became the largest climbing equipment supplier in the United States. However, its equipment was damaging rock faces, so the company became reviled as an environment villain.

This inspired a shift in business practices toward more environmentally friendly equipment that soon sold faster than it could be made. And it evolved into one of the world’s preeminent outdoor clothing brands: Patagonia.

Patagonia has long been associated with corporate social responsibility. But the climate crisis inspired the Chouinard family, which owns Patagonia, to take a page from Paul Newman’s philanthropy.

What Patagonia is doing:

 In 1982, Newman co-founded a food company called Newman’s Own. But rather than pocket the profits for himself, he opted to donate 100% of the company’s after-tax profits ($550 million since inception) to the Newman’s Own Foundation, a private nonprofit foundation which in turn supports various educational and other charitable organizations. 

After operating Patagonia as a for-profit business for half a century, the Chouinard family recently relinquished control of the $3 billion company. Voting shares (which only constitute about 2% of total shares) will go to the Patagonia Purpose Trust, while the remainder of the company will go to a new nonprofit group called Holdfast Collective that will assume all profits that are not reinvested in the business. 

Holdfast Collective, which the Chouinards elected to register as a 501c4 organization, will now have about $100 million in annual funding at its disposal to fight the climate crisis. In an open letter published on Patagonia’s website, Yvon Chouinard expressed the motivation behind his decision to, in his words, make Earth Patagonia’s only shareholder:

Instead of “going public,” you could say we’re “going purpose.” Instead of extracting value from nature and transforming it into wealth for investors, we’ll use the wealth Patagonia creates to protect the source of all wealth. If we have any hope of a thriving planet—much less a thriving business—50 years from now, it is going to take all of us doing what we can with the resources we have.

It may seem novel for control of a company to lie with a trust rather than a family and/or outside investors. But trust-controlled firms are nothing new and have been successful for a long time. Many large Scandinavian firms, from Ikea to Heineken, have done well for generations under a trust-controlled arrangement similar to Patagonia’s new model. A quarter of Denmark’s 100 largest companies are foundation-owned, making up half of Denmark’s total market capitalization. 

All annual earnings not reinvested in these companies are channeled to their respective foundations, whose independent boards ensure that the original founder's wishes are upheld. Research has shown that this business model is compatible with generating profits. In fact, foundation-owned firms are as profitable as an investor or family-owned firms. 

If Patagonia’s philanthropic contributions to date are any indication, the annual profits it will contribute to the climate crisis will certainly make waves. It remains to be seen how exactly that money will be spent, but $100 million a year can go a long way to protect the Planet. And one of the most insightful aspects of this move is that the more profitable Patagonia is, the more the firm will directly contribute to the climate crisis. The more ski jackets and beanies Patagonia customers buy, the more money Patagonia will invest in protecting the source of all of our wealth.

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This is an evolutionary move on Patagonia’s part, not a revolutionary one:

The Chouinard family didn’t suddenly become benevolent businesspeople. Their decision to permanently give up Patagonia’s profits is more of an evolutionary move than a revolutionary move when you consider their long history of environmental commitments. 

Since the mid-1980s, Patagonia has donated the greater of 1% of its profits or 10% of its sales to charitable causes. In 2002, Chouinard co-founded an initiative to inspire other businesses to do the same that now counts more than 5,000 companies as members.

Patagonia was also the first California-based company to be registered as a benefit corporation, which means the company is legally bound to create a “material positive impact on society and the environment.” Very few multinational companies as large as Patagonia are certified B-Corps.

And the main impetus for Patagonia’s founding set the stage for a generations-long commitment to sustainability. Yvon Chouinard made a name for himself in the climbing community by selling hard steel pitons. Climbers hammered Chouinard’s metal spikes into steep rock faces, then tapped them out and reused time and time again. Compared to previous metal spikes made out of soft irons that could only be used once or twice, Chouinard’s pitons were revolutionary.

But every time a climber hammered a piton into rock, it widened the crack slightly. Yvon Chouinard and his business partner realized that their way of making a living was destroying both the rocks and the sport they held so dear. So they decided to make an expensive business shift, replacing their highly regarded pitons with aluminum chocks that could be placed and removed without damaging the rock. Chocks were more popular in Europe but less familiar to American climbers. 

A catalog with a 14-page essay was released in June 1972 explaining why climbers should switch pitons to chocks and how climbers were to use chocks. At the time of the catalog’s release, 70% of Patagonia’s business was pitons. By March 1973, the business was 70% chocks.

As such, this latest move is not surprising. It reflects a company with a purpose as clear as the lakes and oceans around the world that it seeks to protect. The Chouinard family conveyed a profound sense of generosity in their irrevocable decision to give away Patagonia. There is perhaps no truer example of putting your money where your mouth is than building a multibillion-dollar business and then giving it away in perpetuity to save the Planet.

The Chouinards considered selling the company outright and donating the sale proceeds to climate-related causes, but they decided against that partly since they couldn’t be sure that Patagonia’s future owners would share their pro-environmental ideals.

The bigger consideration is what this will inspire beyond Patagonia. With this move, the Chouinards are setting an emphatic precedent. Business leaders - especially of earlier-stage companies - now have a template if they want to follow Patagonia’s example and execute a so-called “exit to community” rather than an IPO to public markets or an acquisition by outside investors. And the ripples of this decision could really extend across oceans if it inspires other big businesses to think differently about how they do business - more specifically, what their mission is and to whom their profits go.

In fact, Patagonia’s unconventional business tactics have already inspired larger, publicly traded companies. Danone is a Spanish-French publicly traded multinational food company that generates tens of billions of dollars in annual revenue. Danone’s former CEO, Emmanuel Faber, said that Patagonia’s Don’t Buy This Jacket ad placed in the New York Times on Black Friday in 2011 inspired him to make Danone a certified B Corp.

Billionaires shouldn’t hold this sway over our collective future:

This ties into a theme that Yvon Chouinard himself would likely note: the benevolence or lack thereof of billionaires like him should not have such grand influence in our ability to safeguard the environment. And a closer look at how the Chouinards structured Holdfast Collective complicates the rose-colored perception of this move.

Registering Holdfast Collective as a 501c4 organization allows the Chouinards to continue controlling Patagonia’s business and its future charitable contributions. The Internal Revenue considers 501c4 organizations like Holdfast to be tax-exempt social welfare organizations that are not required to disclosure their donors. They must only disclose money above $5,000 granted to other organizations. 501c4 organizations can engage in political lobbying and endorse candidates in line with their organizational mission.

In that respect, Holdfast Collective is structured similarly to other notable political spending groups like the National Rifle Association (NRA) that don’t exactly share Patagonia’s values. 501c4 organizations have funded anti-climate Facebook ads and often directly influence climate legislation. Holdfast will get to pick and choose how it spend its money, and if the track record of billionaires who claim to direct their fortunes to combat the climate crisis is any indication, Holdfast might not work quite so effectively. A healthy dose of skepticism is warranted in these situations, no matter how good-hearted you consider the main players. 

Benevolent billionaires like Chouinard might choose to contribute to the common good. For all we know, Holdfast might become one of the most impactful climate change organizations in the world. But for every pro-planet billionaire like Chouinard, there are many who either don’t share those ideals or prioritize their bank account rather than society at large.

When your bank account starts with a b, you have the financial sway of a government without the directive to help people.

Billionaire philanthropy often serves as moral justification for capitalism’s perpetuation of gross wealth inequality. Over the last few decades, rich people have amassed excessive economic and political power that they have wielded to act as society’s moral arbiters. When your bank account starts with a b, you have the financial sway of a government without the directive to help people. You can spend your money however you like with zero accountability or transparency. 

Particularly in an era dominated by species-level threats such as climate change (and pandemics), we cannot - and more importantly, should not - depend on the benevolence of rich people to ensure a livable future. Chouinard himself has said that he considers every billionaire to be a policy failure. As he sees it, any system that enables such unequal accumulation of wealth is failing its people. 

You can debate exactly how much personal wealth constitutes a policy failure. Perhaps you think it’s one billion dollars. Perhaps you think it’s a little less or a little more. But no matter where you stand on this issue, what’s hard to deny is that our current societal paradigm, in which the world’s ten richest men own six times as much wealth as 40% of humanity, is not working for the common good. A more equitable way of doing business will do good for all of Patagonia’s stakeholders, including its employees and customers. And it will help secure a livable future for all of us on what Yvon Chouinard rightfully considers the source of all wealth, the ultimate shareholder of every business: our Planet.

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Conclusion:

The climate crisis is about more than any one company or family. This is about a crisis that crosses borders, backgrounds, and bank accounts. It’s a systemic crisis that will affect every single human being alive for generations to come.The climate crisis is about more than any one company or family. This is about a crisis that crosses borders, backgrounds, and bank accounts. It’s a systemic crisis that will affect every single human being alive for generations to come.In 1970, a famous economist named Milton Friedman wrote an article in the New York Times whose headline summarized Friedman’s key point: “The Social Responsibility Of Business Is to Increase Its Profits.” Friedman and his article compelled companies to prioritize shareholder wealth above all else under the assumption that what’s good for shareholders is also good for society.

The last half century has proven that maxim decisively wrong. Yvon Chouinard founded Patagonia only a few years after Milton Friedman’s article, but throughout Chouinard’s time running Patagonia, he has operated completely contrary to the shareholder-centric view championed by Friedman and many other business leaders. 

In some sense, his decision to surrender Patagonia’s profits in perpetuity to fight the climate crisis is a continuation of that consistent philosophy. But the ~$100 million of annual non-reinvested profits that Patagonia will now contribute to environmental advocacy is likely not the most impactful aspect of this decision. 

The climate crisis is about more than any one company or family. This is about a crisis that crosses borders, backgrounds, and bank accounts. It’s a systemic crisis that will affect every single human being alive for generations to come. And it requires a full-throated collective response that entails much more than empty declarations about “impact” and vague, insufficient policies enacted under the guise of “corporate social responsibility.” 

Businesses, big and small, must recognize that the time has come to rethink how they do business. They must reorient their organizations in a more planet-friendly direction and forcefully advocate for change within and beyond their industries. The best businesses should seek to be good stewards for their own sakes; sustainability is how you build resilient organizations that do right by all stakeholders, not just the wealthy and powerful ones. And businesses must push governments and citizens to hold them accountable and develop both formal and informal ways of ensuring that the global economy helps rather than hurts both people and the Planet.

The climate crisis is about more than any one company or family. This is about a crisis that crosses borders, backgrounds, and bank accounts. It’s a systemic crisis that will affect every single human being alive for generations to come.

The Chouinards have known this for a long time. Much of the rest of the world needs to learn this lesson as well. You might see Patagonia’s commitment as the ultimate example of corporate innovation: instead of innovating a new product or service, Patagonia is innovating a nearly unprecedented form of corporate governance and ownership that might push ideas that have often been considered radical into the mainstream for our collective benefit. 

In a statement released shortly after Patagonia’s decision was announced, its board chair wrote the following: 

“The current system of capitalism has made its gains at an enormous cost, including increasing inequality and widescale uncompensated environmental damage. The world is literally on fire. Companies that create the next model of capitalism through deep commitment to purpose will attract more investment, better employees, and deeper customer loyalty. They are the future of business if we want to build a better world.”

The impact of this decision will be felt in boardrooms and classrooms around the world as today’s leaders reshape how business is done and tomorrow’s leaders are taught and shown how to do right by the source of all wealth: planet Earth. 

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Business Takeaways:
  1. Since the mid-1980s, Patagonia has donated the greater of 1% of its profits or 10% of its sales to charitable causes. In 2002, Chouinard co-founded 1% for the Planet, an initiative to inspire other businesses to do the same.
  2. Registering Holdfast Collective as a 501c4 organization allows the Chouinards to continue controlling Patagonia’s business and its future charitable contributions. 501c4 organizations can engage in political lobbying and endorse candidates in line with their organizational mission.
  3. Businesses, big and small, must recognize that the time has come to rethink how they do business. They must reorient their organizations in a more planet-friendly direction and forcefully advocate for change within and beyond their industries.
  4. The roughly $100 million of annual non-reinvested profits that Patagonia will now contribute to environmental advocacy is likely not the most impactful aspect of this decision. The impact of this decision will be felt in boardrooms and classrooms around the world as today’s leaders reshape how business is done and tomorrow’s leaders are taught and shown how to do right by the source of all wealth: planet Earth.