Andrea Illy – Sustainability? A balanced blend of awareness and responsibility

A FT-MBA / Ethica Club meeting

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The world in a cup of coffee. Not an advertising claim, but a different perspective for framing the major issues that affect our planet, society and economy. The coffee industry – one of the most widely consumed products, whose value chain can have enormous impacts, positive or negative, on the environment and on the lives of the people involved in it – becomes a paradigm for tackling the mother of all emerging issues, sustainability. And it becomes such a paradigm especially when it is Andrea Illy talking about it. He is the President of illycaffè, a company that has long made sustainability a key value in their mission and operating strategy.

Illy answered the questions of SDA Bocconi’s Full-Time MBA students during a meeting organized by the Ethica Club. MBA director Stefano Pogutz was also present. It was an excellent opportunity to understand how a mass-market product can be seen almost as a luxury brand – but we will see the specific meaning Illy gives this term – ceasing to be a commodity, also thanks to a constant focus on sustainability in all links of the value chain.

A sector that has always been globalized. “The coffee industry is structurally international because production is concentrated in specific areas of the planet and consumers are literally all over the world,” Illy recalled when answering a question about the main challenges of sustainability. “Illycaffè was created to offer high-quality coffee, in Italy and around the world, and today the concept of quality cannot exist without that of sustainability.”

Until a few years ago, the coffee industry was growing on a paradox, he continued: in consumer countries, coffee was associated with well-being and social and economic success, while in producer countries it created a subsistence economy. Value multiplied enormously along the supply chain and only a fraction of this returned to producers. With a climate crisis that brought producers to their knees and caused the price of coffee to skyrocket, the year 1994 was a turning point for Illy. They began their sustainability program based on direct sourcing and support for producers, with specific projects in their territories. Over time, end consumers have come to acknowledge this extra value and are now willing to pay for it.

What follows is that, in order to have a future, sustainability must also be financial sustainability for the entire production chain, starting with the farmers.

There is another paradox in the agro-food industry. Along with livestock farming, agriculture in general is one of the sectors that have the biggest impact in terms of climate change, causing 23% of overall greenhouse gas emissions. But it is also among those that suffer the most from the consequences of this change. Huge quantities can be produced with today’s farming techniques, but at what cost to the environment? Conventional intensive agriculture consumes huge amounts of water and involves the massive use of chemical pesticides. In addition, ever-expanding monoculture depletes the soil.

Driven by increasing market demand – Illy recalled – the transition towards integrated or organic farming is and will increasingly be the prevailing phenomenon in this sector. Alongside a reduction in animal protein consumption and a different organization of supply chains and distribution (just think that 30% of produced food is wasted).

I believe that the mother of all environmental issues is decarbonization,” the president continued. “Our goal is to become carbon free in every single step of our value chain (production, transportation, processing, packaging, distribution).” A groundbreaking process that requires the transition to a regenerative model: producing while preserving and regenerating the environment at the same time. And not only in farming but in all industrial sectors. Is this possible? Illy believes so, but also added, perhaps as a ‘deterrent’: “We should not forget that homo sapiens is 200,000 years old, but nature has been around for 4 billion years and knows how to regenerate even without us”.

But how can you ‘ground’ these values in a large company’s organization and strategies? It was the entrepreneur Illy who answered this question, by quoting Thomas Alva Edison: “Vision without execution is only a hallucination”. From this point of view, sustainability is neither an abstract ideal nor a sheer cost. And when the discussion came to include all the subjects that revolve around a company, Illy had no hesitation: “The opposition between shareholder economy and stakeholder economy does not make sense!” In other words, in a world that is now closely interconnected and inevitably ‘circular’, any strategy or action has a positive effect on shareholders only if it has a positive effect on all the other parties involved, from suppliers to customers, from employees to communities. Today, creating a sustainable business creates value, including financial value. “The point,” he concluded, “is not about understanding how much sustainability costs, rather how much value I am destroying when I am not sustainable. It is a concept that should be shared in companies, universities, etc.”

Illy is also an ambassador brand for Italian excellence. However, its president does not want to call it a luxury brand, “rather a brand of typically Italian high quality,” defined by its experiential and ‘aesthetic’ dimensions, the respect for Italian tradition and know-how. “We have the strength and the awareness of our roots, because no tree can grow strong without solid roots”. And the tree grows and looks to the future, a future made up of ongoing innovation – something that has characterized Illycaffè’s 90-year history, starting with its pressurized coffee packaging system of 1934.

Lastly, a word of advice to the MBA students: “Take risks, even in difficult times, and above all don’t just ask yourself what to do but also why am I doing it.” This is the prerequisite for any responsible and sustainable choice. In Illy’s case, to put ‘good’ coffee in the cup, in every sense of the word.

 

SDA Bocconi School of Management

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