Resources

• EU Right to Repair Directive
• We Mean Business SME Climate Hub
• Global Circularity Protocol (GCP) | WBCSD
• IWAY: the code of conduct for IKEA suppliers – IKEA Global
• IKEA Buy back & resell — Sustainable furniture - IKEA
• IKEA Becomes First Global Company to Halve Food Waste | World Resources Institute
• The new BILLY bookcase: a beloved friend reborn – IKEA Global
• How a new bio-based glue can help IKEA reduce the climate footprint - IKEA Global
• Ikea launches secondhand marketplace to compete with eBay
• Ingka Group’s EUR 7.5 billion commitment to support the transition to a renewable future | Ingka Group
• Ingka Group aims to invest EUR 1 billion to increase recycling infrastructure | Ingka Group
• RetourMatras Mattress Recycling
• Transitioning towards a circular business – IKEA Global
• IKEA Sustainability Strategy – People & Planet Positive

Host and Guest

Host: Mike Toffel, Professor, Harvard Business School (LinkedIn)

Guest: Karen Pflug, Chief Sustainability Officer, Ingka Group (LinkedIn)

Transcript

Editor's Note: The following was prepared by a machine algorithm, and may not perfectly reflect the audio file of the interview.

Mike Toffel:

Karen, thank you so much for joining us here on Climate Rising.

Karen Pflug:

Thank you for having me, looking forward to the conversation.

Mike Toffel:

Great. Well, Karen, we've invited you to talk about IKEA's circular economy strategy and tactics and implementation. And I'm excited to have that conversation. But first, let's just do a little background so that our listeners know who we're speaking with. So, can you tell us a little bit about how you got to be in your current role, a little bit about your background, and what your current role is?

Karen Pflug:

Yeah, thank you. Yeah, my background is design, textile design originally. Way back when I was at university, I studied eco textiles in home furnishing solutions in Manchester in the UK. Never realized that many years later I would end up working in sustainability at IKEA.

So, I had many roles in many different, often very large multinational brands. I always brought that work and passion from sustainability into my work, working on the first recycled textiles in sportswear with Nike, for example, also in the Adidas group, working on that too. So, a big focus on sports and apparel for a while.

And then in the last 11 years, I've been at IKEA, started in the IKEA of Sweden design center at the heart of where everything's created for the range. And I was driving the quality agenda there. So, bring together all those ideas around what we want to do about improving product quality, but also quality of the whole experience for our customers, both in store and online.

And now for the last three years I have been CSO of Ingka Group, which is IKEA's largest retailer. So, we're set up as a franchisee franchise source system and Ingka Group is around 90 % of the sales with around 400 stores in 31 countries. We work very closely with the franchise store, which is where I used to work on the design.

Mike Toffel:

Got it. Great. Let's dive in a little deeper into the difference between Ingka Group and IKEA. Because you work for Ingka Group, and as you said, you used to work for IKEA. So Ingka Group, as you mentioned, covers 90 % of the retail, which means you operate the stores and make decisions about not only the layout of the stores, but presumably also which products you're going to put in those stores. And okay, so then what does IKEA do?

Karen Pflug:

Well, I mean, we are IKEA in the market. So, let's make that clear. So, for the everyday customer, if you go in a store in Hong Kong, Sweden, Japan, the US, UK, wherever, it should all look the same. One common vision, one way of facing the customer. So, in the markets where we operate, which is most of the markets, we are IKEA. Our country managers are IKEA country managers.

And then Inter IKEA, the name of the franchise or is where the design development and the supply chain work happen. But we work very closely together. And as you've already touched on, it is us that face the customer. So, we listen to their hopes, needs, dreams and desires, and we know what sells well and so on. And we see where we need local relevant versus the global range. And we can also sales-steer and help communicate with the customers in a way that nudges them more towards sustainable living and so on. So, the role of education when we are the size and scale of us is super important. But we work extremely closely with our counterparts in Inter IKEA. It should be seamless for everybody, both internally and how it's perceived externally.

Mike Toffel:

Got it. OK, great. So, you talked about the design group that you used to work with at IKEA. And where's the manufacturing? When I did a case study many years ago on IKEA and their sustainability efforts, the time, IKEA itself was vertically integrated into some production of some furniture. And of course, lots of other things were procured from global vendors around the world. Is that still how it operates?

Karen Pflug:

Yes. It's very similar to when you did the case study. So, we have suppliers ourselves within the company that we own called IKEA Industry , and they have factories around the world and then we also have suppliers and then I would say so external suppliers.

And what I would say there is as well, which is a big source of pride for me, wearing both hats, both sustainability and quality in the roles that I've had, is that we have strong and long partnerships with our suppliers, often going back decades, 30, 40 years, suppliers for the Billy Bookcase, for example. And we have what we call the IKEA way or IWay, where it's quite hard work to become an IKEA supplier.

So, you must have a good integrity, environment, we really look at all of that, of course, making sure with waste treatment plants and pollution and everything like that. And a big part about how we treat, how coworkers are treated in the supply chain, is extremely important to us. So, we've had IWAY for 25 years now, and that's our own due diligence where we do a lot of both planned and unplanned audits and so on. So yeah, the suppliers are often partners that feel like family because we've had them for so many years.

Mike Toffel:

Right, super interesting. So, we're getting toward the circular economy questions that are the main course of today's conversation. But before we jump into that, can you just provide a little bit of context on the sustainability strategy overall and how the circularity fits within that? And then we'll dive deeper into the circularity stories.

Karen Pflug:

Yes, I think one thing to think about as well, we're an 80-year-old company. From the start, it was founded in Sweden, which most people know, by Ingvar Kamprad, who was a true entrepreneur; he founded it at 17. And right throughout his life, he had a big focus on being resource smart. He grew up in an area of Sweden that's very poor, the land isn't very good for growing much at all. And so, it's all about working together and making do with small means.

And those things are at the heart of our values still today, 80 years later. And as part of that, he wrote the Testament of a furniture dealer back in the 1970s, where he spoke about waste being a sin and about being resource smart. The creation of flat pack furniture back then was done to save cost and reduce resources. But when you look at it through the eyes of now and sustainability, it's also, you know, lower CO2 emissions. So, it's much better for the environment to not ship air as we like to say, so shipping flat pack.

Then we had an environmental policy from the 90s onwards and then when you did your case study our People and Planet Positive Strategy which was founded in 2012 and then we continuously update that and evolve that and then it has the pillars around climate, nature is a new addition but climate and circular it was before and now we much more focus on nature as the world is also learning more about what we need to do to protect nature.

We have what we call fair and equal, which is really our human rights agenda and making sure that we're really focused on social entrepreneurship, social impact, how we treat coworkers in the supply chain, as I mentioned before, and how we treat our own coworkers as well. And then we have an area that we call healthy and sustainable living. And that's about us helping to educate, inform, guide and nudge customers to do what it says on the tin, live healthier and sustainably.

And the important thing there is about making sure it's affordable as well. Our vision is to create a better everyday life for the many people. And we do that by making sure we offer affordable, sustainable solutions. And one big chunk of those solutions is, of course, circular. So, then it fits under climate, but it impacts everything we're doing. You know, it offers affordability, it offers accessibility to our customers as well.

Mike Toffel:

Yeah, one of the things that I think really distinguishes IKEA from other brands that have made similar emphasis on sustainability as being core to their values and trying to make it core to everything they do, is that many of those other brands are premium brands in the sense of premium prices. And so, to the extent that some of these things are costly, if they're selling more luxury pricing, it makes sense that they could have the cash to put toward it.

And one of the things that's always been a little puzzling, I think, to many outsiders is how IKEA is able to really deliver on some of these commitments while at the same time keeping their prices so low.

Karen Pflug:

Yes, there's a long answer and a short answer. One thing is we have a unique business model set up. So, you we don't have shareholders breathing down our necks wanting quarterly returns or whatever. So, we're set up as a foundation and around 85 % of the money we make is reinvested back in business to make ourselves more accessible, affordable and sustainable, and reach more of the many people around the world.

And the other 15 % goes to the foundation, the Ingka Foundation, which then funds the IKEA Foundation, which is our philanthropic arm. So, we are set up in a very unique way, certainly compared to any other company I've worked for. And when I talk to fellow CSOs, that does give us a real advantage where we can think long term, we can think in generations, we always say we make money before we spend it and that helps us guide our decisions.

Then we have it built into our core values, as I said, caring for people and planets in our core values, along with giving and taking responsibility and togetherness. And then this is where using our size and scale as a force for good comes in. Those partnerships with industry leaders, with suppliers, driving change and making those choices.

And yes, sometimes to start with, like any new investment or new innovation, it can be more expensive. But then when we know longer term that the prices are going to come down. We didn't invent LED bulbs, but we made them affordable for the many. You then save energy bills on a weekly, monthly, and yearly basis for customers. We decided to stop selling single use batteries and only sell rechargeable batteries. Now we've brought in plant-based alternatives to the famous meatball, and we've made it a lower price than the meat-based option.

So, everything we do is about how do we side with the many? The world will only be sustainable if everybody can afford to be sustainable. So that really drives us. And I've had conversations with fellow companies where they have made their choice as you've been onto, not even premium brands, but other brands who said that we will charge more for the sustainable options because we can, because people are willing to pay.

But our research shows when we've done surveys of 1000 customers around all our markets, it's only 6 % are willing to pay extra. And we agree with them. We don't think you should pay extra.

Mike Toffel:

Right, interesting. It's very interesting that you charge less. That makes sense.

Okay, great. So, let's dive into the circular economy element of this broader sustainability plan. And on your sustainability reports, on your websites, there's lots of information using the familiar Rs, the reduce, reuse, recycle. But the way it seems to me, like in the circular economy space, maybe an easier framing for us to have this conversation is that you're taking steps to prolong the lifespan of your products on the one hand, and then when those products do reach their end of life, you're taking steps to try and keep the materials out of landfills and out of incinerators.

So first, is that a reasonable way to see the world that IKEA's engaging in with circular economy?

Karen Pflug:

Yes, yeah definitely for us it is about how long we can keep you know the whole waste hierarchy system. The higher the value the better for everybody. So how long can we make sure that we keep products in use. Nothing gives me more pleasure than products being around for years and years, hopefully decades and having second third lives, and a lot of the design focus at Inter IKEA is towards that as well.

So that is a huge focus. And then when it finally does reach end of life, how we recycle it, a lot of the work that we can then do in Ingka group with retail. So, some of it's what we do with our customers. Some of it's what we do in our own operations. And, then we must have an investment arm as well.

So, with customers, we have buybacks, so keeping the product in use for longer. I think we started it in 2019 as an alternative to Black Friday. We said, okay, around that holiday period, let's say we'll buy your old product back, we'll resell it at a lower price, affordable for people around the world in what we call our as-is areas or our circular hub areas that are in practically every store just near the cash line on your way out. So, we started that just as a campaign and now it's permanent that people can bring their products back. We've also switched to it in many of our markets online as well. So, you can get an approximate value for your item before you come in.

We've shipped out just last financial year around 24 million of those spare parts for free for customers. So that they can rebuild when they've had to disassemble and reassemble their products.

A lot of people know us about our furniture of course but we have nearly 700 million meals served in our restaurants each year so we've managed to reduce our food waste, we've halved it.

We were the first global company recognized by the World Resources Institute to being able to have that. I think they say around a third of food is wasted throughout the food supply chain across the world. And that's a huge impact from both a nature biodiversity and climate point of view.

Mike Toffel:

So let me ask a few follow-up questions about some of these efforts that you described. So starting with the spare parts piece. You mentioned you shipped out 24 million spare parts for free to enable people to reassemble their furniture if a piece gets lost. So that's interesting in the sense that a lot of companies use spare parts as a highly profitable business line.

You think about automakers, right, when you need a new bumper and what you're like, how can that bumper cost $1,000? And of course, right, because they're the only ones who provide it. And if you need it, you need it. So, but even for I tried to get a new dial for my kitchen range, and they wanted $50 for a little plastic part. So, I ended up buying it on Amazon for five.

And so, it seems to me a business opportunity that you're foregoing for strategic reasons to not charge for these parts. So is there ever a conversation with the people who need to deliver profits that say like we’re giving a lot of money away by not charging some amount - it could even be a nominal amount, like five dollars, but you're giving it for free. So, it seems like you're leaving money on the table.

Karen Pflug:

Yeah, I mean certainly in the three years I've been in the role I've never been challenged or asked it's something we've done for years and years.

So it's just something that we see as a service, then we also believe, and as I say, we've done it for years, but going forward, certainly in the EU at least, the Right to Repair Act and other policies that are coming in to protect customers so that they can repair their products. We take that seriously.

And then one thing we are also looking at is bigger items or bigger spare parts, like a table leg or a sofa leg or something like that. Then we're looking at the commercial feasibility of doing that is where we sell for a nominal fee because when that does get too expensive for us to keep. We wouldn't send that out for free. So, we are looking at options and testing ideas there on what that would take to make that a viable part of our circular business.

Mike Toffel:

Got it. And I imagine by operating this free spare parts, at least for the metal bits and bobs that you have to, that are essential to allowing the furniture to work, you must also on the design side, think about harmonizing these and not having each bookshelf have its own special pegs that you want to use fewer of these.

Karen Pflug:

Yes, designing for circularity is a big part of the work that the team in Inter IKEA at IKEA of Sweden are doing for sure and working together with suppliers on that. But then, if you take even beyond the spare parts part, we've been redesigning and reimagining some of the classics, one being the BILLY bookcase, but many others too, like MALM and HEMNES, like the one behind me and so on, where we've also been saying, how do we make it more sustainable? It's a classic design and loved by millions and millions around the world, but we know we need to do better from a sustainability point of view, because it was created 40 years ago, whatever.

So, then we've looked at the way it gets disassembled, particularly the back piece where it used to have to be nailed in. I don't know if you remember if you've ever done that - loads of nails all in a straight line down each side of a BILLY bookcase, very hard to disassemble. So, looking at a sliding slot system that you can fold out and then fold back in. Standardizing the little metal pieces that hold up the shelves and so on, as you've said. Replacing the different finishes and covers that wrap around certain BILLY’s when you can get them in different colors and so on and finishing, which are then more sustainable recycled materials.

And then also this big move we're working with many suppliers to switch to bio-based glue. Now glue in our flat pack product is 4 % of the carbon footprint of our products and our products are 50 % of the carbon footprint of our overall across the whole value chain. So, the biggest amount of work to get our carbon footprint down needs to come into switching to more renewable or recycled materials.

So, by switching to bio-based glue, then as we slowly roll that out, it's not fully done yet, then we will take care of 4 % of our footprint, which is a substantial amount. So even with the classics and the well-loved items, there's a lot of work going into redesigning and re-engineering.

And then because they're so well-loved, we see a big opportunity in secondhand. So that's where we step in as a retailer, how do we connect customers together? We're doing a test of peer-to-peer, customer-to-customer in Spain and Norway. And then we're looking at, if it works, it's successful, how do we scale up and roll that out to all of our markets? We do the buyback, like I said, it's been growing, almost doubling every year since we started it. So, we see secondhand as a big part of what we do.

On average, it's 10 % of the secondhand markets, IKEA products. And in some countries like Sweden, it's 20 %, so there's already huge demand for IKEA products secondhand.

Mike Toffel:

That's so interesting. So, two follow-on questions here. So one is, in America, I don't know that people have an instinct to disassemble their IKEA furniture before moving it. But that would really enhance its durability. I grew up with some of these bookcases and did not disassemble them and tried to move them. And then they didn't really make the move. Because they're not really designed to be moved in a moving van while assembled.

Karen Pflug:

No, and up and down stairs and things like that were the tension and so on. So, once they're built like this, it's solid. You can put quite heavy books and fragile ornaments on. It's fine. But I think we also one part of sustainability and circularity is reducing the amount that you use. So as part of the creation of Flatpack, it's also about how do we make products as lightweight as we possibly can?

Now, when I worked in the sports industry, lightweight was a massive advantage, whether it's a bicycle or running shoes, or even we used to design kit for the Olympians and if they were in a hot, humid country like the Beijing Olympics, you know, as lightweight as possible, the kit had to be. And that was also extremely expensive and seen as the best quality.

When it comes to furniture, we're hardwired to think that the products have to be heavy and solid to be durable. So one of the paradigm shifts that we're working on is how do we help customers to understand that it can still be lightweight, we can use less resources, but we do so much testing, the durability, the quality and so on, fit for purpose testing that once it's built in place, it will last you for many years.

Mike Toffel:

All right, so the other piece I want to follow up on was this secondhand marketplace. So, I imagine some listeners' instincts will be like mine, which is that this is nice, but doesn't this pose a huge cannibalization risk for your new products. People come in looking to spend maybe $200 on a bookshelf, and instead find a used one, can walk out for, I'm going to make this up, $25, and then I guess depending on your margins, maybe IKEA is happy about that or maybe they're sad about that decision. Can you shed a little light on how you're managing cannibalization risk?

Karen Pflug:

First of all, I would say that the thought you've had and possibly listeners will have are one, it is a discussion that people have and it's an assumption people make as well within IKEA. It's like, is this wise? And you would say that in any other market, having worked in the clothing industry for a long time and now they're doing a lot of experimenting with secondhand and renting and so on there as well.

But I think for us, all the evidence has proved it's not cannibalizing, and it opens up to a new customer base where we're even more affordable. So, we like to think we're affordable anyway with our new products and that's our vision to reach more of the many around the world. But then there are people that even struggle to buy our range new today and it allows them to still have greatly designed, well-made, durable products for a fantastic price to take home.

So, so far, we have not seen that cannibalization. We've seen it adding and enhancing. And then interestingly, in Sweden where we've got a secondhand pop-up store together with the local municipality recycling center. So, and you come along, and you've got the great big bins that you say, right, I can either recycle this to be then used just as a raw material for recycling, or it sometimes goes to landfill or incineration, or it can be resold here. So, it's right at that point where a customer's put things into the back of the car or a trailer to get rid of it. And then we resell that. And then some of the pieces that come are really unusual vintage pieces. And we get people looking out and coming and watching what we're doing to grab these great iconic designs from the 70s and so on. So, we get people buying it for design reasons and design heritage, Swedish and Scandinavian design heritage, and people buying them for affordability reasons. And both are okay for us. We like to the products in use for longer.

Mike Toffel:

I see. So interesting. So, in a way, you're trying to expand the addressable market by creating products at prices below your new prices and hoping that that expands the pie rather than just shifting customers from new to used.

Karen Pflug:

Yes. Like I said, we want a piece of that secondhand market. I think it's been growing at over 6% over the last few years around the world and in some countries it’s higher than that. And we see it in not just furniture, but in many places. People do it for affordability reasons because, you know, you're worried about the cost of living in nearly every market where we operate. That's a huge concern for our customers, and people do it for sustainability reasons because they don't want to be wasteful and keep buying new things.

Mike Toffel:

Yeah, but at least for now, the secondhand marketplace that you're offering are just IKEA branded items or IKEA purchased items.

Karen Pflug:

Yes, exactly, right now. But of course, then the curiosity and the questions I get asked is what it would take to just become a second-hand dealer, so to speak. For now, because there we know the quality, we know it's been well made, know the heritage, the supply chain, the supplies. can also provide assembly instructions and other information for customers, accessible either for them to print out or online as well, which is one of the advantages with the peer-to-peer test we're doing is whoever's trying to sell the product, they can instantly look up the original new price because they may have forgotten if they bought it a long time ago and they can download the assembly instructions and all the information, what the material's made of, where it's made and so on. So, it gives the peace of mind for the buyer and the seller. So that's where we're seeing an advantage when it's just our products right now.

Mike Toffel:

Right, it makes sense. So, let's pivot and talk about end-of-life. So, end-of-life furniture from my understanding is, maybe you can donate it and get secondhand use out of it. So, not the end of life, because maybe some charity will take it and redeploy it. But let's say that there's no viable place for it. Then I think folks basically call their municipality and get a bulk pickup, maybe pay a fee, maybe it's included in their municipal services, and then off it goes likely to a landfill or maybe depending on where you are to incinerate. And that's the end of those materials.

 And as I understand what you're trying to do is again intervene in some way to allow maybe not the whole piece to be reused if it's at this stage, but to figure out what parts of it can be harvested and redeployed into the economy and diverted from landfill and incineration.

So, first, do I have that strategy right?

Karen Pflug:

Yes, yes you do. You've summarized it extremely well and I think and of course it does vary so much every country or even every town that the customer is in because it can be really steered by how focused the municipality is on how available recycling services are versus going to landfills or incineration.

So that's a big part of it but I think that's where I mentioned earlier before that we have an investments arm at Ingka Group so it's specific to our organization. And we look at many areas there, originally set up to help the company be more resilient and weather financial storms, but increasingly over the last decade or so has been used to really make sure we're driving sustainable investment.

One big chunk is renewables. We've got a portfolio up to 7.5 billion euros by 2030 to be invested in renewable energy. And we've so far committed to 4.2 billion euros of that now. So that makes us almost a medium-sized energy company, which is fantastic. And then we also have a portfolio of 1 billion euros to look at circular solutions. And with a big focus there on textiles, metal, food as well. And plastics too.

But one thing we're already successful in, at least within Europe, is collaboration and investment we have in a company called RetourMatras, which basically means returning your mattress. It's a Dutch company, I'm based in the Netherlands, so I've been to see it for myself and it's fantastic, really fascinating to see. And here we can recycle, dismantle and recycle the parts of around 85 % of the mattress. And per year we recycle one million mattresses in Belgium and the Netherlands and the UK. And we're expanding to France now as well. On 15th of May we open in France too and we would like to expand more across Europe as well.

So we break it down to the textiles, the metal springs, and fascinatingly, if you're a chemist as well, we can break down the foam into what's called re-polyol that then can be reused to make as a component in new foam, which can go into our own couches and mattresses, or out to wider industry to be used as well. So yeah, it's a big source of pride, our RetourMatras investment. So that's doing it together with a waste sorting company and a factory that makes mattresses for IKEA Group.

Mike Toffel:

So, tell me a bit about the business model here for recovery of mattresses. Is this a profitable venture? Is it venture that has profit potential, but this requires some startup to get the infrastructure going and reach some economies of scale? What's the business model?

Karen Pflug:

Yeah, well one thing here is that you mentioned earlier about secondhand: it's not just IKEA furniture here, it's any mattress from any brand. It's basically you know that it gets removed and then we are invested in the company that then recycles it, which is fantastic of course for wider society, and circularity. But it is profitable in the markets where we've operated in so of course every time we want to expand, we need to do business and prove that it makes good business sense as well as being the right thing to do from a sustainability perspective.

And that's where policy and legislation are key. The reason we started it in the Netherlands is because the policy was supportive of recycling. But in some countries, it's more cost effective or even more financially beneficial to either incinerate or go to landfill. So then if you did a business case for a market where that was the case, it wouldn't make financial sense at least for a short time. So, one thing we do is obviously look at expanding in the areas where it makes good business sense today. And the other part of what we do is work with our public affairs team and with other companies to advocate for policy change.

In various places in the world where we operate, The EU, North America of course, Asia as well, Australia, New Zealand, when we open there later in the year. So, we work very closely and that's where again our size and scale can really help. And we can partner with reputable and non-profit organizations like the World Business Council for Sustainable Development, World Resources Institute, and the UN World Economic Forum, and other companies to collaborate and say, guys, this needs to change. Let's work together and advocate for better solutions, removing the barriers basically. So that's what stopping us just pressing a button and rolling it out to every market where we operate right now. It's the barriers that are in place often by legislation.

Mike Toffel:

What makes the policy environment favorable in the Netherlands? I think that's where you said you rolled out the mattress stuff first.

Karen Pflug:

Yes, yeah, we started there and then Belgium, France, UK as well. It was that it was more financially beneficial because it's a tiny country and quite heavily populated for its size, about 20 million people. So, there isn't really space for landfill, and they don't have the set up for incineration. So, for them, recycling is extremely important, and it's high on the agenda politically as well. Not only are the laws in place that help support it, but actually the will is there from customers and policymakers. So, there's also, there's a pull from customers too, where some markets we find customers care more about it than others. I mean, to be honest, everybody cares, but then it's how much you are willing to change your behavior because of it versus your anxiety about it. It's sort of an intention to make an action gap.

Mike Toffel:

Yeah, interesting. So you mentioned a variety of partners, including the World Business Council for Sustainable Development and others. Can you give an example of an output of those types of collaborations?

Karen Pflug:

Yes, yeah, well, the WBCSD, there's so many acronyms in sustainability, that one, it's still not out yet to the circularity protocol. It's due out later this year and we're in the work stream and work together with them and drive the business perspective along with other business leaders as well, but also then advocacy and working on programs and we're available then for tests and so on as well when they want to test things.

It's being modeled on the greenhouse gas protocol because one of the challenges is not having a consistent way of measuring how do we really see the benefits of circularity. So, circularity is a little bit behind climate, of course, where we're much more mature because the greenhouse gas protocol led to the science-based targets initiative. We're a signatory of that. We signed up for the Paris Agreement in 2016 and just renewed that commitment to SBTI when there were new goals set last year. So, we need similar harmonized standards around the world for circular as well. So, we want to be part of that change so that it's a level playing field, so it's comparable and we can all drive the right performance. Because sometimes you can do a lot of work, but if you don't know the impact or it's not the most impactful thing, then it could be wasting resources and time and effort.

Mike Toffel:

It makes a lot of sense. So, we've talked about mattresses, and the end of life. Are there other major product categories that IKEA is engaging in or Ingka is engaging in, end of life? I imagine furniture must be high on the list of at least the things you've considered given the mass amount of furniture that is sold.

Karen Pflug:

Yeah. Yes, although our biggest aim is of course to keep it in use for longer. But one other one related to bedding actually is taking down pillows and duvets and being able to hygienically clean them and reuse the filling as well. So, we're doing that take back test by our team, which is really interesting to see how that will land.

And then when we look at our overall agenda, a really big focus on plastics, textiles, wood, and then on wood, even though it's a beautiful, renewable, amazing resource that we want to harvest responsibly, as well as that, you can recycle wood. And we've got about 17% of our range now, wood in our range is recycled, and we want to get it up to a third by 2030.

So, as well as using less resources, as I talked about before, using renewable or recycled materials, it's interesting because a lot of people don't think of renewable materials also being recyclable. You can do the same with cotton, recycled cotton, recycled wool as well. So, they're both renewable and recyclable. So, they win on both fronts. So, we're exploring that as well and getting, you know, taking back wood and furniture and so on too. So, we're looking at all of those, but a lot of that is via Inter IKEA here, is managing the supply chain side.

Mike Toffel:

Got it. Yeah. So I guess I would think about this as trying to increase the supply of recovered materials, like in the mattress example and in the duvet and pillow example, but then also from a design perspective, trying to increase the demand for secondhand resources so that you have to work both ends of this because flooding the market with supply that no one wants is not going to get you very far.

Karen Pflug:

No, and also isn't a responsible thing to do as well, of course. So, I think for us, I mean, we see that resource scarcity is going to be a huge problem going forward. We also see, like everybody sees, that we as a general population are consuming many more materials and resources than the earth can cope with. So, we want to be part of that solution. So that's very much at the heart of what our design team are doing, but also what we're working on in retail as well when we connect through to customers. Having 400 stores around the world makes us an ideal point for collecting as well. So, we can, you know, not just take back reusing the products and giving them a second good life but also taking back for material use.

We now are doing a lot more things like having all the covers removable and washable and replaceable. So, if your sofa looks a bit tired or damaged from your kids or your pets, then you can get removable covers and either replace it with the same color and same fabric or a totally different look. So, it's also about educating customers that, because we know that people can get bored, before a product wears out. So, if they don't want to resell it or give it to charity or whatever, then giving it an updated fresh look as well is another way that we can help keep things in use for long.

Mike Toffel:

It's super interesting. What's the role of customers in all this? When you walk into an IKEA store, it's famous for the meandering walk that one takes as a journey through the store with these secret shortcuts if you look for them hard enough . But I don't recall seeing signage. that speaks to these issues of longevity or of recycled materials or recovered materials. But I haven't been to an IKEA store for a little while, so maybe that's changed.

I think you have a very thoughtful view of what customer communications you position in the stores and recognize there's limits to the amount of information consumers can take in. So where does this land? Do customers know? Are you putting this front and center for customers or just you want this just to be in the background and not be a customer-facing decision point.

Karen Pflug:

We want it to be a customer facing decision point. Are we good enough at it yet? I would say no. I say there's work to do there. As you say, we don't want a particularly cluttered environment where people are bombarded by loads of messages, but we are increasingly putting more and more messages about the choice of materials and also even things like people understanding the IKEA Foundation or people understanding the store that they walk into, our solar panels on the roof, and we're driving 30 % efficiency in our energy use there, whatever. So, we know, experts know, and rank us very highly, usually in the top three to four of surveys as the world's most sustainable companies. So, we're very proud of that, but we know there's work to do with everyday customers.

And so, it's a big focus of myself with the communication and marketing team. How do we get across? Not that just we are great low price, and we side with your wallets and your purse, but that we also side with you from a sustainability point of view.

So, one thing is the sustainable living shop. There you'll find a lot of key messages around saving water, saving energy, saving waste and so on, which ultimately saves you money as well. The other is the plant-based meal agenda. We've got more signage up in stores there and online about what we're doing with plant-based foods and the benefits because the biggest thing an individual person can do to change and have an impact on their climate footprint is actually less red meat. They don't need to be vegan or vegetarian, but a couple of times a week less red meat is a huge impact. So how do we help nudge that as well?

And then we are looking at ways of getting out more on social media, getting more signage both in store and online to tell the sustainability stories. So, it is work in progress.

Mike Toffel:

Got it. So let me ask the last two questions but bundle them into one. So, I'm interested in your take looking ahead at what most excites you about trends that you're seeing or that others are forecasting that would make the circular economy business model more widespread. And that could be technologies or policies or customer trends. And at the same time, a related question, which is for those who are interested in pursuing a career, or at least the next step in their career in trying to help foster circularity either at a large existing company or perhaps in a startup, where should they tune in to learn more?

Karen Pflug:

Yeah, tricky. I would say, first of all, I would say it can feel like an uphill battle right now, and it sometimes can feel like frustrating or whatever. So, one thing is to always look at it through the business lens. I've said before, and we joke about it in the company, we say the CFO is my best friend. So, you've really got to have finance on board. So, in terms of tips to people looking at it, if you want finance on board, then you need to talk their language.

So, then you need to business cases, financial returns, being robust about making the numbers add up and not just, oh, it's a nice thing to do to save the planet, whatever. And then I also think it's long-term resilience for the business. It just makes good business sense to be more sustainable in your business. And a big chunk of that is being more circular. So, value creation for business and society, I think, is super important.

And then I would say collaborate, join those coalitions and groups and so on. We also support the We Mean Business Small Medium Enterprise Climate Hub, because a lot of small companies don't know how to create their own climate goals and where to start. And this is free so that people can go in and learn what it takes to be able to do a Scope 1, 2 and 3 climate plans as well, So you learn from each other and it can be cross sector, cross industry wide as well.

And then in terms of what excites me, I think part of it is that collaboration. And it is a fact that a huge majority of solutions exist today. We just need to unlock and move the finance, mobilize the finance towards it. So, I know now that many of the big meetings I go to, like the COPs and the climate weeks and so on, it's all about how we unlock the finance because we see that the solutions exist. So, it's no longer navel gazing and worrying about how do we even do this? Many of the problems have a solution, but it's then about unlocking the finance for it. So that gives me real optimism and energy when I see that.

Mike Toffel:

Terrific. Well, Karen, thank you so much. It’s wonderful to get to hear your perspective and learn more about what IKEA is doing.

Karen Pflug:

Thank you for having me. I've enjoyed the discussions.