Is Patagonia the end game for profits in a world of climate change?

Many brands are aligning profits with purpose, but Patagonia’s decision in September to convert its for-profit business to one under which all the profits flow through to fighting climate change is the most complex move yet by a U.S.-based company in the realm of sustainable capitalism. Is it a model for other companies to pursue in the future?

For the family founded firm, it’s in some ways a natural evolution. Patagonia has long been on the vanguard of responsible business practices. As far back as 1985, Patagonia deployed portions of its profits to the environment, via an “Earth tax.”

It’s far from the only well-known U.S. brand to be structured in a way that allows profits to be donated to charitable causes. Newman’s Own, the food brand founded by Hollywood icon Paul Newman, is perhaps the most familiar. Since 1982, Newman’s Own has given 100% of profits to charity, now totaling half a billion dollars in contributions. But that business, with a pure non-profit structure, was more of a “first generation” model for sustainable business, says Tensie Whelan, founding director of the NYU Stern Center for Sustainable Business. “The Patagonia model is a little more sophisticated.” 

A business model already in Europe

Yet while Patagonia made headlines in the U.S. for being a novel marriage of capitalism and charity, similar corporate structures are already in use with several large family-controlled European companies, from Carlsberg to Ikea and Novo Nordisk. “Nothing new in this model,” said Morten Bennedsen, professor of family enterprise at INSEAD and the academic director of the Wendel International Centre for Family Enterprise.

Even in the U.S., one of the most iconic retail brands, has long had a No. 1 shareholder devoted to charitable causes and designed by the family founder: Hershey’s.

“It is a model that is attractive for family firms that do not want to continue as classical family firms and want the long term stability and the increased professionalization that comes with enterprise foundations,” Bennedsen said. It often is very attractive from a corporate tax perspective, too, which has been noted of both the Ikea and Patagonia business models. “That is another driver of this,” he said.

One hundred percent of Patagonia profits are now committed to its new non-profit Holdfast Collective — which owns all of the company’s non-voting stock (98% of the total stock). A Patagonia spokeswoman said the move makes clear that it is possible to “do good for people and planet and still be a successful business.”

‘Unapologetically a for-profit’

Patagonia’s CEO went further in a September interview with CNBC’s “Squawk Box,” dismissing any idea that this change will lead it to focus less on beating the competition. “What people fail to understand about Patagonia, both the past and the future, is that we are…