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Will Wall Street ruin Etsy's social and eco values?

April 21, 2015Written by Tom Ryan

Etsy's share value nearly doubled in its first day of trading last week as a public company. But with the company's commitment to social and environmental accountability over shareholder value, many question how long the Wall Street love will last.

The online shopping marketplace, which connects makers of handcrafted goods to buyers, is a Certified B Corp, which means it pledges to adhere to social, environmental and transparency guidelines set by independent certifier B Lab.

In its prospectus, Etsy warned that its focus on the long-term sustainability of the business and the "ecosystem" may hurt its short- or medium-term results and that the longer-term benefits may not materialize "within the timeframe we expect or at all."

As an example, Etsy said it may change its shipping practices or locate its servers in "low-impact" data centers to reduce its eco-footprint "even though these actions may be more costly than other alternatives."

Among its other quirks, it pays employees 40 percent above local living wages, offers paid time to employees for volunteering and composts its food waste at its headquarters.

Etsy claims to want to change the conventional business model that often puts maximizing profits above community.

"For decades now, the conventional and dominant retail model has relentlessly focused on delivering goods at the lowest price, valuing products and profit over community," wrote CEO Chad Dickerson in filings. "I do not believe that this race to the bottom is a sustainable, successful model."

Patagonia and Warby Parker are also B Corps, but only one other, Rally Software, has gone public. Unlike Whole Foods and Container Store that embrace a similar "conscious capitalism," the guidelines of B Corps are embedded as foundational documents.

One challenge, according to the New York Times, is that that if Etsy eventually reincorporates as a full-fledged "benefit corporation," as required under B Lab rules, it could be sued for falling short of its social and environmental standards.

The broader challenge is that, while revenues are strong, the company hasn't made a profit and may have to lower its standards to get into the black. It makes money from a 20-cent listing fee, a small cut from items sold, and advertising and payment services. Etsy also won't give quarterly or annual revenue guidance, instead saying it will "talk to investors."

Writing for Bloomberg, Katie Benner says that just as Google has, Etsy will likely have to adjust during challenging times. She wrote, "Investors are like waves beating on the shore: Eventually, they make all the rocks basically look the same."

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