Issue No. 162: The Business of Sustainability

Illustration: Courtney Powell

From recycling shoes to tracing materials, sustainability is becoming table stakes for health and wellness brands. But going green is often easier said than done.

Can brands cater to both consumers and the planet? Let’s take a look.

The Current Climate

A growing number of consumers now believe that environmental stewardship is a hallmark of health.

Reducing risk. A new consumer is emerging, growing in both influence and purchasing power. Made up largely of Gen Z and millennials, this cohort is disrupting the health and fitness industry.

  • 75% of Gen Zers will research and hold companies accountable to their social/environmental commitments.
  • Despite being the least wealthy generation, 73% of Gen Zers are willing to pay a premium for sustainably made products.

As buying habits shift, 93% of CEOs believe their business will be held accountable for environmental impact and 26% cite reputational risk as a trigger for upping sustainability efforts.

Behind the scenes, COVID supply chain issues illuminated the severity of potential disruptions.

Looking to the future, analysts say up to 70% of a company’s EBITDA could be impacted by climate-related factors like rising material costs and production delays.

Prioritizing performance. Beyond mitigating risks, eco-forward businesses came out ahead last year. 63% of buyers and 73% of suppliers say sustainable practices helped them endure pandemic disruptions.

Even before COVID, companies that invested in resource efficiency fared better financially, producing stronger returns and displaying higher levels of innovation and entrepreneurship.

Going Green

Eyeing economic incentives and environmental benefits, health and wellness brands are all in on sustainability.

Slower shirts. Fast fashion is responsible for more carbon emissions per year than all international flights and maritime shipping combined. A growing number of activewear brands are hoping to extend the life of apparel:

  • Activewear giants adidas, Nike, and lululemon have all doubled down on efforts to recycle and/or resell their products.
  • This month, former execs from Nike, PUMA, and Under Armour launched Speedland, a recyclable trail running shoe retailing for ~$375.
  • Meanwhile, On Running just launched its new fully recyclable shoe, The Cyclon, available only via monthly subscription; users can trade in their old kicks for a fresh pair any time.

Throughout 2021, activewear brands like lululemon, The North Face, and Allbirds have tapped sustainable materials to give their products a green refresh.

Eco-friendly eats. According to the IPCC, the food and drink sector has driven 75% of deforestation by area size to date.

  • Hoping to offset its impact, sweetgreen is partnering with climate company Watershed to reach carbon neutrality by 2027.
  • Last month, Nestlé committed $1.2B over the next five years to more sustainable regenerative agriculture practices; world food company Danone also pledged up to $20M in 2020.
  • HumanCo, a holding company of health and sustainability-centered brands, raised $35M and acquired Against the Grain, a gluten-free food company.

Tracing things. An early innovator, Patagonia has published details on the raw materials, mills, and factories it uses to craft its products since 2007. More recently, in March, the outdoor gear retailer joined 500 other outdoor brands—like Timberland and Smartwool—to monitor sustainability using value-chain measurement tool Higg.

Other third-party trackers are gaining momentum as well. SIMPLi recently secured undisclosed seed funding to increase food supply chain transparency for brands like sweetgreen and Daily Harvest.

The Road Ahead

Laundering? Going green is a step in the right direction, but critics have noted a new problem. Companies are “greenwashing” their products for the sake of PR, making exaggerated or unproven sustainability claims to duck regulation and appease customers.

Levers of change. Starting small, brands making real, impactful changes to their operations are prioritizing proficiencies, not moonshots:

As Ricky Silver, chief supply chain officer at Daily Harvest, explains:

“Hone in on an area of focus that clearly ties into your product and values… Daily Harvest is a food company… [thus] the natural areas for us to lead are sustainable agriculture and health + nutrition.” 

Align incentives. Nearly 50% of leaders surveyed said the pressure of short-term earnings was at odds with sustainability initiatives. But as Viviane Gut, On’s head of sustainability, points out:

“The two goals don’t have to be opposites. I really would love to prove that sustainability and performance are actually complementing each other.”

In fact, the financial incentives for sustainability have never been greater. With sustainability-marketed products growing 5.6x faster than their conventional counterparts, investors are taking note:

  • Tackling climate change via food tech, Five Seasons Ventures raised a €180M (~$210M) seed fund, and Atlantic Labs just relaunched as FoodLabs, dedicating €100M (~$115M) to investing in startups.
  • Last year, venture capitalists and private equity firms invested $9B in sustainable technologies.
  • Over the next five years, ESG assets are projected to cross $53T, over a third of global AUM.

Takeaway: Consumers are savvier than ever and earnestly eco-forward, compelling companies to act. The road ahead for brands won’t be easy, but most leaders agree — it’s necessary, for business and the planet.

🦾 Smart Strength

As connected strength training heats up, Arena’s compact, portable device is poised to stand out.

On the Fitt Insider Podcast: Arena CEO Krisna Bhargava joined us to discuss the company’s innovative strength training solution and its focus on human performance — including athletes, strength coaches, and physical therapists.

We also cover: the company’s plan to accelerate growth and its mission to replace the dumbbell.

Listen to today’s episode here

Note: Fitt Insider is an investor in Arena. We invest in health, fitness, and wellness companies. Learn more and get in touch here.

🤩 Lights, Camera, Fitness

With star instructors and celebrity investors, battles over music rights, and massive production studios, the line between fitness and media is blurring.

A star is born. Leading the charge, Peloton built state-of-the-art production studios to broadcast classes — essentially choreographed performances featuring all-star instructors.

Following suit, fitness brands are taking a page out of Peloton’s playbook:

  • Tonal recently launched live classes and is looking to build a production studio in NYC.
  • Xponential Fitness debuted XSTUDIO, a new tech-driven production studio, to complement an AR experience for at-home users.
  • Echelon broke ground in March on a 10,000-square-foot Miami studio.

Apple’s all-in. The tech giant is taking an inclusive approach to its roster of Apple Fitness+ trainers. Investing in production, the company built a 23,000-square-foot studio in Santa Monica. Jay Blahnik, Apple’s VP of fitness technologies, explained:

“We want these workouts to be magical. We’re creating a piece of art, a piece of inspiration, a piece of motivation.”

The key to that magic? The instructors. Peloton fan favorite Cody Rigsby has one million followers on Instagram and moonlights on Dancing with the Stars. And Hollywood is taking on a supporting role — connected fitness has seen a flood of VIP endorsements.

  • Hydrow’s list of A-list backers includes Lizzo, Justin Timberlake, and Kevin Hart.
  • Echelon tapped Pitbull, as both an investor and collaborator, to help it compete in the “exer-tainment” wars.
  • Renowned talent agency CAA joined Mike Tyson, Floyd Mayweather Jr., and more in FightCamp’s $90M funding round in June.

Speaking of CAA, former talent agents from the company founded obé, which partners with networks and streaming services to create themed fitness classes, complete with Broadway-trained instructors.

Looking ahead: Fitness companies are turning into bonafide production houses, relying on celebrity instructors to retain and engage users. As the talent wars intensify, brands that empower fitness creators, create digital communities, and leverage interactive content will find success beyond individual stars.

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👀 Therapy x Metaverse

As the metaverse looms, VR fitness has generated a lot of buzz. Now, some are looking at the potential of another application for VR: therapy.

What it is: VR therapy augments existing treatments for disorders ranging from phobias to chronic pain, immersing patients in safe and controlled environments.

Why it’s important: Mental health disorders are on the rise. Safer, quicker, and less expensive, VR therapeutics offer an alternative to traditional immersion therapy.

Riding a wave of interest in the metaverse, the VR healthcare market is projected to grow at a staggering 32% CAGR through 2027 to $3.9B. Now, mental health VR startups are garnering more attention:

  • Teletherapy platform Rey secured $10M this summer and debuted its immersive mental wellness platform.
  • Tripp raised $11M to develop VR mindfulness experiences that mimic a psychedelic trip, minus the hallucinogens.
  • Speaking of, companies pioneering VR + psychedelic drug experiences are taking off too — see Firefly VR and Ketamine One.

Beyond mental health, VR could also make waves in the billion-dollar chronic pain market. Opioid-free therapeutics startup AppliedVR raised a $36M Series B last month. And earlier this year, XRHealth landed $9M to expand its at-home, VR-powered clinic services.

Does it work? Even though we’re in on the trick, VR still fools us and can teach us healthier coping mechanisms.

  • study of patients with severe paranoid beliefs found that phobias halved after just a single VR coaching session.
  • AppliedVR recently received FDA approval for its tech after a clinical trial demonstrated successful reduction of pain without the use of drugs.
  • study by Oxford professor Daniel Freeman found a 38% decrease in anxiety and avoidant symptoms after six weeks.

That’s not to say that all VR therapy is bulletproof. As with all emerging tech, there’s still a lag between innovation and good-quality research.

Takeaway: The socioeconomic health gap has plagued mental health for years. With a growing number of promising clinical trials, some think VR could be the answer. Even so, there’s still quite a ways to go in terms of portability and affordability. Jonathan Rogers, researcher at UCL, puts it best:

“VR is not going to be the solution. It may be part of the solution, but it’s not going to make medications and formal therapies obsolete.”

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📰 News & Notes

💰 Money Moves

  • Found, a digital weight management startup, raised $100M in a Series B round led by WestCap, valuing the company at $600M.
    More from Fitt Insider: Weight of the World
  • UK-based gym chain PureGym bagged £300M (~$400M) in funding from global investment firm KKR, valuing the company north of $2B.
  • Sunbasket, a subscription meal kit service, merged with keto supplement maker Prüvit to form PSB Holdings, valuing the combined company at $1.3B.
    More from Fitt Insider: What’s Next for Meal Kits?
  • Othership, a breathwork and mental wellness app, launched after raising $2M in funding.
    More from Fitt Insider: Our Q&A with Othership CEO Robbie Bent
  • Membership-based medical concierge Sollis Health secured $30M in a Series A round co-led by Denali Growth Partners and Torch Capital.
  • Ophelia, a digital platform connecting opioid users to treatment, raised $50M in a Series B round led by Tiger Global, with participation from Menlo VenturesGeneral Catalyst, and others.
  • Digital mental health platform UpLift closed $8M in secondary funding to add psychiatry services to its offering.
  • Calo, a Bahrain-based personalized meal subscription platform, landed $13.5M in a seed round.
  • Spanish tennis and padel court booking platform Playtomic, raised €56M ($63.1M) in new funding.
    More from Fitt Insider: Recreation’s Renaissance
  • Israeli cultured meat company Future Meat raised $347M in Series B funding with participation from food companies ADM and Tyson Foods.
    More from Fitt Insider: Meat vs. “Meat”
  • jack & annie’s, maker of meat alternatives created from jackfruit, secured $23M in Series B funding co-led by Desert Bloom and Creadev.
  • Sports ecommerce and technology platform SIGNA Sports United went public via SPAC merger with Yucaipa Acquisition Corporation.
  • Well, a personalized health improvement platform, raised $70M in a Series B round led by Valeas Capital Partners.
  • Period tracking app Clue secured €16M ($18M) in a funding round co-led by Balderton Capital and Future Positive Capital.
    More from Fitt Insider: Femtech 2.0
  • Belgian healthtech company Sunrise, creators of a sleep apnea device, closed €6.5M ($7.3M) in a funding round.

Today’s newsletter was brought to you by Anthony and Joe Vennare, Melody Song, Wesley Yen, and Ryan Deer.

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