Supplying Sustainability: Real Leaders Must Look down the Chain
If you are serious about sustainability, you need to get serious with your supply chain. In terms of greenhouse gas emissions, for instance, over 85 percent of a company’s total emissions are indirect – that is, from their supply chain. Other resources – like trees, oil and water – are also guzzled in producing and sourcing inputs.
Getting these environmental impacts under control are in the best interests of businesses. Fewer inputs, and inputs that are more sustainable, mean lower costs and lower risks for producers. Sustainability drives efficiency, and that often underpins innovation in products or processes that use resources more effectively. A sustainable supply chain improves the image and reputation of buyers and suppliers alike. According to the 2011 Pulse Survey, 40 percent of a company’s reputation is tied to corporate social responsibility. From Nike’s experience in the 1990s, to Nestle and Mattel, and Zara, most recently, we see that consumer perceptions on sustainability translate to purchases. As companies spend billions on their branding, their thinking must extend to the supply chain.
Leading companies recognize the importance of bringing their supply chain in line when planning sustainability strategies. However, it can still be a challenge to get suppliers to heed the message. Suppliers are often smaller businesses which can lack motivation or capacity to improve their environmental impact. The reach and influence of major companies is vital here, from setting energy and water use standards, to requiring carbon emissions disclosure, to rewarding sustainable suppliers and deselecting those with poor environmental practices. Big businesses can make real the link between the environmental and economic bottom lines for their suppliers.
It is a win-win for suppliers and consumers. Forbes recently reported findings of a multi-year research study that examined the intersection of sustainability and supply chain management. It found that companies that engaged suppliers, at any tier, saw sustainability and financial returns improve, cutting operating costs by 46 percent. It is particularly effective when companies offer environmentally friendly models to assist suppliers, and reward them with business. There is no shortage of successful examples. A major textile and carpet manufacturer, for example, has partnered with a supplier to create a closed loop process that includes recycling carpet fiber. This provides a valuable relationship for the supplier and a product that is both green and cost-effective. At this week’s “Supplying Sustainability” forum in Chicago, they will share their story – alongside a leading investment advisor firm, and a food and drink multi-national – with real-world implications for both peers and supply chain companies. Environmental Leaders’ own “Insider Knowledge Report” presents other valuable lessons from corporate decision makers.
These firms are part of the larger shift towards corporate social responsibility, where major companies use their purchasing power to set standards and shape markets. More than half of the Fortune 100 companies include statements on their supply chain in their annual reports and 10-Ks. The number of companies reporting to the Carbon Disclosure Supply Chain Report is rising fast. If you are a supplier and you have not already been asked to clean up your products and processes, chances are that you will. When large companies like Wal-Mart decide to issue sustainability assessments to their suppliers, other retailers and suppliers cannot help but notice and make changes, leading to a chain reaction that affects companies around the world. Investors, too, are increasingly active in driving supply chain sustainability, from socially responsible investing to shareholder initiatives.
With influence from above and below, there is a real opportunity for suppliers to step up on sustainability. By setting the right standards, by collecting and reporting consistent data, by visiting and understanding supplier operations, and by supporting their activities, you can make a great impact – and dramatically improve your own CSR success. Now is the time to look at the wider footprint of your business and ask for sustainability in your supply chain. It’s a matter of better business.
Thomas Cushing is managing director, Strategic Partnerships and Policy for Delta Institute. Tom will be speaking at “Supplying Sustainability: Engaging Companies to Realize Benefits,” an event jointly hosted by Delta Institute and the University of Chicago, at Gleacher Center, 450 N. Cityfront Plaza Drive, Chicago at 5.30-7.30pm, Wednesday, December 12. For more information: http://www.delta-institute.org/sustainabilityforum
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