Sustainability pays, even if consumers don’t

Traditional activist cynicism paints corporations as bad guys willing to ruin the environment or people’s health for a buck. I accept and regret the fact that public companies face a Wall Street driven incentive system that favours short-termism, and as such I marvel at the willingness of some people to resist for the greater good.

Hugh Welsh, President of DSM North America, recently authored an opinion piece in The Guardian arguing that a dent in his personal bonus for missing sustainability targets, despite hitting profit goals, is a good thing. Bravo!

Light at the end of the tunnel

For those business leaders (notably Paul Polman at Unilever) courageous enough to target sustainability as aggressively as they do profitability, the long wait for pure business justification may finally be near an end. We’ve been surveying the supply chain community for four straight years now and have witnessed a hefty, steady rise in the value of pure cost savings as a reason to invest in social and environmental responsibility (SER).

In fact, having analysed the data from our 2014 CSCO survey in time series since 2011 we see that cost reduction has jumped the most by far, and is now the second leading justification for sustainability.

What our data says is that business leaders’ personal desire to “do good” is finally aligning with the profit motive. It has been a long journey, and it is by no means complete, but the business justification for sustainability is clearly moving away from risk avoidance to reward seeking.

The way it was

Back in 2009 I conducted, along with my then-colleague Dr Stephen Stokes, a forensic supply chain analysis for Crayola as due diligence prior to its big back to school season, which was being built around green marketing claims. The supply chain had worked hard to be green, including sourcing exclusively from Forestry Stewardship Council plantations for coloured pencils, using post-consumer plastics in markers and, most ambitiously, building a solar farm next to the crayon factory to cut carbon emissions.

Each of these efforts was pursued with total honesty, but each was also costly. Finding, for instance, reliable supplies of recycled plastics that would work in existing moulding equipment was hard. And of course, solar panel efficiency levels five years ago were nowhere near what can be bought today. Still, Crayola stepped up.

I don’t know how well the marketing campaign worked, but I do know that consumers haven’t generally held up their end of the bargain. In our survey, the only rationale for investing in sustainability to have fallen since 2011 is “increase sales revenue”. Green products, it seems, don’t move consumers to buy the way many had hoped.

This sobering reality is something I have heard from other pioneers like Clorox and Procter & Gamble, which have done their part only to be rebuffed at the supermarket shelf.

Efficiency now and forever

An existential question facing the planet is whether economic growth can be decoupled from environmental destruction. The same activist cynic who likes to hate big business might say the answer is no, and that we need to scale back our definition of the good life if we want to survive. I disagree and believe most serious supply chain thinkers can easily imagine a world with widespread well-being that doesn’t depend on deforestation, carbon pollution and stinking landfills.

The cost savings behind sustainability comprise three big buckets: energy, packaging and materials. Diversified and increasingly localised energy is already taking volatility and cost out of the supply chain (see, for example, AT&T’s green fleet case study).

Packaging innovations from lighter, stronger resins to reduced reliance on secondary and tertiary packaging offer still more savings (see Diageo webinar and Sandoz best practice insight).

Finally, materials efficiency including recycling (metals, in particular), strength per unit weight improvements, scrap reductions and, perhaps most important, smart water use all offer cash savings immediately.

Layering on externality expenses such as carbon taxes, water fees or disposal charges obviously enhances the payback for efficiency, but the underlying motivation is baked into our DNA as supply chain people. The idea that any sane business leader would prefer greenwashing to real sustainability looks increasingly crazy.

Just ask Hugh Welsh.