Years ago, when companies tried to find ways to help the environment, it could be a hit to the company’s bottom line, but in the quest to be environmentally responsible, companies justified the additional expenses. Today, many companies are finding that corporate social responsibility (CSR) can actually drive innovation.
When Gartner’s supply chain research group looks at CSR, they recognize supply chain organizations that effectively manage opportunity and risk with a focus on the long-term view, so that profitability does not come at the expense of people or the planet.
For chief supply chain officers (CSCOs) looking for new sources of innovation or differentiation, CSR may open a window of opportunity. It’s important to satisfy regulatory compliance requirements and pursue cost-saving efficiencies, but strategists can also think creatively about how to apply sustainability principles and leverage shared value concepts to create a competitive advantage.
For chief supply chain officers looking for new sources of innovation or differentiation, CSR may open a window of opportunity.
We asked Pam Fitzpatrick, research analyst at Gartner, how applying sustainability principles in supply chain organizations can spur better performance and business growth.
Q: Of all of the business functions, supply chain has the most direct exposure to the widest variety of environmental, social and governance (ESG) risks, and is ultimately accountable for risk mitigation or avoidance strategies. What are the risks of not addressing CSR issues?
A: Many risks are intertwined and can result in substantial financial damage. Let’s start with compliance and reputational risks. A widely cited World Economic Forum report says that more than 25 percent of a company’s market value is attributed to its reputation. So if a supply chain activity results in the violation of an environmental, product safety, labor or human rights regulation, you’ll likely pay twice: the fine for noncompliance and the steep drop in sales and funding for breaching the trust of consumers and investors.
Other risks are strategic. For example, if your supply chain strategy doesn’t account for the scarcity of resources that are essential to your operations — like water — then you’re actually undermining your company’s long-term success. Talent is another strategic risk area. Companies tell us that their CSR efforts are essential to attracting millennials to their company and to supply chain roles.
Q: Gartner predicts that by 2019, global, publicly held manufacturers and retailers will double the amount of content dedicated to explaining supply-chain-organization-based ESG risks in their annual reports. Why is it important to make investors aware of ESG and CSR efforts?
A: Our research shows that institutional investors — the firms that may be your biggest shareholders — know that companies are running complex, global supply chains in a volatile, resource-constrained world. They want assurance that companies are making choices in supply chain that account for ESG risks and position those companies for long-term success.
Q: How can incorporating CSR into existing supply chain transformation efforts spur business growth for an organization?
A: At Gartner, we describe supply chain transformation and maturity journeys as opportunities to gain an “outside-in” perspective and get closer to your customer. The goals are to gain insight and add supply chain capabilities that enable you to create shared value. Although CSR conversations may start with focus on concerns about risks, they lead to really innovative ideas for new products, new differentiating processes and new market opportunities.
We think that CSR gives us a new way to talk about supply chain excellence. Our enhanced Supply Chain Top 25 scoring methodology allows us to recognize companies that are making efforts to ensure that their profitability doesn’t come at the expense of people or the planet.