4 Reasons Why Supply Chain Sustainability is Profitability

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In 2020 and beyond, Sustainability is Profitability

A decade ago, “Green” initiatives were considered a luxury, something nice to have to enhance brand image, and exclusively for larger companies. As recently as 2009, only 22 percent of CEO respondents in a Bloomberg survey thought sustainability would ever have an effect on investor decisions.

Concerns for the environmental impacts of business have long been discussed, but have historically fallen secondary to revenue generation. For most, feigning interest in green issues and getting listed on a “sustainability index” was enough to meet consumer demands.

Sustainable Supply Chains are the Future

But, those times are long gone. In the last few years, technology and products that promote sustainability initiatives, particularly in the alternative energy and supply chain spaces, have exploded. The impacts of environmental, social, and governance, or “ESG” programs are well known.

Corporate Social Responsibility (CSR) has also come into the limelight as more and more companies pledge major movements toward reducing greenhouse gas emissions (GHG) and striving for net-neutrality. In a world where stakeholders across the board are watching and transparency in operations is paramount, market-leading organizations have built sustainability into their DNA.

Part of that DNA focuses heavily on supply chain sustainability. As more and more organizations increase their long- and short-term sustainability pledges, the transportation and supply chain sectors are moving into the cross-hairs.

Read about the importance of prioritizing scope 3 emissions, and the role that transportation plays in that, here

Most impressive from a business standpoint is the fact that companies of all sizes understand that success on sustainability metrics has a real, bottom-line impact. As consultants Doug and Polly White of Whitestone Partners wrote in Entrepreneur:

“We view sustainability in the same light as quality. Sustainability, if properly implemented, cannot only be free, it can be profitable.”

In other words, supply chain sustainability has evolved past the point of simply being interested in looking like a good corporate citizen – organizations are fully subscribing to these initiatives.

Far from being a cost sink, sustainability can, itself, be a source of increased revenue and decreased operating costs. From the fuel consumption that moves your goods to market, to intermodal conversions, to emissions reductions and other factors in the sustainable trucking industry, the supply chain is full of green possibilities.

Investors Are Watching for Forward-Thinking Companies

The era of increased regulation worldwide and 24/7 digital access to information and news has created a whole new world for investors. Having been burned too many times by incidents where regulatory or compliance issues, customer harm, or raw materials access have damaged organizational profitability and reputation, stock buyers are wary.

Increasingly, pension plans, mutual funds, and other types of institutional investors have access to ever-more-sophisticated sustainability performance models when making decisions, and the numbers are clear: investing in more sustainable companies leads to better overall returns.

There are, however, very real challenges to adopting alternative energies and other sustainable technologies. It has taken quite some time for corporations to turn the tides to favor sustainability, primarily, because upfront costs to implement tend to be high.

For an in-depth analysis of the alternative energy challenges in transportation, click here

That being said, though the ROI on technology may feel distant, there are other benefits sustainability programs create today.

4 Benefits of Green Initiatives for the Supply Chain

The benefits of sustainability efforts reach organization-wide:

  1. Increased efficiency: reducing materials use, for example, leads to savings in transportation and disposal costs. Focusing on continuous improvement initiatives, like increasing fuel efficiencies that reduce energy consumption limits tailpipe emissions associated with a product.
  1. Competitive advantage: When an organization adopts a proactive approach, they position themselves to remain ahead of consumer demands and regulatory pressures like that experienced in California’s low carbon fuel standard. The trends are clear, sustainability will continue to live at the forefront of strategies, so investing efforts into sustainable programming will benefit in the long run.
  1. Risk management: Reputational risks can also be mitigated or avoided when organizations adopt systemic sustainable practices. Organizations with a positive track record will rise above challenges more resiliently than companies that wait for disaster to evolve. A 2016 study from Harvard Business School stated:

“…companies with strong corporate responsibility reputations ‘experience no meaningful declines in share price compared to their industry peers during crises’ versus firms with poor CSR reputations whose reputations declined by “2.4-3%; a market capitalization loss of $378M per firm.”

  1. Recruitment: New generations of young professionals want to see the companies they work for engaged in value creation beyond mere profit. Many are highly interested in working for companies that have a positive impact on society at large, and corporate social responsibility encompasses many of the issues that younger generations care about – but it doesn’t stop there. As the MIT Sloan study states:

“Overall, the results of the study show that by improving environmental, social and governance (ESG) performance throughout their supply chains, companies can enhance processes, save costs, increase labor productivity, uncover product innovation, achieve market differentiation and have a significant impact on society.”

It’s no wonder, then, that a Harvard Business School study found “high-sustainability” companies exhibited better financial performance than their peers.

For more information about the future of sustainability in the supply chain, you can download our Transportation Leadership Journal, here.

Additionally, contact us to learn how Breakthrough helps some of the world’s largest brands measure and reduce their transportation emissions footprint.

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