4 Reasons Why Supply Chain Sustainability is Profitability

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Environmental, Sustainability, Governance and Logistics

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. Concerns for the environmental impacts of business were secondary to revenue generation, if considered at all. For most, feigning interest in green issues and getting listed on a “sustainability index” was enough to pass muster. It was thought that these ideas would rarely, if ever, have an impact on anything other than customer perception. As recently as 2009, only 22 percent of CEO respondents in a Bloomberg survey thought sustainability would ever have an effect on investor decisions.

Those times are long gone. These days, the impact of environmental, social, and governance, or “ESG” programs is well known. 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. Most impressive from a business standpoint is the fact that companies of all sizes understand that success on ESG metrics have real bottom-line impact. As consultants Doug and Polly White of Whitestone Partners recently 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, sustainable operations have evolved past the point of simply being interested in appearing as a good corporate citizen. Far from being a cost sink, sustainability can, itself, be a source of increased revenue and decreased operating costs. From fuel savings and emissions reductions to insuring the integrity of the global supply chain, the link between being green and making green is well apparent.

Investors Are Watching

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 performance models when making decisions, and the numbers are clear: investing in more sustainable companies leads to better overall returns.

Per a 2016 MIT Sloan report, “60 percent of investment firm board members say they are willing to divest from companies with a poor sustainability footprint.”

On the other hand, the majority of investors believe that organizations with a good track record on ESG issues will benefit from lower cost of capital. Tools such as the “Decarbonizer” allow those considering a change in their stocks mix to evaluate the potential returns before they make a decision.

Returns from Green Initiatives

The benefits of sustainability efforts reach organization-wide:

  1. Increased efficiency: reducing materials use, for example, leads to savings in transportation and disposal costs. Changes such as allowing more telecommuting can raise employee productivity while shrinking emissions.
  1. Competitive advantage: reacting to consumer interest in sustainable products can grow market share and increase brand loyalty.
  1. Risk management: launching sustainability initiatives that take the possible effects of environmental disasters into account on raw materials access, for example, and aid in regulatory compliance. Reputational risks can also be mitigated through green practices, and an organization’s past track record matters most when issues arise. 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: Millennials, and the upcoming Generation Z, both want to see the companies they work for engaged in value creation beyond mere profit. They’re highly interested in working for companies that have a positive impact on society at large, and ESG fits the bill. 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.

Breakthrough®Fuel offerings are a great fit for ESG programs. Services like Fuel Recovery can play a key role in driving down overall fuel costs to increase transportation efficiency and reduce emissions, while our Advisor insights provide vital information for organizations to manage supply chain risk. Contact us to discuss how we can benefit your organization.

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