If you think sustainability is a topic that will fade in a few years, you’re dead wrong.
Sustainability is just beginning to gain traction, and it won’t be long before it completely reshapes business operations. Procurement is leading the way. Already, major global brands like Bain, Bayer, and Air Liquide are pledging their commitment to sustainable procurement.
What does that mean? Sustainable procurement refers to procuring goods and services that have been produced in a sustainable way. It means doing due diligence in the procurement process to ensure that your suppliers—and your suppliers’ suppliers, and your suppliers’ suppliers’ suppliers—are proactively seeking ways to minimize waste and reduce their carbon footprint.
Sustainable procurement means ensuring that your suppliers—and your suppliers’ suppliers, and your suppliers’ suppliers’ suppliers—are proactively seeking ways to minimize waste and reduce their carbon footprint.
Brands are taking a stand on sustainable procurement because they know the stakes are high. Consumers and investors want businesses to prioritize sustainability, and they’ll favor those that do.
Operations leaders must follow suit to future-proof their businesses by procuring goods and services from environmentally conscious suppliers and vendors.
Sustainability matters to consumers more than ever
Brands that do not invest in sustainable procurement risk losing even the most loyal customers.
Close to 80% percent of consumers say sustainability is important to them. Sixty percent would even be willing to change their shopping habits to reduce environmental impact, recent research from IBM shows. With Gen Z shoppers leading the way in this consumer shift, these numbers will only grow.
You’d have to live under a rock not to know that the latest generation is worried about climate change. Environmental disasters and the climate-related debates around them are all over the news. Consumers literally can’t avoid the conversation on sustainability, so it’s no wonder Gen Z has come to view it as the most important global issue.
You’d have to live under a rock not to know that the latest generation is worried about climate change.
What’s more, many of these disasters are closely linked with commodity production. Take fires in the Amazon rainforest, for example. Research from CDP suggests that as of 2015, over 60% of forest loss in Latin America was related to the production of key commodities like timber, cattle, palm oil, and soybeans. Consumers are making that connection and changing their behavior in protest. Following last year’s cattle-ranch related fires, for example, consumers took a stand by becoming vegetarian.
These trends will continue as the next generation becomes more aware of the risks their consumption has on the environment. Companies should take action now to source key commodities from environmentally-conscious suppliers.
Investors care about sustainability, too
Investors are increasingly moving capital to funds related to environmental, social, and governance (ESG) matters to guard against risk—both from disillusioned consumers and from business-continuity issues. If companies don’t respond to these shifts, they put their share price in jeopardy.
If companies don’t respond, they risk sinking their share prices.
Climate change was a key theme at the 2020 World Economic Forum, and top financial institutions are encouraging their clients to invest in sustainable businesses. BlackRock even went so far as to say the firm would avoid investing in companies that pose sustainability-related risks.
“I believe we are on the edge of a fundamental reshaping of finance,” Larry Fink, CEO of BlackRock, wrote in an annual letter to chief executives.
We certainly are: $20.6 billion was invested in ESG funds in 2019, according to Morningstar data. That’s almost four times the amount invested in ESGs in 2018, marking a major shift in the span of only one year.
Companies have a duty to their shareholders to respond to this shift, and sustainable procurement is one of the most straightforward ways to do that. It doesn’t require you to invest years of time building wind turbines or reducing your emissions—although these things are also important. You just need to take a strong stand and eliminate suppliers that expose your business to environmental-related risk. Guarding against risk, after all, is one of the primary objectives of procurement.
Sustainable brands are already winning
The data is in, and it shows that brands that prioritize sustainable procurement will outperform those that don’t.
As early as 2014, the CDP reported that companies with sustainability strategies saw an18% higher ROI than companies without one. Some companies have resisted engaging in sustainable operations because they fear such a move would be very costly. That clearly isn’t the case.
ESG investing is already paying off, too. Higher ESG-rated companies fared better than lower ESG-rate companies when markets tumbled at the start of the COVID-19 crisis, and BlackRock believes this trend will continue.
In a recent report, the firm said,“We believe companies managed with a focus on sustainability should be better positioned versus their less sustainable peers to weather adverse conditions while still benefiting from positive market environments.”
The evidence supports BlackRock’s statement. Just look at Patagonia’s success.
Patagonia is a champion for sustainability and even encourages consumers to try repairing their old gear before purchasing something new. In 2011, after they took out an ad in the New York Times, telling customers not to buy their jacket, they saw an increase in sales of 30%, according to Fast Company.
More recently, the company went so far as to change their entire value proposition. “We’re in business to save our home planet,” their website reads. Patagonia is a privately held company, so growth figures aren’t publicly available, but given the positive response on social media, we have to assume their strategy is working.
Unilever has been successful, too. The conglomerate’s Sustainable Living Brands grew 69% faster than the rest of the business in 2018, delivering 75% of overall growth.
Whether you’re a privately owned company with just a hundred or so products, or a publicly traded behemoth owning more than 400 brands, sustainability can win for you too.
Sustainable procurement can make or break your reputation
Today, sustainable procurement is a great way to differentiate your business. Soon, however, it won’t be a nice-to-have; your reputation will depend on it.
Three of four CDP Supply Chain program members expect to deselect suppliers based on environmental performance, according to the organization’s 2018/19 supply chain report. That leaves only 25% hoping sustainability is just a fad—and exposing themselves to reputational risk.
Remember the 15% plummet Nike stock suffered when the company was exposed for unethical sourcing in the late 1990s? You don’t want to find yourself in a similar situation in 10 years because your business was part of the minority that didn’t source sustainably produced goods.
Time is running out. Get ahead of consumer sentiment by prioritizing sustainable procurement now.