Corporations are finding that measuring, reporting and reducing their sustainability impacts delivers both short term and long-term benefits. Higher financial return and sustainability management are no longer trade-offs, and companies are enjoying positive returns on investment from embedding sustainability management across the value chain.
Supply chain (or value chain) impacts and dependencies together often represent both present and latent commercial and reputational risks and opportunities for an organization. Competitive pressures - such as a tightening regulatory environment, fluctuating energy costs, issues of supply chain resiliency and efficiencies, and a competitive market - are making supply chain sustainability management a strategic imperative.
Figure 1 shows the range of near and longer-term benefits that can be derived from Supply Chain / Scope 3 sustainable Spend Analysis, and the subsequent interventions that can be informed by that initial business information.
In Figure 2 Value-at-Stake (VaS) is used to show how a company can accumulate tangible benefits over time. VaS can be defined as the lost benefits from not measuring, monitoring and reducing impacts over time.
As shown in Figure 2, any sudden change(s) in legislation that puts a price on a given resource, like a carbon tax, immediately further increases the VaS.
Figure 3 depicts how the VaS increases over time once benefits from improved corporate image and brand value, enhanced competitiveness and risk reduction are factored.
These benefits are strategic and contribute to the sustainability of the company and its return on investment. With changing legislation, the market appeal of proactive companies will increase dramatically, while companies that carry on with BaU (business as usual) will incur increasing costs and erosion of reputation.
The following risks from not measuring, managing, and reporting emissions are increasingly recognized: profit exposure; market value at risk; brand value at risk; stakeholder reputational risk; insurance & credit rating risks; supply chain resiliency exposure, and investor relationships.
Losses from some risks take more time than others to recover e.g. brand value erosion. A damaged company image could take years and considerable resources to be restored. It is also accepted that a company’s proactive engagement regarding its sustainability impacts factors to attract and retain talent.
With that in mind, it is critical to note that the biggest potential benefits from sustainability impacts management lie in supply chain sustainability impacts management.
A CDP Supply Chain report looked at 57 global companies and 1,000 of their suppliers across a broad cross-section of industries. It found that 86% of companies saw tangible commercial benefits from working closely with suppliers to improve performance, and mutual return on investment.
Supply Chain analysis can reveal savings that otherwise would not have been unearthed. For example, Walkers Crisps discovered an unexpected opportunity to save energy while calculating its value chain and product carbon footprint. It turned out that because Walkers was buying its potatoes by gross weight, farmers were keeping their potatoes in humidified sheds to increase the water content. Walkers had to fry the sliced potatoes for longer duration to drive out the extra moisture. By switching to buying potatoes by dry weight, Walkers could reduce frying time by 10% and farmers could avoid the cost of humidification. Both measures saved money and energy and reduced the carbon footprint of the final product.
As in case of Walker Crisps, appropriate scope 3 accounting can help companies get a whole system view by mapping their emissions across the whole supply chain in order to detect the hotspots for significant efficiency improvement. In addition to simply avoiding the costs of poor performance in the supply chain, such analysis can bring about other very real, calculable and tangible benefits.
These include increased knowledge about suppliers. Engaging with suppliers for ongoing improvement improves communication and collaboration - essential for a robust and agile supply chain. Measuring and sharing an understanding of supply chain impacts leads to shared responsibilities, and creates ways to innovate efficient processes and new products.