Supply Chain Sustainability: Hardly a Luxury

Editor’s Note: In the November issue of SCMR, we published three articles on the current state of sustainability, including Sustainability As Strategy: Caught In The Luxury Trap. In that piece, our authors argue that since the recession, sustainability efforts have stalled because the practice has come to be viewed as costing too much, while delivering too few benefits. They argue that companies need to refocus their sustainability efforts through a different lens. At the same time, at our recent Supply Chain Outlook Summit, several presenters, including the University of Tennessee’s John Bell, argued that sustainability will be an imperative to successful supply chain managers going forward. To that end, we invited Elizabeth Sturcken of the Environmental Defense Fund to offer a counter argument to the idea of sustainability as a luxury trap. Feel free to send me your comments at [email protected], and let me know how your supply chain is viewing sustainability post the Great Recession. Bob Trebilcock, Editorial Director, Supply Chain Magazine Review.

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Corporate partnerships have been a cornerstone of Environmental Defense Fund's (EDF) approach ever since we launched our first partnership with McDonald's 25 years ago. Since then, we have kick-started market transformations in fast food with McDonalds, shipping with FedEx, retail with Walmart, and private equity with KKR. As we look ahead, the opportunity and need for private sector leadership on the environmental issues that we care about the most has never been greater. As a result, EDF is doubling down on our efforts to engage market leading companies to drive innovation, leverage their supply chains, unlock capital flows, and advocate for the policy change needed to turn the corner on climate change.

Being on the ground, directly working with powerful companies over the past 18 years, I've seen how science, economics, and flat-out patience and pragmatism has shifted the dynamic of corporate sustainability from tending to one's own operations, to extending sustainability across the supply chain and collaborating with suppliers and competitors, to publicly supporting smart climate policy. This isn't about image, and this isn't a luxury for a handful of brands: This is how today's business stays viable in a landscape increasingly put at risk by environmental challenges.

In 2050, there will be 9 billion people in the world consuming more of everything – more energy, more food, and more products – and using more resources and creating more pollution. Business strategy needs to address this growth without depleting our natural resources. That's why EDF works with partners like Walmart. We look toward powerful businesses to leverage their influence across global supply chains. We leverage their purchasing and convening power to increase demand for more sustainable products—from food to children’s toys to beauty products—- and to inspire change in board rooms and factories and on store shelves.

We've worked with Walmart for 10 years, and during that time we've been building the sustainability road at the same time we were speeding down it. And, like many companies we work with, there has been a steady progression toward wider and bolder sustainability goals. In fact, Walmart is pushing hard on all aspects of its operations and supply chain, driving sustainability in its stores and fleet and in the products it sells because it's good business and because it's good for their millions of customers. Walmart is on track to cut 20 million metric tons of greenhouse gases from its supply chain by the end of 2015, spurring cost-savings and innovation in areas as diverse as light bulbs, food waste and farm practices. By engaging its suppliers, Walmart is sending the demand signal to improve fertilizer practices across 15 million acres of farmland; and is removing hazardous chemicals from its home and personal care products. Walmart is over 80% of the way to achieving zero waste and is on track to double fleet efficiency.

Contrary to researchers from Weber State University and The Ohio State University who recently suggested that sustainability has become a luxury, we see more and more companies that are doubling-down in their pursuit of long-term, holistic sustainability programs. Just recently, 81 major companies, (ranging from AT&T to Facebook to Walt Disney Co.), have publicly taken a White House pledge to reduce carbon emissions and support a strong United Nations climate deal on global warming. Similarly, Goldman Sachs, Johnson & Johnson, Nike, Inc., Procter & Gamble, Salesforce, Starbucks, Steelcase, and Voya Financial pledged to ensure that 100 percent of their electricity would come from renewable energy sources, not only reducing CO2 emissions, but enjoying the associated business benefits.

In truth, the data shows that sustainability is smart business. A recent McKinsey article pointed to research by Deutsche Bank, which evaluated 56 academic studies, and showed that companies with high ratings for environmental, social, and governance (ESG) factors have a lower cost of debt and equity; 89 percent of the studies they reviewed show that companies with high ESG ratings outperform the market in the medium (three to five years) and long (five to ten years) term. Recent research by three economists (two from Harvard and one from the London Business School) looked at 90 companies and showed that high-sustainability companies did better with respect to return on assets (34 percent) and return on equity (16 percent). For more on this, download the McKinsey study “Profits with purpose: How organizing for sustainability can benefit the bottom line.”

All of this positive momentum points to forward-thinking, industry leaders expanding their sustainability efforts to address the business risks associated with extreme weather, mounting energy costs, logistics inefficiencies and pressure from consumers.

As the climate continues to shift at an alarming rate, it is critically important going forward that more leading companies make the commitments to develop sustainably-produced products and work with suppliers and partners who make similar commitments. The power of the supply chain will ultimately be the key catalyst for change.

In the final analysis, sustainability is not a luxury; it's a necessity for survival in highly competitive markets. It is the business as usual work that product producers, manufacturers, shippers and retail outlets engage in to achieve better results for their bottom lines and for the planet.

Elizabeth Sturcken is managing director of Environmental Defense Fund's Corporate Partnerships Program.

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