12 Weeks to Davos: Why Sustainable Business Is Good Business

Will Ritzrau and Christine Müller

17 weeks to Davos. 17 global goals to achieve a sustainable future. 17 blog posts exploring the UN’s vision for humankind. Here is number 12. 

Global Goal #12: Ensure sustainable consumption and production patterns.

Reduce resource use, degradation, pollution, and waste along the whole lifecycle; facilitate cooperation among actors operating in the supply chain; and provide consumers with adequate information and transparency for sustainable consumption and lifestyles.

Dame Ellen McArthur got it when sailing solo around the world. Our global economy is dependent on finite materials we only have once in the history of humanity, yet we are consuming these at an ever-increasing speed. In an inspiring TED talk earlier this year, McArthur laid out how she discovered that a shift from a linear to a circular economy is the solution to get out of the dilemma. She said, “If we could build an economy that would use things rather than use them up, we could build a future that really could work in the long term.”

McArthur refers to both risk and opportunity as key drivers. The risk of resource scarcity and price volatility can wipe away operating profits, just as car manufacturers had experienced with their raw materials. The opportunity of new business models, such as Philips’ “Lighting as a Service” or those built on sharing resources, are exciting. This is particularly appealing to younger generations and leading to the rise of Uber, Airbnb, Yerdle, and more.

Is the glass half-empty or half-full?

Indeed, there are always two ways of looking at why companies should make products and services more sustainable along their lifecycles and supply chains. The reputational damage, negative effects on stock prices, and costs for lawsuits and legal fines can be enormous and spiral out of control. In a study of Palm, Walmart, Baxter International, Mattel, Total S.A., and others, research organizations INSEAD, ecovadis, and PricewaterhouseCoopers analyzed the direct costs of a supply chain disruption from a sustainability issue. They discovered that, on average, a disruption caused companies a 0.7% drop in revenue, as well as a 12% decrease in market capitalization.

“Sustainable business is good business,” says Yvon Chouinard in describing Patagonia’s successful approach towards sustainable consumption. There is always the chance to innovate, differentiate, and tap into new and more profitable market segments and grow decoupled from resource constraints. Earlier this year, the Conference Board did a study in cooperation with the Independent Regulatory Review Commission. They found that revenues from sustainable products and services grew at six times the rate of overall company revenues within the sample of companies examined. Between 2010 and 2013 and across various industries, revenues from sustainable products and services grew by 91% while overall company revenues grew by 15%.

Supporting the choice for more sustainable products

IT technology and data can help make the sustainability performance of a product or service transparent. It can help educate consumers and corporate buyers about the social and environmental footprint and support them in making conscious buying decisions.

Wouldn’t you like to know where the chocolate Santa brings to your children comes from? Imagine you had an easy way to find out. Where did the ingredients originate?  Did the cocoa farmers use pesticides? What were the social conditions of the workers? These questions are easily answered if you’re shopping online at Walmart.

In 2005, Walmart set out to turn the largest retailer ($476 billion revenue in fiscal year 2014, 2.1 million employees, and 10,000 stores globally) in the world into the greenest. CEO Lee Scott announced ambitious multiyear goals to increase fleet efficiency, overall in-store energy consumption, and significantly reduce solid waste from U.S. stores. Aside from the expected positive financial impact, these measures helped increase the brand perception of the companyh. Since then, Walmart updates their ambitious targets continuously.

The original targets focused on internally controlled initiatives. Like the majority of retail companies, more than 90% of the overall sustainable footprint of Walmart is in their value chain. The company has roughly 200 million customers and 100,000 Tier 1 suppliers. What a reach!

In the beginning of 2013, the first set of 2,500 suppliers were invited to participate in the product stewardship network. Within four weeks, more than 50% of the invited suppliers provided the requested sustainability information by simply completing the questionnaire electronically.

By the end of 2017, Walmart will buy 70% of the goods it sells in U.S. stores and its Sam’s Clubs only from worldwide suppliers who use the index to evaluate and share product sustainability. Consumer transparency – from feed to fork – is enabling consumers to make conscious decisions about products they wish to consume.

SAP is doing its part

As part of fulfilling our vision and purpose to improve people’s lives, SAP provides technology that supports companies in conducting survey-based assessments of their suppliers to improve the sustainability of their products. For content, our technology is based on category assessments that were developed by The Sustainability Consortium (TSC).

This online network enables the collaboration between Walmart and their suppliers to take place. More than 700 product categories are made available by TSC, and a couple of thousand suppliers are already onboarded and using the network. The current content is based on the well-established CSP framework of the TSC and can be easily complemented by customer-specific questionnaires.

In addition, SAP seeks to buy products and services from suppliers who meet high environmental and social standards. Such procurement practices help us create a positive impact and provide levers through which we can reduce our emissions. Working with suppliers who demonstrate a commitment to sustainability furthermore enables us to comply with the requirements of our own customers. That closes the loop. After all, the way to go is circular.

This blog is part of our 17 Weeks to Davos series. To learn more about the UN Global Goals and how you can help make the world a better place, view this interactive Web experience from SAP: 17 Global Goals to Achieve a Sustainable Future.

 

 

 


About Will Ritzrau and Christine Müller

Will Ritzrau is the Director of Sustainability at SAP. Christine Müller is an SAP HCM Inhouse Consultant.