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The practice of sustainability is evolving into a broader effort that extends beyond the environment to include social responsibility and economics. In addition to raising awareness of sustainability so that it is on the agenda of higher level decision makers, there is also a trend toward determining the financial implications of environmental impacts. CPG companies of all sizes are working to link sustainability with financial performance within the enterprise and across the supply chain.
Early efforts to determine the economic benefits of sustainability projects were not particularly successful. Since then, additional tools have been developed, along with an executive-level understanding of environmental terms and relationships, leading many CPG companies to innovative measurement methods. An example is P&G's supplier environmental scorecard, which they use to share savings with suppliers. Including sustainability as a measure of supplier performance is particularly relevant when large spends are concentrated on a small group of suppliers. And involving supply chain partners both up and down stream is significant for sustainability programs.
Companies like Sara Lee have also turned to life cycle analysis (LCA) to assess environmental impacts associated with all the stages of a product's life from cradle to grave. LCA enables financial analysis of environmental impacts across a product's life.
Pressure is coming from customers, forcing companies to think about the financial consequences of sustainability investments and strategies. For example, Puma developed an environmental Profit and Loss (P&L) statement for its global supply chain. Thinking like this is helping companies justify expenditures on sustainability initiatives and rationalize the high priority of sustainability in the organization.
Many companies are also striving to calculate an environmental return on investment and a financial ROI. The financial ROI takes into account the cost factors associated with an initiative. The environmental ROI considers the impacts on environmental factors, such as energy usage, water usage and greenhouse gas emissions. Analysis of financial and sustainability factors is an emerging best practice that delivers value and reduces risk exposure. But the key to success lies in analyzing environmental and financial value and risks in parallel.
The financial tools and methodologies needed to analyze environmental initiatives will continue to be refined, allowing for better analysis and decision making in the future. It is important to ensure that the organization has the competencies and motivation to view environmental activities from both a financial and sustainability perspective. In the future, successful CPG companies will continue to link sustainability with financial outcomes throughout the supply chain.
Source: Tompkins Supply Chain Consortium
Keywords: supply chain management, value chain, sustainable supply chains, green logistics green supply chains
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