Though the U.S. environmental movement has been going on in earnest for more than 50 years, the use of the term “sustainability” in connection with the natural environment is actually fairly recent, going back only as far as 1987, where it was first used in a report prepared for the United Nations. That’s when the sustainability concept began taking off, engaging both private companies and public sector entities as well as nonprofit groups and individuals in its pursuit.
But the broad appeal of the sustainability concept has challenges. Like a Christmas tree, the idea has gradually attracted a wish-list of ornaments — primarily social goals — which now hang heavily from its branches, many of which, at least at face value, tend to address the topic and the sustainability movement differently.
As a result, the idea of sustainability is impacted by the agendas of advocates for an assortment of high-minded causes. One, for example, is the 2018 U.S. Green New Deal, which includes urban renewal, job guarantees and the modernization of mass transit as elements of sustainability. Another, from the U.N. Department of Economic and Social Affairs, goes even further. It lists 17 sustainability goals including the eradication of poverty in all its forms, universal peace, the end of tyranny, and gender equality, among many others.
While these are certainly worthy goals, such a broad definition risks delaying or derailing initiatives with more actionable and concrete objectives. In the context of its original environmental meaning, sustainability remains a high-value pursuit in which private companies, as well as governments, nonprofits and individuals, can make a meaningful difference. Beyond that, the author of a 2014 Harvard Business School paper makes a persuasive case for environmental sustainability as a winning business strategy. But doing so is neither simple nor easy. In the case of manufacturing, for example, there is almost always a lengthy chain of suppliers whose activities contribute heavily to the finished product’s environmental footprint. Yet even finding out about those activities, much less assessing and influencing them, can be a daunting task.
The Great Pandemic
The onset of the COVID-19 pandemic certainly didn’t help. Even though by 2019, environmental sustainability had become a priority for many businesses, when the economy in sector after sector cratered the following year, those efforts often came to be regarded as luxuries which would have to be postponed if the company were to survive. But with economic recovery now beginning to return, the priority on environmental stewardship needs to return as well. And for many organizations — particularly those dealing in physical goods — the role of procurement becomes central.
That’s because, when it comes to collaborating with the supplier community in addressing environmental concerns, procurement is the business function with the closest connection to outside vendors. Even so, a company’s visibility into its supply chain — particularly when it comes to Tier 2 and Tier 3 vendors — is often very poor. That includes low-quality or missing data as well as difficulties in collaborating with suppliers further down the chain. Yet supply chains are responsible for 90% of companies’ environmental impact. As a result, no meaningful reductions can take place without the active involvement of those suppliers.
Even some Tier 1 suppliers, despite being keenly aware of their customers’ sustainability standards, have nevertheless gone on to violate them, much to the chagrin of such high-profile companies as Apple Inc., Dell Technologies Inc., Hewlett Packard Enterprise Co., Adidas AG and Nike Inc. However, the risk is almost always greater among lower-tier suppliers, exposing organizations to a variety of financial, social and environmental risks, while operating where visibility typically ranges from poor to non-existent. Beyond that, the influence of a company on its lower-tier suppliers may be limited by the comparatively modest share of that supplier’s business represented by a single company further up in the value chain, and lack of direct interaction.
Even so, many businesses have continued to advance their sustainability efforts. Before the pandemic, corporate executives had been reporting steadily increasing sustainability agendas and their integration into the business — a growth trend that McKinsey & Co. had been tracking through bi-annual surveys. Perhaps surprisingly, because it seems counter-intuitive, one-third of the respondents said that their companies’ top reasons for addressing sustainability included improving operational efficiency and lowering costs. Corporate reputation was the second most frequently cited reason, followed by alignment with the company’s business goals or values, reducing energy use and cutting waste in operations. Ironically though, while 57% said their companies have incorporated sustainability into their strategic planning, supply chain management and related budgeting were the corporate activities cited least often as having become integrated.
While that’s understandable, it’s also a huge omission. Support for environmentally responsible products and production methods is growing, not shrinking. Some of it is legal, including government-issued licenses and permits to make sure the company is in compliance with environmental regulations. In the U.S., they include the Resource Conservation and Recovery Act, the National Pollutant Discharge Elimination System permits, the Endangered Species Act, the Clean Air Act, a host of regulations from the Food and Drug Administration, the Department of Agriculture, and many other state and federal agencies that also stipulate serious fines and other liabilities for violators. Public awareness and sentiment concerning both environmental protection and responsibly produced goods has also been growing, affecting the markets for products of all types. Accordingly, businesses have responded by revising their own operations and leaning on suppliers to do the same. And there are new tools available to help.
The Sustainable Toolkit
There are a number of voluntary standards and guidelines that industry associations, including the influential ISO, have been promulgating that concern all aspects of production. Production equipment and methods, affecting essentially every industry, are steadily becoming more efficient and environmentally benign. New technologies and industry best practices are emerging to help narrow visibility gaps into supply chains. Commercial spend management software is now available to provide businesses with a holistic view of suppliers and their sub tiers, along with their sustainability practices. Third-party data and certification sources are becoming widely available to support that visibility and increasingly integrated into spend management platforms to improve accessibility when making decisions. Pressures on businesses to improve their environmental impact are cascading down the supply chain, including the requirement that vendors provide their data as part of any sourcing arrangement. Having that information not only helps to secure more detailed environmental reporting, it can also help companies ensure competitive sourcing of essential supplies and alternatives in the event of an unexpected outage.
Cynics will argue that today’s global economy is marked by cutthroat competition in which success can only be achieved by cutting corners, beating up suppliers and gaslighting any discussions of social responsibility. It is, in that view, a vicious downward cycle of human, product and environmental degradation.
But there is also another way of looking at it. By raising standards and building constituencies for them, a virtuous cycle of improvement can emerge in each of those same areas, making them not only possible to achieve, but also helping to make sustainability a standard of profitable business operation as well as a pillar of an environmentally better world.
Alex Saric is chief marketing officer at Ivalua.
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