Why Sustainable Sourcing Is Good For Business

Research shows the business case for supply chain sustainability is growing. While more companies expand their sustainability programs to include suppliers, they struggle with implementation. The UN Global Compact's 2013 Global Corporate Sustainability Report finds that companies are increasingly talking about supply chain sustainability. Why Companies Should Consider Strategic Sourcing Last Updated October 7, 2019 In today’s competitive business climate, supply chain management professionals are constantly seeking out creative ways to reduce costs, assure and improve the quality of the final product and achieve a faster time to market.

Increasingly, businesses are making strategic decisions around the type and extent of their corporate sustainability policies. In addition to environmental and social benefits, companies that incorporate sustainability into decision-making processes can reap significant financial advantages and attract more interest from investors, which is a key to long-term profitability.

Yet sustainability can have a variety of meanings, depending on the business context. On this article, you will understand how the concept is applied in terms of the environment, employment practices and business practices.

Environmental sustainability

Environmental sustainability can be applied in many ways, such as creating alternative routes in a production process to reduce waste generation and increase water and energy efficiencies. Investment in renewable energy is also growing momentum among big organisations, with many building their own solar or wind farms, in order to phase out the consumption of fossil fuels and reduce their carbon emissions.

Climate change, one of the biggest challenges of our time, continues to influence the way companies are doing businesses. Research undertaken by CDP shows that last year, 215 of the world’s largest companies reported that they saw nearly $1 trillion at risk from climate impacts, but also $2 trillion in opportunities. Thus, climate leadership is a key to ensure the profitability of organisations over the next decades.

Attaining the carbon neutral certification under the Climate Active Program – a program from the Australian Government that certifies companies, products, events or buildings that are able to neutralise their GHG emissions – is a great incentive for organisations to show climate leadership. The certification contributes to improve the image of companies, as consumers have been asking for urgent climate action.

Sustainability and employment

Businesses with strategies that are sustainable in the long run pay their workers’ salaries and benefits that allow them to live a sustainable life within their community. This builds loyalty within the organisation, benefiting the company through increased productivity and creativity, as well as lower levels of fraud and mismanagement.

Besides, when organisations look to improve the health and well being of communities, they are able to motivate employees who are genuinely interested in contributing to the success of the business.

Business

Sustainability in business practices

Why Sustainable Sourcing Is Good For BusinessWhy sustainable sourcing is good for business customers

Pushed by growing demands from consumers for products and services that cause minimal effects to the ecosystems, corporations have shown interest in bringing sustainability aspects to the core of the business. Another driving force behind this is the pressure from investors, who are already considering the level of corporate social responsibility, in other words, the role of businesses to address the needs of society, as a decisive factor on their choice of organisations to allocate capital.

Sustainable investing – the process of incorporating environmental, social and governance (ESG) factors into investment decisions – is becoming a common practice. Corporations are going beyond the desire of profitability, which is shown by their growing efforts to build internal environmental policies and also take part in global tendencies, like the alignment with the Sustainable Development Goals (SDGs) – topics suggested by the United Nations to guide organisations on the development of policies towards sustainability.

Therefore, the incorporation of sustainability principles into business practices is becoming mainstream. Companies who don’t follow this tendency are likely to lose credibility from investors, as well as opportunities to generate revenues and the chance of being an example to society.

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'Greening' your company, via any number of means, obviously brings multiple benefits to the physical environment. But while going green may be the responsible thing to do, many companies shy away from these sustainability measures. The reason is their (common) misconception that the costs will outweigh any benefit, that there is no bottom-line value in environmentally responsible business practices.

Why sustainable sourcing is good for business marketing

In fact, this belief may be false, because setting a green path can often improve your bottom line.

So, why set a green path for your own company?

'Sustainability' is a catch-all phrase that refers to the science, or practice, of acting so as not to harm the environment, protecting (rather than depleting) natural resources and supporting long-term ecological balance.

In business, sustainability may refer to any number of operational, technological or product efforts that support environmental protection. For example, some companies set a green path by utilizing environmentally-friendly materials and/or locally sourcing those materials for the manufacture of their products.

Other activities include: producing products that may be recycled at the end of their lifespan for material reuse; reducing energy consumption in operations; or even re-engineering distribution methods as a means of reducing long-distance travel during product delivery, ultimately reducing fossil fuel consumption (and the disease-causing air pollution that is its byproduct).

These represent just a handful of ways to improve sustainability in business. There are many additional ones that will help ensure the protection of the environment. Some of these green measures also have the power to meet customer demands, representing a positive image for the business as well as a positive move for the environment.

Related: Report: Green Business Leads to a Greener Bottom Line

Keep in mind something else: Very few businesses can claim no competition. When done well, innovation in environmental sustainability can create market differentiation as well as opportunity. And most entrepreneurs understand that you are either leading or following. Thus, innovation may be a matter of survival. And, what's more, not all sustainable innovation needs to be profound, or novel. It is more important that the effort deliver value, perceived or otherwise, to your customers.

Where to start

When determining how your organization may best employ sustainability measures, keep in mind that research and development cannot dictate your customers’ needs; your customers do that. Start by analyzing your market to determine what your customers’ needs truly are, then develop a plan to provide a solution to meet them.

The challenge will be finding ways to effectively incorporate meaningful “green value” to the solutions you aim to provide, whether they lie in technology, operations, end product for sale, etc. Ideally, the green value will carry not only the marketable perception among customers that your company is being green, but should also yield a potential net value, such as cost savings or efficiency.

One benefit of setting a green path is the likely belief among customers, business partners, employees and others stakeholders in your company's goodwill. Some customers will even pay more for eco-friendly products. Unfortunately, scale in business is critical and the potential consumers interested in goodwill or sustainable products only may not be sufficient in number to justify the expense of the innovation.

So, instead, focus on net cost savings to your company, market differentiation or savings to the consumer to help ensure ultimate success.

In 2014, the company I lead -- Lapolla Industries -- decided to forge a path ahead of our competition by re-engineering the chemistry of our core product line. This innovation in materials technology aimed to mitigate two negative environmental impacts common to all competing products in our space: ozone depletion and global warming impact.

Essentially, the innovation allowed us to bring to market a “next-generation” product line of spray polyurethane foam for insulation and roofing that represented a much more environmentally friendly solution for homes, commercial structures and consumers at-large.

Good

While many of our competitors hesitated to make similar product sustainability improvements (presumably for cost reasons), it was important for us to complete this move ahead of them or any future regulation. Not only was it the right thing to do, but we also recognized the power it gave us to set ourselves apart from the group, as well as to positively impact our bottom line.

Innovation for bottom-line value

Why Sustainable Sourcing Is Good For Business Marketing

Many business leaders today refuse to employ sustainability measures, as they believe the cost will outweigh the benefit. However, viewing sustainability measures simply from a cost perspective may be shortsighted. Focus, instead, on the innovation fundamentals that will deliver both consumer and bottom-line value.

Why Sustainable Sourcing Is Good For Business Customers

Because bottom-line value can be defined in two ways -- as an increase in market share or as a reduction in costs -- different avenues exist for linking your environmental responsibility to such growth. As long as your efforts grow your financial stability, it doesn’t matter which direction that growth comes from.

When our company sought to make our spray foam products more eco-conscious, we collaborated with raw material suppliers to innovate through technology. This allowed us to achieve the new thresholds while also achieving a net cost savings for our customers. Although the technology cost was 10 percent more than our previous generation of products, the net savings to our customers was approximately 10 percent, achieved through a pick-up of 20 percent in added efficiency.

Why Sustainable Sourcing Is Good For Business Entities

Related: 3 No-Brainer Reasons Why I'm Going More Green -- and Why You Should Too

Why Sustainable Sourcing Is Good For Businesses

This resulted in a market interpretation of innovation, market leadership and goodwill, as well as consumer cost savings -- a true win-win all around. We believe success of this kind is achievable by businesses of many types, and that if more leaders jump on board, our planet will be much better off.