"In the last 10 years, we have seen our clients shift from incremental performance improvements to sustainability programs that are starting to transform the organization." Steve Starbuck, Americas Leader of EY's Climate Change and Sustainability Services
Businesses cannot choose between growth and sustainability. They must do both.
How is the drive for sustainability affecting consumer product companies?
Companies have a variety of sustainability initiatives.
Environmental performance of the supply chain. The priorities are lowering the carbon footprint of products and reducing waste. In 2009, Walmart launched its worldwide sustainability index project with a goal to eliminate 20 million metric tons of greenhouse gas from its supply chain by 2015. Ultimately, Walmart hopes to provide its customers with greater transparency over the quality and history of the products it sells1.
Energy efficiency. Reducing energy costs makes great business sense and helps the environment. In our recent global study, despite the uncertainty around a global agreement on climate change, 82% of executives were planning to spend on energy efficiency and 64% already report greenhouse gas emissions data in their annual reports2.
Use of natural resources. The reliance on limited natural resources is a long-term economic threat as well as a threat to the environment, leading many consumer products companies to only source raw materials from suppliers meeting strict sustainable agriculture guidelines. Water management is a critical environmental issue that affects not only the rate of growth of production operations, but also the local communities in which companies operate.
For example, Europe's four largest brewers are seeking to make more beer from less water, showing awareness of the availability of water and the impact of scarcity on their supply chains and local communities3.
The challenges and risks of sustainability reporting
Companies face a myriad of strategic climate change and sustainability risks, including:
- Market positioning
- Increased regulation
- Changing consumer preferences
- Resource scarcity
- Strategic investments (e.g., cleantech, renewable energy)
- Communications with stakeholders and investors
Environmental and social performance carries with it significant reputational risk, particularly for consumer products companies. Getting the target-setting process wrong can waste money and actually damage credibility.
When companies expand their supply chain globally, they risk doing business with suppliers that have unlawful labor practices.
Transparency reporting of sustainability performance comes with its own risks, including:
- Data consistency
- Achieving a balance between positive and negative information
- Needing to continually improve performance
Investor pressure for sustainability information has created an avalanche of ratings, rankings and indices — and confusion for companies about which ones matter.
In our experience, most companies' systems and processes for collecting, storing and analyzing the data make it a challenge for them to respond efficiently to the ratings organizations — which may result in them not getting the reputational benefits they deserve.
What are consumer products companies doing?
In the last 10 years, we have seen our clients shift from incremental performance improvements to sustainability programs that are starting to transform the organization. These programs are now affecting core products and services, as well as the way goods and services are provided, manufactured or sold.
Globally, the consumer products sector has been at the forefront of setting targets for reducing water usage and their carbon footprint and enhancing supply chain integrity.
Internally, companies need to decide on what is material for nonfinancial reporting purposes, clearly define key performance indicators and assign responsibility for the associated risks. Management, the board and increasingly the audit committee need to know that the information reported is robust, accurate and complete.
Time for the skeptics to engage?
More than 1,400 companies worldwide now issue sustainability reports based on the Global Reporting Initiative (GRI). The risk for those not communicating their climate change data is that stakeholders will seek this information from potentially less-reliable third-party sources.
However, sustainability is about much more than reporting. It's about embedding good practice into business as usual.
Companies have found that building a more robust sustainability framework can create opportunities to unlock hidden value, including enhancing revenue, reducing costs and minimizing risks.
2Action amid uncertainty, EY. May 2010.
3E Dierckx, D Johnston and N Kamp-Roelands, "What's in your sustainability report?" Brewers Guardian, 26 October 2010.
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