5 minute read 21 Apr 2020
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How a comprehensively sustainable approach reaches beyond compliance

By

Glenn Steinberg

EY Global and EY Americas Supply Chain Leader

Helping companies transform, create value and optimize business performance. Thirsty for knowledge. Ski enthusiast. Husband and father of two Michigan Wolverines.

5 minute read 21 Apr 2020

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Managing sustainability primarily for compliance might cause you to miss opportunities for efficiencies, innovation and societal benefits.

Within the last 5 to 10 years, an increasing number of companies have started to establish corporate sustainability programs with broader goals. These range from requiring suppliers to conform with laws and regulations that address humane and liveable working conditions to measuring the environmental impact along their entire supply chains. In fact, 89% of companies now measure environmental impact, according to a 2018 study, “Insights from Successful Supply Chain Sustainability Practices,” by the National Association for Environmental, Health, Safety, and Sustainability Management (NAEM).

Yet many corporations have viewed supply chain sustainability primarily to reduce waste and lower costs to improve their bottom lines and streamline operations. Indeed, nearly half of the companies that responded to the latest EY supply chain pulse survey of 212 supply chain executives from US companies over US$1b in size ranked cost savings as one of their top two reasons for adopting a more sustainable supply chain (Figure 1).

Figure 1. Top three reasons for moving toward a sustainable supply chain
Top three reasons for moving toward a sustainable supply chain

On another level, companies are also seeking to protect their brands by ensuring that suppliers comply with labor and environmental laws. In the EY survey, brand and reputation management was cited as the second most important reason for ensuring supply chain sustainability (Figure 1).

Obstacles to supply chain sustainability program adoption

The EY survey also found that lack of budget, resistance from suppliers and lack of executive buy-in ranked as major obstacles toward adopting more comprehensive supply chain sustainability programs (Figure 2). As environmental, health and safety issues take on higher visibility among vocal stakeholder groups — consumers, regulators, employees and investors — more organizations are elevating supply chain sustainability oversight to the board level. While this is a welcome development, increasing board awareness of environmental issues may not be enough on its own. 

Figure 2. Top obstacles to achieving supply chain sustainability goals
Top obstacles to achieving supply chain sustainability goals

EY research suggests that even when boards have a more favorable view of sustainability, cost issues often outweigh environmental considerations in making decisions. How companies address this tension, particularly as the risk for supply chain disruption from issues such as climate change continues to increase, may well emerge as a defining business issue over the next decade.

Moving beyond compliance

We are approaching a key inflection point, one in which supply chain sustainability becomes a key competitive differentiator for companies that embrace sustainability, offer innovative products and services, and back their rhetoric with significant investments. Conversely, companies that view sustainability as simply a compliance exercise could find themselves struggling to retain talent and maintain their brand image.

At a recent gathering of an Ernst & Young LLP sponsored executive supply chain roundtable, several US and global corporations discussed the steps they were taking to move their sustainability programs beyond compliance. While some companies were using sustainability to differentiate themselves in the marketplace, others were engaging in efforts to reduce costs as well as meet additional goals, such as addressing human rights issues, improving transparency and supporting sustainable agricultural practices.

We currently see several ways in which companies are striving to become more environmentally sustainable in ways that resonate with the marketplace. The first is trying to meet environmental concerns of food consumers, while the other is to reduce waste in production, from materials as diverse as food to steel. We also see a third sustainability differentiator that will soon assume increasing importance — a traceable supply chain that will show consumers the exact path a product took from the production shop to the consumer.

What does a truly sustainable supply chain look like?

Clearly, companies need to get out ahead of climate change and environmental issues. These issues are not going away, and as more extreme weather disrupts supply chain and business opportunities, organizations will need to have a strategy in place for supply chain sustainability. In addition, companies that continue to pursue policies that ignore social and environmental responsibility may soon find themselves on the wrong side of history, facing fines levied by regulators and increasingly shunned by consumers seeking brands that meet higher sustainability standards.

To do so successfully, companies will need to manage three things simultaneously:

  1. Cost: As we noted, companies have long cited cost as a reason for improving their supply chains. Looking ahead, however, they may also want to begin looking for new ways to reduce costs in existing processes, while also driving more sustainable practices.

  2. Growth: All companies want to be able to grow their businesses. Companies that adopt more sustainable practices will be positioning themselves to expand their businesses and take advantage of new technology and product opportunities. Moreover, companies that find ways to develop new products that reduce waste and plastics may create new markets that help them realize new revenues.

  3. Risk: Given the increasing likelihood of extreme weather and other risks that could disrupt supply chains, companies that address sustainability and supply chain resiliency now rather than later will be in a better position to avoid potential problems in the future.

Are companies about to realize that the time will soon arrive when they need to make a conscious decision to take sustainability beyond a mere compliance issue and adopt it as something that is both integrated and strategic? According to the EY survey, most companies have yet to come to that conclusion. They realize they need to make improvements in how they manage sustainability, but they are still reluctant to make the necessary investment in new technology or products that truly transform the sustainability paradigm.

Getting out ahead of the curve means taking your sustainability program beyond a normal compliance exercise. Enterprises that embrace sustainability as an everyday way of life will be taking steps to improve their competitive standings, protect their brands and reputations, and, ultimately, on a wider scale, improve the future of the world. 

Summary

Many executives have yet to be sold on the business benefits of sustainability. This reluctance could create longer-term difficulties for companies in the future.

About this article

By

Glenn Steinberg

EY Global and EY Americas Supply Chain Leader

Helping companies transform, create value and optimize business performance. Thirsty for knowledge. Ski enthusiast. Husband and father of two Michigan Wolverines.