The Positive Financial Impact of a Sustainable Supply Chain

With the planet’s wellbeing – and by effect, the wellbeing of the entire human population – being on the line, environmental concerns and social responsibility have taken become an increasingly important matter for both businesses and individuals. The urgency for sustainability in all aspects of life have become a pressing need rather than an option. The impact of climate change can easily be seen the presence of more frequent and devastating storms and the fact that the world is hotter (by 1.1^o C) than it was in its pre-industrial era. Those are not the only concerns when it comes to climate change. It is estimated that 1 billion people can be impacted by rising sea levels by the year 2050. Coral reef bleaching that can lead to disease and eventually their destruction is another concern as it would impact fish habitats. From heatwaves to increased floods and mass-loss of wildlife habitats, climate change is a very real threat that needs to be managed and reversed.

One of the domains where this shift can be made is within that of supply chain management. In a previous blog we explored the repercussions of supply chain mismanagement and we definitely recommend that you read that in combination with this blog to get a full picture of the topic. But for this blog we will be focusing on the positive financial impacts of adopting a sustainable supply chain in your supply chain management practices, presenting evidence from older and more recent studies to support this, exploring various strategies and key points on which successful businesses have focused on to witness these positive impacts, and more.

Before we begin exploring its impacts, we need to understand what identifies as a sustainable supply chain. At its core, supply chain sustainability entails the seamless integration of environmentally and socially responsible practices into the fabric of supply chain management. It aspires to curtail the ecological and societal footprints engendered by supply chain operations while concurrently engendering enduring value for all stakeholders involved.

Amidst the discourse surrounding sustainability, there exists a pervasive misconception conflating sustainability solely with environmental stewardship. However, the essence of sustainability extends far beyond ecological considerations, encapsulating the imperative of social sustainability with equal fervour. To uphold environmental standards, a sustainable supply chain grapples with challenges such as environmental degradation, deforestation, greenhouse gas emissions, pollution, and water security. While social standards entail a steadfast commitment to upholding equitable and humane working conditions, eschewing practices such as forced labour, and championing fair labour practices and occupational health and safety standards.

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Beyond the altruistic pursuit of corporate social responsibility and the dangers of climate change, businesses are increasingly aware of the pragmatic advantages it brings them. From bolstering brand reputation to fortifying resilience against supply chain disruptions, from unlocking novel market opportunities to ensuring regulatory compliance, the allure of sustainability is indisputable.

Before we get into reviewing studies and statistics that have shown the positive financial impact of sustainable supply chains, let us take a look at the necessary strategies that must be implemented in order to effectuate sustainability within the supply chain:

1. Lifecycle Approach: Embracing a holistic lifecycle perspective towards product design and development, wherein environmental and social ramifications are meticulously deliberated at each stage.
2. Supplier Collaboration: Forge symbiotic partnerships with suppliers to propagate sustainable practices across the supply chain continuum, encapsulating stringent sustainability standards, audits, and capacity-building initiatives. Businesses can also ensure a strong foundation of sustainable practices by embedding sustainability in contracts and agreements with suppliers and at the procurement level. We discuss the importance of supplier collaboration and selection in detail in another one of our blogs. It also makes business sense to team up with suppliers to comply with regulatory requirements with transborder implications. One such transborder requirement would be those imposed by the European Commissions’ Corporate Sustainability Due Diligence Duty (EU CSDDD) which, at its core, the duty to identify, end, prevent, mitigate, and account for negative human rights and environmental impacts. A number of other such transborder requirements exist such as UK Modern Slavery Act, Australia Modern Slavery Act, Germany Supply Chain Due Diligence Act, to name a few.
3. Circular Economy Principles: incorporating circular economy, wherein waste is minimised, and resources are optimally utilised through reuse and recycling endeavours. This is one example of interlinking social, environmental and economic considerations by embedding ESG in the operating model of a business.
4. Stakeholder Engagement: Foster transparent and inclusive engagement with stakeholders, soliciting feedback, amplifying supply chain visibility, and fostering collaborative avenues for continual improvement.
5. Sustainability in the Decision-Making Process: Incorporating sustainability into your decision-making process cultivates a resilient and profitable supply chain. By embedding sustainability considerations at every stage of decision-making, businesses can not only enhance their environmental footprint but also unlock substantial financial benefits. An example of this can be seen in Unilever’s adoption of a sustainable approach embedded in their decision-making process. This strategic approach ensures that sustainability becomes a guiding principle in resource allocation, supplier selection, and operational planning. Through robust sustainability metrics and frameworks, organisations can identify opportunities to optimise resource usage, reduce waste, and mitigate risks, ultimately driving cost savings and bolstering long-term competitiveness. By embracing sustainability as a core component of decision-making, businesses can forge a path towards greater profitability while positively impacting the planet.

The adoption of sustainable supply chain practices can positively impact businesses in 7 interconnected ways that can translate to financial benefits:

• Resource Efficiency: Sustainable practices promote heightened resource efficiency, thereby mitigating input costs and augmenting overall operational efficacy. One example of a business that has financially benefited from resource efficiency is Interface Inc., a global manufacturer of modular carpet tiles. Interface embarked on a journey to become a sustainable business, famously committing to achieving zero environmental footprint by 2020 through their Mission Zero initiative. By implementing resource-efficient practices such as recycling and reusing materials, optimising energy usage in manufacturing processes, and designing products for durability and longevity, Interface not only reduced its environmental impact but also realised significant cost savings. Furthermore, by investing in energy-efficient technologies and processes, Interface decreased its energy consumption and lowered utility bills.
• Cost Efficiency: By optimising resource utilisation, energy efficiency, and waste management, companies can substantially reduce operational expenses. For example, Unilever saved USD 1.27 billion in costs throughout its operations. According to Alan Jope, the former CEO, this cost reduction was the result of putting sustainability at the heart of the business.
• Unlocking New Markets: Sustainable supply chains unravel novel market vistas, especially amongst eco-conscious consumer segments, thereby catalysing market expansion and diversification. Patagonia, an American retailer of outdoor recreation clothing has rapidly expanded in new geographic markets where sustainability is a growing concern among consumers. The company has expanded its presence in regions with a strong emphasis on environmental conservation, such as Scandinavia and parts of Asia.
• Compliance: Embracing sustainability imperatives ensures adherence to regulatory mandates, forestalling punitive measures and legal entanglements. While Unilever has saved USD 1.27 billion as a result of cost efficiency, its subsidiary, Conopco Inc., lost USD 352,500 in fines for violations of air quality laws related to the sale of hair styling products in California.
• Minimising Risks: Proactively addressing environmental and social exigencies hedges against supply chain vulnerabilities, safeguarding against potential disruptions and reputational jeopardy. We can refer back to Patagonia and its proactive approach has led to minimised costly risks.
• Bolstered Brand Reputation: On top of the aforementioned reduction of risk to reputation, sustainable supply chains have an enhanced reputational effect on organisations. Companies with a demonstrable commitment to sustainability have higher brand affinity and consumer allegiance, fostering a virtuous cycle of loyalty and advocacy.
• Better Finance: favourability accorded to companies with sustainable supply chains, fostering enhanced access to capital and available green finance initiatives.

An array of empirical studies substantiates the profound correlation between sustainability and financial performance. Research as early as 2011 by University of San Francisco on the economic value of sustainable supply chain has shown evidence of the positive financial impact on businesses. Drawing upon theories from marketing, finance, and production, the study states that embracing socially responsible behaviour within the supply chain can yield financial benefits including increased sales, decreased costs, reduced financial risk, and ultimately, enhanced profits accruing to the firm’s shareholders. The study sheds light on mechanisms through which modern production methods, such as lean production and quality management, enable sustainable corporate behaviour and underscores the synergistic relationship between sustainability initiatives and heightened stock valuations.

Another study done in 2023 covers the transformative impact of sustainable supply chain management practices, even among SMEs operating in sectors as diverse as food processing. Noteworthy findings underscore the important role played by sustainable environment management practices, supplier and customer relationship management, social supply chain management practices, and lean supply chain practices in bolstering financial sustainability and fortifying competitive positioning.

In summation, the merging of sustainability and supply chain management transcends mere corporate altruism, emerging as an indispensable driver of long-term profitability, resilience, and competitive advantage. By embracing sustainability imperatives with unwavering resolve and strategic acumen, businesses can unlock an array of financial benefits. Sustainable supply chains emerge not just as a prudent choice but as a requisite for sustained growth and prosperity, in today’s world.

At AKW Consultants, we provide exceptional consulting services to help your business achieve a sustainable supply chain. Get in touch today: info@akwconsultants.com