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Taking care of the next generation

The Secret to Sustainable Success

Archived News, Posted on 09 Mar 2011

The secret to sustainable success

Jeremy Baker & Terry Innerst

Many leading companies globally and locally are well positioned to respond to a price on carbon – a recent Carbon Disclosure Project (CDP) study co-authored by A.T. Kearney highlights the steps towards carbon reduction in their supply chains that have occurred or are well underway. However the local regulatory uncertainty has disadvantaged Australian companies, many of whom will now need to invest to catch up to their global counterparts.

There is a common misconception that being ‘sustainable’ is expensive. The very word can drive fear into a boardroom. However, the commercial benefits that come from sustainable business practices are being increasingly recognised.

In fact, the latest Carbon Disclosure Project Supply Chain Report shows that businesses are now seeing a return on investment from embedding sustainable practices into the procurement function, indicating an emerging trend in supply chain engagement and collaboration. More than 50 per cent of large businesses and 25 per cent of their suppliers have seen cost savings as a result of carbon management.

The report, produced by A.T. Kearney, looks at climate change actions and performance of 57 of the leading global companies and 1,000 of their suppliers. In 2011, the report found that 86 per cent of companies saw commercial benefits from working closely with suppliers to improve performance and mutual return on investment, up from 46 per cent in 2009. Clearly, the trend for sustainable procurement practices is catching. The jump is evidence of how sustainable procurement practices are addressing climate change and could have a major impact on the supply chain, which for most companies accounts for at least 50 per cent of carbon emissions.

Businesses that are successfully reducing carbon in their supply chain use differentiated levers for categories of suppliers. These include redesigning products, directly reducing demand for carbon intensive purchases, working collaboratively with suppliers to cut emissions and making effective carbon management a supplier selection criteria.

The proposed carbon tax announced last week should make carbon management, and the cost savings found therein, even more attractive to companies. Moreover, the savings indicated by companies participating in the Carbon Disclosure Project, and the sustainable practices implemented to achieve them, should now spread more quickly down the supply chain.

A good example of a company that has seen this flow-on effect is PepsiCo. As a result of its carbon management strategy and proprietary energy assessment tool, the company uncovered more than $60 million in energy savings opportunities and a 16 per cent reduction in per-unit energy use across beverage plants. It was then able to use its proven strategies and benchmarks to educate suppliers about potential opportunities to innovate their own operations. The company provided its suppliers with the same energy assessment tools used in PepsiCo, and has seen mutual return on investment.

Locally, more companies are requiring more information from their suppliers, and setting standards for them. Despite continued uncertainty in the regulatory environment around carbon, Australian companies like Amcor, Fosters Group and several of our biggest financial institutions, are increasing the need for supplier transparency in their operations.

Companies like Coca-Cola Amatil and Energy Australia require suppliers to report sustainability practices. Nestle and Unilever require suppliers to comply with minimum standards. Going even further, Amcor and Coles Group are working with suppliers to improve product sustainability. These initiatives are creating a ripple effect across supply chain operations and processes, allowing businesses to leverage opportunities for top-line growth, savings and new carbon reductions.

Of course, there is still a long way to go in greening the supply chain. For carbon management practices to have the best cost saving outcomes, the quality and consistency of reporting processes across the supply chain needs to be significantly improved. The development and use of standardised scorecards is emerging, which should enable more informed and strategic supplier measurement and selection (and, in turn, maximise the sustainability efforts of the supply chain).

With a carbon tax now waiting in the wings, companies should be looking closely at their carbon management practices. Forward-looking companies will realise that the implementation of carbon emission reduction programs deliver significant economic and strategic benefits for their organisations. Close collaboration with suppliers on these efforts multiplies the benefits.

Jeremy Baker & Terry Innerst are partners at global management consultantcy A.T. Kearney.

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