CEO Insight: Sustainable strategies generate cost efficiencies and value

written by Michael Pooley, 16th martie 2023, in CEO Insights

During times of economic uncertainty and supply-chain struggles, you need a laser-like focus on value creation. Moving to a net-zero operation brings cost efficiencies for the long term, as many businesses can already confirm. Some thoughts on why sustainable strategies generate value for all.

Demand for sustainable products and services is stronger than ever

We’re living through exceptional circumstances that require exceptional solutions. Against a backdrop of a deepening energy crisis and a climate emergency, all stakeholders – regulators, shareholders, customers and employees alike – are piling pressure on every industry to take responsibility for the environmental impact of their operations. According to Deloitte’s Sustainable Consumer 2022 report, the expectations are particularly high amongst consumers.

This report presents the results of a comprehensive survey into consumer purchasing behavior around sustainability issues. It’s the third year in a row that Deloitte has conducted such a survey. Over that period, the surveys indicate a clear upwards trend. Most notably, the number of people who have adopted a more sustainable lifestyle in the last 12 months has gone up sharply.

There’s no surprise at the top three activities that consumers believe make a difference. They are the same three you’ll find me constantly focused on: avoiding single-use plastics, reducing food waste and recycling. It’s also interesting to see which other activities made it into the top ten. For instance, consumers are increasingly choosing brands that have clearly visible ethical values and have committed to sustainable business practices.

How will the cost-of-living crisis impact net zero ambitions?

At the same time, as the cost-of-living crisis continues to bite, many consumers are finding it harder to make such sustainable choices. It’s therefore up to retailers, producers and supply chain operators to ensure that it gets easier for consumers to make the right choice.

In many cases, however, businesses are voicing the exact same cost-of-living – or cost-of-doing-business – concerns as end consumers, believing that lowering the environmental impact of their operations will bite into their profitability. However, the opposite is increasingly true. By investing in sustainability across business and supply chain practices, organizations can drive operational efficiencies, reduce costs and generate value.

What are the costs of a net-zero economy – or inaction?

Added together, it’s true that all the combined efforts necessary to transition to a net-zero economy will incur costs. However, the cost of inaction is far greater. As recent comprehensive research into the effects of extreme heat on economies indicates, between 1992 and 2013 our lack of action potentially cost the global economy as much as US$65 trillion. If we continue with the status quo, that figure is set to increase.

Unless we achieve net-zero emissions by 2050, the global economy stands to lose a further US$178 trillion over the next 50 years. This is the conclusion of the Global Turning Point Report by the Deloitte Centre for Sustainable Progress. However, as the study also highlights, if we take rapid action to decarbonize our economies now and hit the target of net-zero emissions by mid-century, the outlook is far more optimistic. Moreover, the global economy could stand to gain US$43 trillion by 2070.

Rapid action requires a sharper focus on investments in sustainable business practices. In my view, efficiencies in resource-saving technologies and circular economy business models will bring benefits that greatly offset the necessary cost of transitioning to a net-zero economy.

Sustainability goes hand in hand with efficiency

In fact, many businesses that have invested in sustainable business practices are already seeing economic returns. By focusing on net-zero operations, they are unlocking new opportunities, optimizing processes and saving costs in ways that generate long-term value.

This is confirmed in the McKinsey report Operations-driven sustainability, which I highly recommend for one very important reason. It sets out convincing arguments that support something I strongly believe. The studies reveal that, in the words of the consultants, "sustainability doesn’t have to come with a hefty price tag".

The examples highlighted in all these reports come from a variety of industries. However, they all have one thing in common. Each case study confirms that it is possible to boost efficiency and sustainability at the same time. They all demonstrate that optimizing operations for sustainability brings substantial cost efficiencies and often unexpected secondary societal benefits.

What’s surprising perhaps is that even modest capital investments can bring significant improvements to the environmental footprint of a company, its services and product lifecycles.

How do science-based targets drive change?

Crucially, businesses need to be transparent about the measures they are taking to make their operations sustainable. This could take the form of independent reviews or assessments, or by signing up to the Science Based Targets initiative (SBTi), an institution that has created a framework around reduction commitments for businesses, which is what we have decided to do.

In our case, signing up to science-based targets (SBTs) confirms our commitment to reduce greenhouse gas emissions in line with the level of decarbonization required to meet the goals of the Paris Agreement.

Importantly, I believe such public commitments force businesses to take stock of the impact of their operations on multiple levels more openly. It forces us to look at greenhouse gas emissions, water consumption, material use and waste generation. Such commitments appear costly at first sight. Businesses often hesitate as they believe they come with higher costs that will have to be passed on to customers and end consumers. The opposite is often the case. Over time, moving to net-zero operations does pay off.

To my mind, SBTs create a sense of urgency for businesses to tackle emissions across the entire supply chain. This includes the more complex Scope 3 emissions, which will require companies to work closely with their partners, suppliers and customers. It’s how businesses can achieve the necessary reductions in carbon emissions while also future-proofing growth. SBTs pave the way to be sustainable and stay competitive.

Finding inspiration from unusual role models

Sometimes, it helps to look way outside one’s own experiences to grasp the potential of transitioning to a net-zero economy. One case shows just how dramatic such a transformation can be. It involves Ørsted a Danish energy firm that went from running coal-intensive power stations to becoming a leading provider of renewable energy in under ten years.

Over that period, the company reduced its carbon emissions by 86% – and still managed to expand its operations abroad and improve financial performance. Their white paper, Our Green Business Transformation, makes clear why the company made it a priority to upend the company’s previous strategy – and details the road bumps along the way. It’s an insightful and inspiring read.

How can sustainability become your company’s purpose?

Equally inspiring is the story of Patagonia, the California-based global outdoor clothing and gear company. Long celebrated for making sustainability the company’s purpose, a recent announcement has taken that commitment further. Without burdening you with all the details, the founder, Yvon Chouinard, has basically transferred the family’s ownership of the firm, which is currently valued at around US$3 billion, to a specially designed trust and a nonprofit organization.

In future, all profits will be used to combat climate change and protect undeveloped land around the globe. Currently, profits stand at around US$100 million a year. Which goes to show that there are consumers who will support a company’s strong public stance on the environment.

Small, sustainable changes also bring cost benefits

Not every success story involves such seismic shifts in operations. The following examples show that incremental changes bring substantial sustainability benefits and cost efficiencies.

Hotels

A towel reuse program is widely recognized as an effective way to reduce water and energy consumption and increase the service life of laundry items. Hotel guests are generally receptive to such programs.

Vineyards

The lightweighting of wine bottles reduces the carbon footprint of many vineyards around the world. The lighter bottles are invariably more sustainable and cheaper to manufacture and transport. In the past, a heavy bottle might have signified quality wine. Today, wine connoisseurs also understand and accept that lighter bottles are more sustainable.

Given that the transportation sector is still the world’s largest single source of greenhouse-gas emissions, which is also highlighted in the same McKinsey report, optimizing transport is a huge plus for the environment. Some vineyards are also experimenting with reusing bottles. Such a circular system would help design out waste and could reduce costs significantly.

Renewable energy

Most industries can list multiple instances of businesses achieving cost efficiencies by switching to renewable sources of energy or by introducing energy-saving measures. In our own industry, we see how greenhouses can be powered by carbon-neutral biomass from wood waste to reduce their carbon footprint.

Sustainability is the strategy for the future

What do all these businesses have in common? They recognize that sustainability must be an integral part of the company culture to succeed. In addition, most have worked together with partners inside and outside of their industry to achieve the best-in-class results. Mostly, they set tangible targets that could be achieved with concrete measures. And the measures were also in tune with their customers’ awareness and expectations of transparent, sustainable choices.

Granted, as with any major disruption to established business practices, such changes and sustainability strategies appear daunting at the outset, especially during times of economic uncertainty. But, given our deepening climate and energy crises, we cannot afford to wait any longer. Fortunately, our industry doesn’t need to.

Productivity and profitability fears from going sustainable with packaging are unfounded. Our own end-to-end studies of operations along the fresh grocery supply chain consistently come to the same conclusion. Committing to sustainability unlocks potential. More specifically, switching to our circular economy model for pooling reusable packaging containers consistently drives out inefficiencies while reducing costs, waste and emissions. Optimizing operations for sustainability brings substantial cost efficiencies and key benefits for society. We can generate value from sustainability strategies.

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