Ensure sustainable consumption and production patterns.
Between 2010 and 2013 and across various industries, revenues from sustainable products and services grew by 91%, while overall company revenues grew by 15%. IT technology and data can help make the sustainability performance of a product or service transparent. For instance, technology solutions can enable new business models, such as light as a service, or help educate consumers about the social and environmental footprint of products to enable more conscious buying decisions.
Dame Ellen MacArthur realized it when sailing solo around the world. Our global economy is dependent on finite materials we only have once in the history of humanity, yet we are consuming these at an ever-increasing speed. In an inspiring TED talk in 2015, MacArthur laid out how she discovered that a shift from a linear to a circular economy is the solution to the problem. She said, “If we could build an economy that would use things rather than use them up, we could build a future that really could work in the long term.”
MacArthur refers to both risk and opportunity as key drivers. The risk of resource scarcity and price volatility can wipe away operating profits, just as car manufacturers have experienced with their raw materials. Public opinion and tightening regulation are increasingly influencing the thinking about sustainable supply chains. The EU regulation to ban single-use plastic by 2025 directly impacts the license to operate for companies depending on plastic packaging. Pictures of drowning turtles or dolphins entangled in plastic fishing nets and increasing numbers of reports on the enormous plastic gyres in the world ocean created public pressure against plastic as the symbol for unnecessary human waste. Members of Generation Z are disgusted by waste. Major consumer-facing corporations like Nestle, Unilever, and Kellogg’s are among 250 major brands pledging to cut all plastic waste from their operations. In the “Alliance to End Plastic Waste” more than 30 global companies will invest US$1.5 billion over the next five years to spur innovation to end the flow of plastic waste into the environment.
Adidas used the circularity approach as a differentiating brand opportunity. In 2016 the company partnered with Parley for the Oceans and designed running gear fully made from recycled ocean plastics. In 2019 the company expects to sell 11 million Ultraboost Parley shoes, more than double the 5 million sold in 2018.
Other new business models, such as Philips’s “Light as a Service,” with significant energy savings for the customer are emerging. More opportunities built on sharing resources, like cars or rides, housing or even home tools, are garnering interest. Renting baby clothes is becoming popular. Ideas such as these are particularly appealing to younger generations and are leading to the rise of Airbnb Inc., Yerdle Inc., and other enterprises.
Indeed, there are always two ways of looking at why companies should make products and services more sustainable along their lifecycles and supply chains. The reputational damage, negative effects on stock prices, and costs for lawsuits and legal fines can be enormous and spiral out of control. In a study of Palm, Walmart, Baxter International, Mattel, Total S.A., and others, research organizations INSEAD, ecovadis, and PricewaterhouseCoopers analyzed the direct costs of a supply chain disruption from a sustainability issue. They discovered that, on average, a disruption caused companies a 0.7% drop in revenue as well as a 12% decrease in market capitalization.
“Sustainable business is good business,” says Yvon Chouinard in describing Patagonia’s successful approach toward sustainable consumption. There is always the chance to innovate, differentiate, and tap into new and more profitable market segments and grow decoupled from resource constraints. The Conference Board did a study in cooperation with the Independent Regulatory Review Commission. It found that revenues from sustainable products and services grew at six times the rate of overall company revenues within the sample of companies examined. Between 2010 and 2013 and across various industries, revenues from sustainable products and services grew by 91%, while overall company revenues grew by 15%.
IT technology and data can help make the sustainability performance of a product or service transparent. It can help educate consumers and corporate buyers about the social and environmental footprint and support them in making conscious buying decisions.
More and more activities address parts or individual aspects of circularity. Many focus on waste cleanup or recycling, others on efficiency gains for their own organizations, and still others on new service-based business models. The only successful circular approaches seem to rely on clear resource ownership, in many cases within one company, throughout the entire value chain or resource lifecycle. Moving classical linear value chains toward circularity requires trustworthy collaboration between the participating industries. Trust is based on transparency into resources, but also financial flows. Transparency is based on factual and reliable data that can be delivered by innovative technologies like blockchain or artificial intelligence. However, two major obstacles must be overcome to achieve full circularity. First, business cases need to expand from the financial-silo optimization of individual companies to holistic-impact valuation of a resource or a product along the entire lifecycle. Second, the idea of this type of resource ownership thinking needs to be introduced into the university education of the next generation of business leaders.
As part of fulfilling our vision and purpose to improve people’s lives, SAP provides technology that supports companies in conducting survey-based assessments of their suppliers to improve the sustainability of their products. For content, our technology is based on category assessments that were developed by The Sustainability Consortium (TSC). This online network enables the collaboration between Walmart and its suppliers to take place. More than 700 product categories are made available by TSC, and thousands of suppliers are already onboarded and using the network. The current content is based on the well-established Category Sustainability Profile (CSP) framework of the TSC and can be easily complemented by customer-specific questionnaires.
The increasing scarcity of resources, the alarming effects of pollution through the use and disposal of plastics, and heightened consumer awareness are persuading producers and retailers alike to embrace sustainable production and consumption models. It is not just about responsible sourcing or recycling – it’s also about taking the full product lifecycle into consideration, from design to end of life. Companies like IKEA are taking a lead in this shift toward supporting a circular economy. The furniture giant is committed to using renewable and recycled resources as efficiently as possible throughout its value chain, demonstrating that recycled plastics can be used in the large-scale production of household goods. In addition, they follow the increasing trend of resource-conscious buying behaviors of their customers by taking back and reselling used furniture in their stores.
SAP is teaming up with sustainably minded companies like IKEA to discover circular paths and solutions. An example is the recent Plastics Challenge. Key aims are mitigating the effects of plastic pollution and extracting the greatest value from a material mainly made from a finite virgin resource. Also important is the project’s objective to meet the increasingly strict environmental regulations, for example, the ban on single-use plastics in the EU. For 2019, SAP and Google Cloud are partnering to cosponsor a sustainability contest for social entrepreneurs called Circular Economy 2030.
In addition, SAP seeks to buy products and services from suppliers who meet high environmental and social standards. Such procurement practices help us create a positive impact and provide levers through which we can reduce our emissions. Working with suppliers who demonstrate a commitment to sustainability enables us to comply with the requirements of our own customers. That closes the loop. After all, the way to go is circular.
In the food sector consumers request transparency on the origin or the environmental and social footprint of the products. Various NGOs are influencing public opinion about the responsibility of palm oil production for the deforestation and loss of biodiversity, especially in southeast Asia. To respond to the rising public pressure claiming unethical business behavior, the leading producer of palm oil formed SUSTAIN, a consortium leveraging a blockchain solution to drive sustainable practices across the supply chain. The recent advances and availability of this technology enable seamless and trusted transparency at a reasonable price.
The public sector has the opportunity and obligation to leverage responsible procurement practices to create positive social value and minimize environmental harm. At the same time, every taxpayer dollar must be spent wisely. The County of Santa Clara and its local governments across 15 cities serves the needs of 1.8 million people, managing a budget of more than $US6 billion annually. Running hospitals, jails, public parks, and many more services most efficiently and effectively depends on the timely, cost-efficient, and compliant availability of required goods and services, while the special spirit of the Silicon Valley community expects socially and environmentally responsible procurement practices. To meet both expectations, the Santa Clara procurement team partnered with SAP to use SAP Ariba solutions. Government employees now access a network of vendors that are compatible with socioeconomic factors such as local preference and green practices. This new approach gives every vendor an equal opportunity through a fair and open process. The enhanced public transparency on the responsible use of taxes creates elevated trust of citizens in their local authorities.