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 McArthur got 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, McArthur laid out how she discovered that a shift from a linear to a circular economy is the solution to get out of the dilemma. 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.”
McArthur 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 had experienced with their raw materials. New business models, such as Philips’ “Lighting as a Service” with significant energy savings for the customer, are emerging. More opportunities built on sharing resources are exciting interest. The idea is particularly appealing to younger generations and 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 in to 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.
Wouldn’t you like to know where the chocolate that Santa brings to your children comes from? Imagine you had an easy way to find out. Where did the ingredients originate? Did the cocoa farmers use pesticides? What were the social conditions of the workers? These questions are easily answered if you’re shopping online at Walmart.
In 2005, Walmart set out to turn the world’s largest retailer (US$485 billion revenue in fiscal year 2017, 2.3 million employees, and more than11,000 stores globally) into the greenest. CEO Lee Scott announced ambitious multiyear goals to increase fleet efficiency and overall in-store energy consumption and significantly reduce solid waste from U.S. stores. Aside from the expected positive financial impact, these measures helped increase the brand perception of the company. Since then, Walmart updates their ambitious targets continuously.
The original targets focused on internally controlled initiatives. Like the majority of retail companies, more than 90% of the overall sustainable footprint of Walmart is in its value chain. The company has roughly 200 million customers and 100,000 tier 1 suppliers.
In the beginning of 2013, the first set of 2,500 suppliers was invited to participate in the product stewardship network. Within four weeks, more than 50% of the invited suppliers provided the requested sustainability information by simply completing the questionnaire electronically.
By the end of 2017, Walmart will buy 70% of the goods it sells in U.S. stores and its Sam’s Clubs only from worldwide suppliers who use the index to evaluate and share product sustainability. Consumer transparency – from feed to fork – is enabling consumers to make conscious decisions about products they wish to consume.
Similar to the evaluation of the sustainable footprint of a product, digitalization can support processes that help produce goods in a responsible way. At Barry Callebaut, the world’s leading manufacturer of high-quality chocolate and cocoa products, SAP technology helps enable sustainable cocoa farming by combining mobile and desktop access to track produce from farm to factory. The close engagement with the farmers allows Barry Callebaut to provide the right advice, facilitate adoption of best practices, and improve yields and livelihoods in a way that will sustain professional cocoa farming in the future.
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 a couple thousand 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 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 large-scale production of household goods.
SAP is teaming up with sustainably-minded companies like IKEA to jointly discover circular paths and solutions. An example is the recent SAP Plastics Challenge – a journey started but with some distance to go. 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.
DPaschoal prides itself as a company that promotes responsible use of resources. Using the SAP E-Commerce application, it helped its customers save on maintenance costs and reduce their environmental footprints. Personalized maintenance plans and alerts tailored to notify them when it’s time for maintenance helped boost customer satisfaction and loyalty. The software helps eliminate driving inconveniences, such as breakdowns or flat tires. Ninety percent of customer vehicles get their maintenance done in local DPaschoal shops, which saves them the fuel that would otherwise be consumed by driving to a repair shop. These predictive capabilities increase the efficiency of DPaschoal’s procurement and warehousing operations. They also help them manage waste and residual material responsibly, for example, 80% of tires collected are processed for reuse in other consumer products.
By replacing paper-based processes through the digitalization of its business and harnessing Ariba Network, PTT ICT Solutions has improved customer service, eliminated errors, and even saves trees. Creating transparency, increasing process automation, and going paperless are simple but very effective results of using information technology to drive responsible consumption and production.
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 furthermore enables us to comply with the requirements of our own customers. That closes the loop. After all, the way to go is circular.