With 2025 deadlines looming for ambitious corporate public pledges around sustainability, this should be top of the business agenda for enterprises in 2021. However, are organizations acting fast enough?
Worryingly, every five weeks that passes represents 1 percent of our decade. Aspirations of operating more sustainably at some point in the future are now becoming a much closer reality, which means organizations have targets that they need to meet over a relatively short time frame. This is especially true when it comes to ‘net zero’ emissions pledges – perhaps the most pressing climate concern the planet is facing. For example, by 2030, Unilever has committed to halving the greenhouse gas emissions of their products across the lifecycle, while Heineken has set an 80 percent target reduction. BP is facing an even bigger challenge as an energy company, leaning away from fossil fuels and committing to net zero carbon from their operations by 2050.
Therefore, with only a few years remaining until some of those deadlines, clearly now is the time for enterprises to take decisive action.
Many organizations still don’t know how they’re going to achieve these targets. However, given the urgency of the issues, they’ve launched their efforts regardless, anticipating the discovery of further solutions along the way.
Sustainability delivers more than just the environmental benefits
Alongside the need to protect our planet, hitting these targets is actually key for the survival of some of these businesses. Strong sustainability performance pays dividends in opportunities for growth, increased returns on capital, and in managing threats to the business, with McKinsey finding that the value at stake from sustainability risks can be as high as 70 percent of EBITDA.
Given that 50 percent of the Standard & Poor’s 500 will likely be replaced within the decade, companies must look beyond business as usual towards the strategies that will shore up their own survival - especially in our post-COVID environment where many will face stiff competition. With record private equity, a robust M&A market and the growth of many startups with billion-dollar valuations, not to mention the impact of the pandemic and an economic decline, there will be plenty of turbulence in the road ahead.
We recently hosted a webinar around sustainability, which featured speakers from Unilever, Heineken and BP, where we discussed all of these issues and more. Interestingly, all three organizations were in agreement that consumer relevance will be key to organizational longevity and the ability to attract talent will also be central to business success. Consumers are very much driving the sustainability agenda, therefore setting and meeting sustainability targets will be key driver for business continuity.
Enterprises are driving towards stakeholder capitalism
This focus on doing right by consumer and employee values corresponds to a wider movement towards stakeholder capitalism. This drive advocates shifting away from a sole focus on maximizing shareholder value towards a company strategy which creates value for all its stakeholders – from customers and employees, to suppliers, communities, and the environment.
Along with making themselves accountable to a broader set of stakeholders, organizations should also be drawing from these stakeholders to meet sustainability targets. Likewise, leveraging from a wider ecosystem will also help to meet these goals; partnering for value to increase the bottom line will be a key procurement trend in 2021.
Seeing as 80 percent of company emissions and up to 90 percent of their impact on biodiversity and natural resources originates in the supply chain, it is not surprising that companies are looking past internal operations when pursuing ambitious sustainability targets. Given also that 50-70 percent of company innovations originate externally, it makes sense to look beyond the boundaries of the organization and to the broader ecosystems of suppliers to source new solutions.
Working with a broader ecosystem of suppliers to foster innovation
One great example of this kind of partnership is an initiative that BP is spearheading. As the company works towards net zero for its tech and IT estate, BP is moving away from high-power data infrastructure in favor of forging deep partnerships with cloud providers. The cloud providers also have net zero commitments of their own, which they can support using renewable energy sourced from BP. This partnership presents a win-win situation where both companies can hit their targets in tandem.
What we are also seeing is that this is changing the role of procurement. Instead of being viewed as a function that ‘protects’ the company from its suppliers by continuously driving down costs, procurement is now looking to collaboration and partnerships to find the innovation that will help the organization continue to grow.
And as procurement moves away from a single-minded focus on cost-cutting, it will facilitate relationships which in turn deliver on key business strategies like sustainability and growth.
How procurement can drive initiatives to meet sustainability goals
To this point, procurement has a great role to play in helping an organization meet its sustainability targets, given that the function has historically been curious and hyper-diligent when it comes to costs. Moving forward, enterprises need to apply that same rigor when it comes to sustainability by asking searching questions about energy and water usage, emissions impact, and how we are affecting our communities both locally and on a global scale if we bring that level of curiosity and collaborative problem-solving into supply chains, we’ll have a big impact on business longevity and help to meet those lofty sustainability goals that are closer than we all feel comfortable with right now.
Mark Perera, CEO, Vizibl