There is no doubt that the growing
urgency around green issues will mean
that they are set to rise ever higher
on the business agenda. The impact of
this will be felt across the board, with
increasing pressure on the supply chain
and procurement arenas to respond and
introduce new measures accordingly.
2 Green for go Supply chain sustainability
Sustainability — an inescapable truth
From fair trade to climate change, sustainability and How does your organization view the impact of sustainability,
corporate social responsibility have risen inexorably green and carbon related issues on its supply chain and
sourcing in the following areas?
in the public and corporate minds over the last decade.
While governments, businesses and consumers are 71% 21% 8%
vying to outdo each other’s green claims, the scientific Reputation/brand
community is issuing increasingly stark warnings about 50% 31% 19%
the urgency and depth of cuts required to avoid the 29% 29% 43%
most dangerous impacts of climate change. Increase in cost base
63% 29% 9%
With growing legislation, dwindling resources and increasingly 43% 25% 31%
vocal consumers, sustainability will only continue to grow Regulatory compliance
in importance as an opportunity for forward thinking firms
Opportunity No impact Risk
and a threat to their competitors that fail to act.
In conjunction with the Economist Intelligence Unit, our survey
of executives from $1bn-plus corporations indicates a high
level of awareness of sustainability, with an appreciation of the Similarly, regulatory compliance was reported as both an
opportunities it offers within the supply chain, coupled with opportunity and a threat, indicating there will be individual
concerns over the cost and complexity of addressing it. winners and losers, dependent on firms’ preparedness
to stay ahead of new legislation.
Reputation, cost reduction and revenue growth were the top
three widespread opportunities cited by more than half of
respondents. An increased cost base was also highlighted as the
greatest risk, suggesting that anticipated operational and energy
savings would be offset by increased capital costs and price
increases from suppliers.
While companies acknowledge
the importance of green
issues, many are confused
about how to act. Only 12% of
firms rated it among their top
three supply chain priorities.
Green for go Supply chain sustainability 3
The impact of sustainability
Mixed messages Managing uncertainty
Despite this widespread recognition of sustainability as a significant First and foremost, climate change is a political problem. While the
opportunity and threat, only 12% of firms rated it among their scientific consensus is now beyond doubt and technical solutions
three supply chain priorities for the next two years. are well understood, significant uncertainty remains over the
scope, severity and timing of new legislation that will drive business
This may be indicative of the mixed messages businesses are
and consumer behavior.
receiving from governments, regulators and consumers — the
three key stakeholders indicated by respondents. While concrete To avoid the worst impacts of climate change, this regulatory
legislation lags behind government rhetoric on emissions reduction uncertainty must be limited to the short term. As the UN has
targets, a significant gulf exists between consumers’ green claims emphasized, the global economy has less than a decade
and their actual purchasing behavior. to transition to a low carbon path to enable global emissions
to fall 60% by 2050.
In the UK, the Climate Change Bill will set a legally binding target
Who or what do you believe will be the main drivers behind
for emissions cuts by 2050. The current target of a 60% cut is
implementing sustainable, green and carbon related strategies
likely to be raised to 80%, setting the benchmark for industrialized
in your supply chain?
economies and laying the foundation for legislative reform.
57% Across the EU, businesses are already subject to an expanding
range of environmental legislation, including carbon cap and trade
Regulators schemes, energy efficiency standards, recycling targets and limits
36% on hazardous chemicals.
25% In the US, climate change legislation is more firmly on the political
agenda and Australia has ratified the Kyoto protocol. This new
Investor community consensus amongst industrialized economies will leave a handful
20% of contrarian states in increasing isolation and set the foundation
to credibly engage the new economies of India and China.
It is not a question of ‘if’ but ‘when’ new legislation will bite
Non-government organizations — and the when is likely to be within the next five years.
Select up to three.
4 Green for go Supply chain sustainability
The business case for sustainability
Regardless of the pace of legislative reform, Although currently difficult to achieve, it is imperative that
there is already a strong business case for international corporations take steps to measure their supply chain
emissions to give themselves an accurate predictor of their future
sustainability. Energy and materials intensive
costs and liabilities.
supply chains typically account for 75% of a firm’s
emissions — where there is carbon there is cost. In some cases, footprinting can yield surprising results.
For example, importing produce by air freight from Africa may
Coupled with varying environmental and labor
appear to be alarmingly carbon intensive, yet when compared
standards across global suppliers, particularly with importing the same produce from closer, heated greenhouses,
in the developing world, supply chains can make it is actually a greener practice. Being aware of the energy
or break corporate reputations. sources of your suppliers is another important step. The true
environmental cost of manufacturing goods in China should
recognize the dual impacts of high-carbon power generation on
Cost savings: operational and energy efficiency top of emissions from transportation.
Efficiency and sustainability are two sides of the same coin.
So far, only 35% of respondents have embarked on carbon foot
Soaring energy and raw materials prices and the spectre of
printing of any description, although a further 50% have imminent
recession only serve to strengthen the business case.
plans to do so.
There is a strong possibility that carbon will become a parallel
currency to money in the future. Already the norm for energy
intensive companies under the EU Emissions Trading Scheme, Which of the following initiatives have you implemented or are
more businesses will need to operate within a carbon cap, or else planning to implement within your organization?
pay for the excess they produce. As schemes such as the UK’s
Carbon Reduction Commitment capture new sectors, carbon Labor standard 63% 27% 10%
intensive suppliers will become an expensive burden. improvements
58% 33% 9%
Significant opportunities exist throughout the supply chain: minimization
56% 31% 13%
• Planning: Demand management and improved forecasting Phasing out of
should reduce over-purchasing, over-production and waste 56% 28% 16%
• Manufacturing: Lean process improvement should lessen Community projects
55% 32% 13%
over-processing, energy intensive storage and waste Estate/plant energy
• Distribution: Adopted by 54% of respondents — network 54% 38% 8%
re-design, smart routing, backhauling, fill optimization Logistics optimization
52% 39% 9%
and mode switching — are all likely to lower freight miles
• IT: Video-conferencing and remote servicing can reduce Sustainability 51% 37% 12%
business travel program
Chain of custody/ 48% 36% 16%
• Estates: Investments in building air tightness, insulation
and energy efficient heating, cooling, lighting, plant and 40% 47% 13%
equipment has been made by 55% of firms. Renewable energy
35% 50% 15%
30% 52% 18%
Have implemented Planning to implement Not planning to implement
Green for go Supply chain sustainability 5
Revenue opportunities: energy and carbon trading Revenue opportunities: new product development
To combat rising energy prices and reduce in-house emissions, and green marketing
40% of firms have invested in on-site renewable energy Burgeoning energy efficiency legislation promises to phase
generation — particularly those with significant land bank or out energy-profligate products such as incandescent lighting,
waste resources. Onshore wind on telecoms sites and biomass gas-guzzling vehicles and inefficient housing.
Combined Heat and Power (CHP) at food factories are two such
At the same time, consumer campaigns and a plethora of product
examples from the UK. This offers greater control over energy
labels aim to increase demand for more sustainable products and
costs, enhances corporate reputations and promises profits from
services — a trend mirrored by sustainable procurement initiatives
the sale of surplus renewable electricity.
across the public sector.
Similarly, an increasing number of firms are creating revenues
Whether through incremental efficiency improvements, disruptive
from carbon trading. Under the EU Emissions Trading Scheme,
new technologies or service innovation, an increasing number
participating firms must operate within an annual emissions cap.
of businesses are competing to launch sustainable products and
Those which have made emissions reductions through energy
services to increase their market share. All these contrasting
efficiency and renewables projects can sell surplus allowances to
approaches can be seen in the automotive industry:
others unable to meet their targets. As well as a strong financial
• Incremental engine, drive train, weight and aerodynamics
incentive, this ensures carbon savings are delivered in the most
improvements to efficient diesel cars
cost effective manner.
• Innovative new hybrid, electrical and hydrogen technologies
Outside Europe, the Clean Development Mechanism provides
• Shared car pool services to supplement public transport
finance for greenhouse gas reduction projects in the developing
for unavoidable car journeys
world in return for Certified Emissions Reduction permits.
Currently purchased by governments to help meet their • Offsetting programs for vehicle purchases.
commitments under the Kyoto protocol, these can also be included
as a source of allowances under the EU scheme. Multinational While many firms limit innovation to isolated flagship products,
businesses can use this mechanism to finance energy efficiency benefiting their reputations by association, the real challenge
and renewables projects for their developing world sites is to mainstream them across existing product ranges.
As the flip side of carbon trading, offsetting should be treated with
caution, used as a last resort when all other emissions reductions
opportunities have been exhausted. Without these measures, 63% of respondents see
offsetting can be seen as an excuse for inaction. Unlike operational
and energy efficiency, offsetting is a cost rather than a saving
sustainability as an opportunity
to your business and at its most extreme, it is environmentally for revenue growth.
inefficient. For example, funding a community energy project in
a developing country could take decades to offset the emissions
from a year’s business travel.
6 Green for go Supply chain sustainability
Managing risk Because legislation varies so greatly by market, companies should
As well as future proofing products and supply chains against be wary of accusations of double standards within their global
regulatory risks, many supply chains have already been affected operations. For example, if a company tells its European customers
by physical and economic impacts of the changing climate and that it uses only sustainable timber products, it should avoid
growing demand from Asia. These include global shortages of unsustainable timber in overseas markets.
water, grain, timber and metals. Improving all forms of resource
A side-affect of globalization has been for some businesses to shift
efficiency lessens exposure to these risks.
operations to locations with weaker environmental protection.
Annual insurance losses have climbed due to extreme weather These lower standards have resulted in costly product recalls
events such as floods and hurricanes, which have also caused of contaminated goods, damage to workers’ health and pollution
major production losses in the oil and farming industries. of public drinking water with electrical waste.
Investments in new buildings and infrastructure also have to
Companies need to beware of such practices, partly because
be mindful of operating in a warming climate.
of reputational risk, but also because local standards are likely
to rise sharply in the coming years as the dangers of climate
change become more evident, fuel costs rise, pollution is taken
Just as corporations are now sourcing their materials from new
more seriously and governments act more robustly on the
and distant locations, consumers in the Internet age can not only
issues. If a business does not apply the highest standards,
compare prices and get instant product comparisons and reviews,
it will store up problems, requiring severe and painful short
they can also find information on a company’s reputation and its
term cuts in future.
commitment to corporate social responsibility.
Managing reputational risk through the supply chain is
becoming ever more important, whether guarding against
accusations of exploiting child labor, pollution incidents
or selling unhealthy products.
71% view reputation
As supply chains have grown more lengthy and complex, it has and brand as the area
become harder for businesses to maintain the same oversight
and control that they have traditionally enjoyed. If you outsource
manufacture to a low-income economy and visit the facilities, green and carbon issues
can you be sure that the spotless and well-maintained building
that you see is typical, or is there a child labor sweatshop across will provide opportunity.
town? As the top initiative reported in our survey, 63% of firms
had introduced labor standards to their supply chains.
Green for go Supply chain sustainability 7
Living up to promises
From viewing sustainability as a buzzword to be used 44% of respondents
in marketing materials, companies are now obliged
to live up to their word. said they were confident
they can deal with
In retail in particular, a genuine desire to act on climate change has sustainability issues.
been fueled by consumer pressure and PR spin — resulting in some
very challenging and public commitments. The complexity and
enormity of carbon labeling tens of thousands of products means
some businesses risk over-promising and under-delivering.
Before going public with their good intentions, firms should create
a challenging but deliverable carbon reduction portfolio,
underpinned by sound business cases.
Our survey found that 44% of respondents said they were
confident they can deal with sustainability issues. Yet this is
matched by an alarming amount of inactivity on the part of many
large global companies, who have yet to realize the full potential
of the savings and benefits that can be achieved by integrating
sustainability issues into their supply chain management.
8 Green for go Supply chain sustainability
For this survey, The Economist Intelligence Unit What is your primary industry?
surveyed 257 C-suite and board level executives
on its panel.
The cohort included a significant number of CFOs. Respondents
were drawn equally from North America (30%), Europe (34%) IT and technology
and Asia (33%) with the remainder from the rest of the world. Energy and natural resources
All executives polled worked for businesses with a turnover in Healthcare, pharmaceuticals
excess of US$1 billion and businesses were cross-industry. The and biotechnology
interviews were carried out during September and October 2007. Telecommunications
What is your title? 5%
Logistics and distribution
Board member 3%
Construction and real estate
CEO/President/Managing director 3%
CIO/Technology director 2%
Transportation, travel and tourism
Other C-Level executive Agriculture and agribusiness
Entertainment, media and publishing
Green for go Supply chain sustainability 9
About Ernst & Young’s Services
At Ernst & Young our services focus on our For enquiries about our Performance Improvement services
individual client’s specific business needs and issues, in the following countries and regions, please do not hesitate
to contact our global team:
because we recognize that every need and issue
is unique to that business. Norman Lonergan Global Advisory Services +44 20 7951 6479
Adrian Edwards Global Supply Chain +44 20 7951 5807
We draw on our considerable knowledge and strength in assurance,
Robert Patton Americas +1 404 817 5579
tax, transactions, risk and performance improvement and we
work with you to address — for example — audit, managing business Markus Heinen Central Europe +49 6196 996 26526
risks, your strategic direction, performance management, Donato Iacovone Continental Western Europe +39 6 67535711
process efficiency, people and organizational design, as well as IT.
Mark Doll Far East +86 21 2228 2680
Since we know that you want your needs addressed, change
to happen, to see improvement and to have that improvement Michio Shibuya Japan +81 3 3503 1122
sustained, we can call upon the experience and wide business Steve Varley Northern Europe, +44 20 7951 6174
and sector understanding of our 130,000 people to work with Middle East, India and Africa
you to achieve that. Doug Simpson Oceania +61 2 9248 4923
It is not a question of ‘if’ but
‘when’ new legislation will bite
— and the when is likely to be
within the next five years.
10 Green for go Supply chain sustainability