How Sustainable Value Chains Can Drive Business Growth

Many companies today have a sustainability program underway.

But this does not present the true picture.

According to a 2021 study about sustainability practices in the U.S., nearly 97% of the respondents confirmed an ongoing sustainability project in their organization.

However, how many companies are actually practicing sustainability and integrating sustainable practices into their end-to-end value chains? This number, in fact, would be much smaller than the number of companies claiming to be sustainable.

Even if there is a program in place, there often isn’t a quantified target to achieve or a concrete way to measure progress over a period.

What is needed to bridge the gap?

Also, at what stage of your company’s product lifecycle can you end up with unsustainable practices?

The answer is — everywhere.

From raw material sourcing, supplier selection, procurement and manufacturing to inventory management, warehousing, distribution and delivery, each link in the product value chain can either result in a potential loss in value or provide an opportunity to ensure sustainable development.

As there are multiple parties involved in a product lifecycle, companies need to scrutinize not only their own operations but those of their suppliers and partners in the value chain. Sustainable practices must be integrated across the end-to-end value chain.

As such, value chains are an integral part of strategic planning for many businesses today, according to a study by the World Business Council for Sustainable Development (WBCSD).

Why Do You Need a Sustainable Value Chain?

Before discussing how sustainability can drive growth, let us first understand why businesses need sustainability in the first place.

Is it just the need to comply with stringent regulations? Or is sustainability merely needed to attract customers (and investors) with fancy taglines about society and the environment?

Well, there is much more to it than just the business perspective.

Smart businesses today understand they need sustainability not only to meet regulations or woo an increasingly conscious customer base but also for the larger good of society.

Climate change, air pollution, energy crisis, hazardous waste, deforestation, child labor – these issues have reached dangerous levels and must be addressed in every sphere to achieve sustainability in the long term.

Without implementing sustainable practices, businesses cannot continue operating for long. They may still be able to make profits, but that profit will be at the expense of environmental and social damage. Such a profit is never going to be sustainable.

How Sustainability Can Drive Business Growth

There is growing evidence that companies implementing sustainability practices also improve their financial performance. This is in part due to their ability to utilize resources more efficiently.

Here are five ways companies can drive growth with sustainable value chains:

1. Build Intangible Value:

Research suggests that the global intangible asset value has grown from $61 trillion in 2019 to $74 trillion in 2021. This shows growing awareness among companies that they can derive more value by investing in intangible assets. Unforeseen events such as the pandemic have increased the significance of intangible assets such as innovation, reputation and brand, states the same research. As a result, companies are now pouring in more resources to grow their intangibles, with a special emphasis on sustainability.

2. Improve Partnerships and Collaboration:

Implementing sustainable practices requires businesses to work closely with internal and external stakeholders. This, in turn, requires end-to-end supply chain visibility and real-time collaboration. Such capabilities enable businesses to enhance working relationships and achieve mutually beneficial goals.

By collaborating to achieve a common goal, companies can build stronger, trusted and lasting relationships with contributors along their value chains, including business partners, customers, consumers, nongovernmental organizations, authorities or other stakeholders, adds the WBCSD study.

3. Grow Customer Base:

Several studies have shown that customers are willing to go the extra mile and pay a higher premium for products that are ethically sourced and environmentally friendly.

Next-gen customers are aware of the impact supply chains can have on the environment and society and therefore consider this aspect of a company’s operations in their buying decision. These findings validate the business case to invest in sustainability as an increasing number of brands seek consumer attention in a highly competitive market.

Additionally, by implementing sustainable practices, companies can design new innovative products and services, which again can attract new as well as existing customers. New products may use lesser resources or meet the specific needs of customers. A leading CPG company, for example, changed the shape of a deodorant to use less plastic.

4. Mitigate Risks:

When companies invest in sustainable value chains, they not only adhere to regulations but also future-proof their operations. They can look through different layers of the value chain and identify potential risks. They can also identify vendors who need closer scrutiny as well as support to promote sustainability. They create opportunities to build resiliency in the face of potential disruptions.

Failing to consider risks such as resource scarcity, regulations, product bans or consumers shifting away from some products can have a significant impact on a company’s long-term performance, adds the WBCSD study.

5. Blend Profitability with Responsibility:

With a sustainable value chain, companies can show their commitment to protect the needs of future generations while striving to meet their development goals and current needs. In this way, they can contribute to the larger welfare of society while boosting profitability at the same time.

With sustainable value chains, they can create a circular economy that focuses on reusing resources and regenerating natural capital. This can also help lower material costs as well as supply risks.

Also Read: Sustainability and Profitability: Why It’s Not an Either/Or Anymore

The key takeaway is that companies need to redefine growth in an increasingly volatile business environment. No longer can they define growth in terms of costs and profitability alone.

Instead, they need to look at things holistically and include risk mitigation and responsible business practices in their own as well as supply chain operations. They may not see the results immediately, but they must persevere in their efforts to build a truly sustainable value chain. The ROI is sure to justify their efforts in the mid to long term.

Learn how GEP can help make your value chain more sustainable.