by Bryan Nella, GT Nexus
Sustainable business practices are a fast emerging point of focus for customers, investors, regulators, and government officials. Treating the planet and workers responsibly is certainly the right thing to do. But research and real world examples are proving that sustainable practices drive real business value.
Brand value and loyalty can be affected directly by sustainable practices. Look no further than a company like Patagonia for evidence. A core part of its brand identity is the idea of sourcing and producing responsibly. Intuitively, its customers seem to resonate with this core value. But what is the actual business impact? GT Nexus recently partnered with YouGov to find out.
Sustainability, From Demand to Supply
In a survey of U.S. millennials, considered to be highly fickle consumers, 67% indicated they had switched away from one of their favorite brands in the last 12 months. No surprise there, but the juicy stuff was the factors that lead to disloyalty – most interestingly, quality and sustainability.
U.S. millennials put a premium on product quality and availability. 49% of respondents cited quality problems as a main reason for abandoning their favorite brand. When it comes to sustainability and the responsible production of goods, 32% of respondents said they would turn against a brand if it didn't treat or pay its workers fairly. 27% would switch brands if the product wasn't environmentally friendly.
This shift in business focus to sustainability is not only being driven by consumers, though.
"In the last few years, companies that perhaps didn't take sustainability as seriously before, now see it as one of the primary risks to their business, and there is a greater realization that financing and sustainability need to be more closely linked in order to achieve better results,'' Farzin Mirmotahari, senior operations officer at IFC, told SCF Briefing in a recent article.1
The IFC, part of the World Bank, promotes growth in emerging regions while encouraging responsible business practices. The IFC began a program several years ago using supply chain finance as a driver to promote sustainability. Starting with Levi Strauss & Co., it began offering qualified suppliers better financing rates as a reward for meeting specific environmental and workplace standards. Its most recent project is with PUMA suppliers, where the program continues to gain momentum.
Suppliers and factories that are part of the IFC program have better access to capital to run their businesses and update their facilities. This leads to a healthier work environment. A study by Tufts University conducted in Vietnam showed that worker productivity increases under better working conditions. The supply chain, and supply chain finance in particular, therefore have a tremendous impact on supplier working conditions and sustainability.2
Supply Chain, the Infrastructure for Sustainability
The common practice of buyers squeezing suppliers on costs and payment terms ends up contributing to ethical instability in the supply chain. Under financial strain, suppliers might start pushing their workers too hard, or might disregard environmental impacts to keep production going. When these situations boil over, the results can be high profile ethical scandals, which can ruin brands, especially in today's millennial-driven marketplace.
Supply chain finance programs, like the IFC sustainability program, are one of the tools businesses are employing to simultaneously systematize sustainability, while also strengthening their own operations. To this, there's also a pure financial impact. Suppliers in emerging regions obtain funding at competitive rates, often much better than what is accessible locally "on the street" in their home market. So there's a clear cost of capital reduction from the supply chain.
Engaging in supply chain programs for sustainability also offers the added benefit of scalability over time. Sustainability isn't an "on-off" switch – you don't have it or not – rather it's a gradual progression toward better worker conditions and reduced environmental impact. Programs like the IFC sustainability program tie financing rates to the achievement of sustainability milestones. The more milestones a supplier achieves, the better the financing rate. This also allows a brand to start small, experimenting with sustainability initiatives in certain regions, or with certain products or suppliers, and then scale up over time as lessons are learned and best practices established.
Sustainability initiatives offer a vast opportunity to improve the health of the global supply chain. They are also a path to securing your brand and loyalty with both customers and suppliers.
Bryan Nella is Senior Director of Corporate Communications at GT Nexus, the world's largest cloud-based supply chain network. He has more than 12 years of experience distilling complex solutions into simplified concepts within the enterprise software and extra-enterprise software space. Prior to joining GT Nexus, Bryan held numerous positions in the technology practice at global public relations agency Burson-Marsteller, where he delivered media relations and communications services to clients such as SAP. In previous roles he has worked with clients such as IBM, MasterCard and U.S. Trust. Bryan holds a BA in Mass Communications from Iona College and a MS in Management Communications from Manhattanville College.
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