For years people have been talking about making the business case for sustainability. That process typically entails the sustainability director coming up with an environmentally focused initiative and then spending several months proving it won’t just be good for the company’s ecological footprint but also for its reputation and bottom line.
The whole thing is bunk, according to Yann Risz, vice president of strategy and environmental finance for Environmental ERP software company Enviance.
Instead, Risz says sustainability directors should be looking at their companies’ pain points and thinking about eco-minded initiatives that could help to address them.
Step one: Get out of HQ
The first step to understanding where all a company’s environmental impacts are and how they relate to costs and risks in financial terms is to look across the entire supply chain.
That’s not a new idea, of course. Companies have been tracking their supply chains ever since they got big enough that a sly cellphone snapshot in an Indonesian work room could cost a U.S. apparel company millions in bad publicity. However, while companies keep tabs on suppliers to ensure compliance with various laws, they remain largely in the dark about the broader financial and environmental impacts of their supply chains.
“You wouldn’t imagine managing a company’s finances with no system, but that’s sort of how it is today with supply chains and environmental impacts,” Risz said.
Take energy, for example. A company might look at its own direct energy usage and realize it spends about $1 million in energy per year. Based on that, it might look at what would happen to that spending should energy prices skyrocket. In doing so, it might neglect to account for the additional millions of energy costs embedded in the supply chain and what would happen to the cost of all its materials should energy prices rise.
Next page: Lockheed Martin's supply chain