BASF's new strategy for a greener supply chain
SustainAbility's recently released research, Sustainability Incorporated: Integrating Sustainability into Business, calls out the need for business to further embed sustainability into its core strategies.
The report highlights five pathways that sustainability practitioners can leverage to more deeply integrate sustainability into their business: employing business model thinking; putting materiality to use; applying a sustainability lens to products and services; tapping into culture; and leveraging transparency.
￼Many companies have identified ways to modify existing products or services — or to develop new ones — with sustainability factors top of mind such as Ford and the F-150 pick-up truck, Nike and Flyknit shoes, and Nest Labs and the learning thermostat. When companies such as these apply a lens of sustainability to their products, they signal to customers and other external stakeholders that they are prioritizing environmental and social issues. At the same time, they signal to internal stakeholders that sustainability is a priority and an opportunity for innovation and growth. This type of internal employee messaging and prioritization is a significant opportunity and pathway towards integrating sustainability more deeply across the business and ultimately creating more value.
Applying a sustainability lens to products and services offers a tangible, day-to-day approach to embedding sustainability into business units above and beyond the sustainability team. Many departments typically are involved in the development of products, including design, sales, marketing and R&D, and each will be exposed to sustainability issues and opportunities, thus fostering integration.
Developing sustainable products and services also can help build the case for further integration of sustainability, especially as the demand for such products is growing. A study by the Conference Board found that companies with revenues from sustainable products and services climbed 91 percent between 2010 and 2013 whereas overall sales grew just 15 percent. The financial benefits of applying a sustainability lens to products and services can help make the case for embedding sustainability into other parts of the business such as strategy and operations.
There are several ways to apply this lens. Companies can use tools such as lifecycle assessment (LCA) to understand and improve the environmental impacts of a product, as Levi Strauss, Brown-Forman and Nestlé have done. Companies also can create internal sustainability scorecards, such as Johnson & Johnson’s Earthwards approach that prioritizes sustainability aspects of a product or service in its development stages, or external scorecards that influence suppliers and raw material sourcing, such as Procter & Gamble’s Supply Chain Environmental Sustainability Scorecard and Walmart’s Sustainability Index. Many companies combine all of the above and also set goals around sustainable products and services as they integrate sustainability into their core offerings.
One company that has taken a robust approach to embedding sustainability into its products and, in turn, integrating it into its overall business strategy is German chemical producer BASF. A key tool for the company has been BASF’s Sustainable Solution Steering methodology, an evaluation and decision-making process for shaping the company’s product portfolio. The process uses cross-functional workshops with staff members from product safety, strategy, marketing, sales, communication, regulatory units and sustainability to discuss the sustainability contribution of its product portfolio. The methodology accounts for industry and region-specific customer viewpoints and competing solutions, and also takes into account the product lifecycle. The group then ranks the products into one of four categories according to their sustainability performance: Accelerator, Performer, Transitioner, Challenged.
Since BASF launched the Sustainable Solution Steering in 2011, the company has engaged more than 2,000 employees from marketing, sales, R&D and sustainability to assess the sustainability of products, evaluated its entire 60,000 product portfolio and identified 14,000 Accelerator solutions. Today, over 74 percent of BASF’s sales revenues are from products that meet basic sustainability standards in the marketplace (Performer level) and 23 percent of products make a substantial contribution to sustainability (Accelerator level).
These numbers indicate that about a quarter of the portfolio already makes a substantial contribution to sustainability and these products are expected to fit into BASF’s growth strategy. To foster growth of these sustainable products, BASF set a goal to increase the sales share of Accelerator products to 28 percent by 2020. The Sustainable Solution Steering methodology supports BASF in developing more sustainable products and discontinuing those that do not fit into the company’s sustainability minimum requirements.
For example, BASF used its methodology to assess its paper coatings and classified some as Challenged due to environmental concerns about polyfluorinated substances. BASF decided to stop selling these products and instead developed safer, biodegradable and recyclable products. The two new products, ecovio and Epotal, are both categorized as Accelerator and offer a more sustainable product.
BASF’s director of corporate sustainability relations, Thorsten Pinkepank, highlighted the success of the company’s evolving product portfolio, explaining, "This approach has enabled us to show our internal and external stakeholders how we fulfill the sustainability needs of our customers with innovative solutions [and to demonstrate] that we expect these products to outperform market growth. This has allowed us to position sustainability as not just a means of avoiding risk but as a real growth driver." ￼
BASF illustrates how a company that focuses on products can trigger broader integration of sustainability into its strategy — far beyond its product lines. As more companies such as Ford, Nike, Johnson & Johnson, Walmart, Procter & Gamble and others develop sustainable products and services, the opportunity to embed sustainability more deeply across business will grow, enabling them to contribute more positively to today’s global challenges.