Does sustainability lead to better companies?
We debate an age-old chicken-and-egg question when we get together with other sustainability leaders: Are sustainable businesses more successful? Or are successful businesses more sustainable?
And, honestly, does it really matter which came first?
Sustainability and good business go hand in hand, whether sustainability drives business results or is the result of good business practices. No matter how you cut it, sustainable practices and transparent supply chains help everyone — from businesses to suppliers to consumers and everyone in between.
The Sustainability Consortium (TSC) has released its 2018 Impact Report, "Transparent Supply Chains for Better Business." In this latest analysis — based on numbers from the Sustainability Index used by Walmart, Sam’s Club and a handful of other retailers — we see rapid year-over-year improvements in the transparency of consumer product supply chains. And with that increased transparency comes the incentive and the willingness to tackle any issues uncovered.
So, what is the real driver of transparency in supply chains? As chief executive of TSC, I would like to think that creating more sustainable products alone is a big enough driver. The truth is that transparency for the sake of transparency is not enough for most companies. Ultimately, it must hit the bottom line.
I often talk about the leaders and laggards of sustainability. If supply chain transparency weren’t a good business decision, it would remain niche and wouldn’t go mainstream. And yet at TSC, we know sustainability is good for all businesses. Consumers and investors are increasing their demand for transparency in the supply chains of the companies they buy from and invest in. Organizations that create that transparency have more consumer and investor trust, which leads to loyalty and business value creation.
Recently, Starbucks announced a ban on plastic straws. Consumers can wrap their heads around the plastic straw issue much more than, say, wastewater from textile plants. Saying "no" to a straw being offered can be satisfying and easy for consumers to feel like they are taking a stand and making a more sustainable choice. You might try to argue that one sustainability issue is more important that the other. But the fact is consumers care about this issue, Starbucks created a policy, and they are being rewarded. The support for Starbucks’ decision resulted in stock that ticked up 2 percent on average volume.
A recent McKinsey & Company analysis done for TSC showed that 50 percent of the stock market value of the largest consumer goods companies is contingent on their ability to continue to grow their businesses year-on-year. And the Paris Climate Agreement and Science Based Targets Initiative means those companies must deliver a dollar of sales in 2050 with only about 10 percent of the greenhouse gases that same dollar of sales generated in 2015.
This is the "smoking gun," a direct link between company valuation and climate action.
We see a similar overall trend in the 2017 Sustainability Index, where supply-chain transparency is increasing. Comparing data from 2016 to 2017, we see that fewer organizations reporting zeroes in their supplier scores, and average scores are rising. We also see that companies that respond to the Index year-over-year are scoring highest and have improved the most. These companies have set systems in place to improve, and it is clear that the companies that are aiming for better transparency are getting there quickly.
Our data shows us that suppliers committed to improving scores are committed to increasing their transparency. Companies such as Starbucks and many TSC members are already reaping the benefits of being a more successful, and more sustainable, business.