The Business Case For Sustainable Manufacturing

Posted by Larry Burton on Feb 22, 2018 3:25:59 PM

If you were drawn to this article, perhaps fueled by pressure from employees, shareholders, customers or regulators, you may be in the early stages of research about how to build a sustainable future for your business.  

sustainable manufacturingIf so, you’re in good company, because sustainability is becoming more important for manufacturers, a trend that we predict will be important for business survival in the coming years.

 This is a strong statement. However, there are three trends occurring that back up this thought process. 

 

  1. Companies that focus on sustainability as a business strategy are outperforming their peers.
  2. Large companies are leading the way on sustainability initiatives, and their C-level executives are engaged in the process.
  3. The largest generation in U.S. history is coming into their peak spending years, AND they are willing to spend more on sustainably-produced products and services.

 

It is LIKELY that these trends signal a seismic shift in how companies will do business in the future, leading many companies to take sustainability seriously.

Let’s take a look at how these factors are influencing businesses to move in this direction.

 

Sustainability Is Proving To Be Profitable

 

The concern over profitability has long been a barrier to corporations moving forward on sustainability strategies.

 According to Investopedia:

“Some think corporate social responsibility is an oxymoron. Others see corporate social responsibility as a distraction of a different sort, that is, from the lawful pursuit of profits. To them, a corporation's sole responsibility is to generate returns for its shareholders, not to try to save the world or to fret over its own impact.

sustainable manufacturingLaws and regulations must be followed in all jurisdictions in which the company operates, but management should not go beyond that, as that could hurt its bottom line and violate its duties to the owners.

But this view is changing. Companies are not jumping on the bandwagon as part of some corporate feel-good story. They are doing so because sustainability is becoming profitable.

 From Forbes:

“You might think companies that invest heavily in sustainability might incur higher costs and become less profitable. But the Global 100’s stock returns suggest otherwise. If you had invested $100 in Global 100 companies in 2005, it would have been worth $232 at the of 2016. If you did the same for the All Countries World Index (ACWI), you’d have $208. In other words, the Global 100’s cumulative return is 24 percentage points higher than the ACWI benchmark.”

(Note: The Global 100 is an annual list of the world’s most sustainable companies put together by Corporate Knights, a Toronto-based magazine and research firm. You can view the 2018 methodology details here.)

Another example comes from CDP, a not-for-profit charity that runs a global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. In a 2014, report, CDP provided some of the first evidence of a link between business leadership on sustainability and a company’s profitability.

 From the Guardian:

The study, …. finds that S&P 500 companies that build sustainability into their core strategies are outperforming those that fail to show leadership.

Conclusion: Sustainability holds the promise of future profits, and many companies are turning to these strategies to add value for shareholders.  Expect the trend to continue.

 

Large Companies Are Providing Leadership

 

Large companies are immensely powerful entities, and they have the power to influence our society in positive ways.  And, with the rise of social media, corporations have begun to embrace corporate social responsibility initiatives and enlightened business practices.

Nowhere is this more evident than in the concept of sustainable manufacturing and carbon footprint reduction.

sustainable-manufacturingSchneider Electric recently commissioned a study of 240 large corporations ($100 million in revenue or more) from around the globe. Their findings revealed two key findings on the future of sustainability:

 

  1. Companies are taking sustainability seriously
  2. C-suite executives are highly engaged

 

Here are some highlights:

“More than 50 percent of companies represented have initiated renewable energy projects or plan to do so within the next two years, with healthcare (64 percent) and consumer goods (58 percent) leading the way. Plus, the C-suite and corporate functions have a high degree of involvement in these and other sustainability-focused programs. Seventy-four percent said C-suite members review or approve renewables and sustainability initiatives, for instance, indicating this work is seen as a strategic priority.


And while ROI is the obvious benchmark for energy and sustainability initiatives, companies are starting to take a longer, more comprehensive view of investments. For example, more than half of the respondents said environmental impact is factored in to the evaluation process. Organizational risk (39 percent) is another important consideration.”


Conclusion: With greater numbers of large corporations prioritizing sustainability initiatives, manufacturers need to expect these concerns to trickle down the supply chain.

 

Consumers Will Demand Products From Sustainable Companies

 

Here are some quick opinions about Millennials and their future influence on the economy, according to Goldman Sachs research:

sustainable manufacturing millennials 

  • Millennials are the largest generation in U.S. history.
  • They are moving into their prime spending years.
  • Millennials have grown up in a time of rapid change, giving them a set of priorities and expectations sharply different from previous generations.
  • Their unique experiences will change the way we buy and sell, forcing companies to examine how they do business for decades to come.

 

Here is how they feel about sustainability according to one Nielsen study:

In 2015, Nielsen published its annual Global Corporate Sustainability Report. It indicated that, globally, 66% of consumers are willing to spend more on a product if it comes from a sustainable brand. Millennials gave an even more impressive showing, with 73% of surveyed millennials indicating a similar preference. Additionally, 81% of millennials even expect their favorite companies to make public declarations of their corporate citizenship.


Simply put, people — millennials most of all — want the companies they buy from to practice business sustainably and ethically.
(Source: Forbes)

 

Conclusion: Millennials, like their Baby Boomer counterparts, will have a BIG influence on how products will be bought and sold in the future. Early signals indicate that sustainability will have a big influence on the products they purchase.  

  

Moving Towards A Sustainable Future

 

We believe that the pursuit of profits, corporate leadership and consumer demand will fuel the sustainability movement. The effects of this change are being felt in companies both large and small.

 As the industrial revolution gives way to the sustainability revolution, the conversation is growing in importance for all manufacturers.

 Companies that fail to engage with these new economic realities may find themselves struggling to maintain their current growth levels.  Evaluating your company’s readiness for this change is becoming more important every day to ensure economic viability well into the future.

 

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