Globalisation
Due to the changing landscape of today’s business world, having a sustainable commercial strategy is now critical for all businesses. The sustainability of business activities affects both local, global environments and the society at large. The idea behind implementing sustainable commercial practices involves implementing strategies that will result in wider impact in areas such as environmental degradation from carbon emission and unstable infrastructure due to climate change risks, to social inequality and governance across the value chain.
Supply Chain Resilience
Investing in sustainable commercial business practices will improve a company’s supply chain relationships by building resilience across the supply and value chain. The connectivity will drive improved customer communication while the use of technology will propel transformation and amplify revenue. Overall long-term value creation will fuel continuous improvements and a carefully executed sustainable commercial strategy will strengthen resilience and increase value.
Evidence Nos 1.
According to Forbes, 90% of executives agree on the need for sustainability but only 60% of companies are involved. This is because the link between sustainability, strategy and commercial activities is not part of business planning and therefore daily operations. The benefits and impact of sustainable commercial practices originate from tangible strategic business planning. Planning that considers environmental, social and governance (ESG) factors in decision making and ensures that the business achieves financial success while also driving sustainable long-term value.
KPMG’s research in 2010, the graph below identifies the engagement rate of companies involved in sustainable activities. This shows that basic engagement is widespread, with only seven out of ten companies stating that they undertook sustainability-related activities over the past year and are on track to continue with these activities in future. 72% of companies are involved in energy efficiency improvements, and 67% are working on reducing carbon emissions, while 69% of firms are working on reducing the environmental footprint created by their activities. Today in 2021, carbon and climate change are top risks for most businesses and an emergency for both developed and developing countries.
Sustainable Commercial strategy
A sustainable commercial strategy can also help businesses tackle other issues like strategic partnerships and collaboration, asset management, cost assurance and the successful application of circularity principles in strategic planning through procurement practices. This will ensure those customer relationships are maintained via increased collaboration, improved business connectivity and the implementation of circularity principles. The result will include better cost assurance, cost optimisation, increased partnership/strategic alliances and improved asset management strategy that will drive a net-zero carbon footprint.
Consumer Behaviour in Economic and Financial Sustainability
It will also help in tackling issues like customer behaviour, renewable energy usage, and resource cost efficiency. By examining customer segments, community benefits, customer profiling, customer journeys and consumer behaviour e.g., fair trade or sustainable investments can be better understood. In doing these, businesses can efficiently allocate resources to ensure the achievement of Key Performance Indicators (KPIs) e.g., incorporating fair trade opportunities and technological practices. That will allow them to work more closely with raw material suppliers at the source. These can all be used for improving resource target costs, improving renewable energy sources, and empowering communities to be more financially and economically sustainable. Today many pension funds are moving to more sustainable investments and the top emerging issues include:
- The assessment of materiality as a starting point for creating sustainability strategies
- Stakeholder demands for companies to engage in a portfolio of sustainable activities.
- Creating sustainable value must be linked to more than creating shareholder value.
Evidence Nos 2.
According to Harvard Business School, incorporating sustainability into business strategy is no longer optional. They stress the need for considering a values-driven approach when developing business strategy as vital to long-term success. They stress that sustainability does not mean sacrificing profits but rather making it a crucial element in the organisation’s successful strategy. This is because a business that doesn’t factor in sustainability risks is less likely to be successful in several key measures, including profitability, growth, and employee retention. After all, in today’s world, these measures are critical for investors. They identify four benefits of sustainability in business as follows:
- Protecting reputation/brand and mitigating risks
- Creating a purpose-driven competitive advantage
- Being part of a growing market for sustainable goods
- Collaborating in cooperative action to drive change
They found that palm oil a cheap, versatile raw material found in half of all packaged products such as soap, lipstick, and ice cream has resulted in record greenhouse gas emissions and contributed to climate change. As a result, consumer goods producer Unilever in 2008, committed to only using palm oil from certified sustainable sources. The business collaborated with competitors, governments, NGOs, and indigenous businesses to lead an industry-wide adoption of sustainable palm oil. As a result, Unilever continues to be a thriving organisation, and the world has reaped the environmental benefits of sustainable palm oil harvesting practices.
Supply Chain Sustainability
In today’s modern world a successful business ecosystem consists of a sustainable supply chain and value chain. This comprises a network of responsible businesses with shared goals that aim to create long-term value for customers. The supply chain plays a major role in sustainability. It is the responsibility of businesses to make sure their supply chain, value chain and ecosystem consists of businesses whose ESG strategy aligns with theirs. A major factor behind a sustainable supply chain is the strict regulations and governance to ensure a sustainable code of conduct. Having a sustainable supply chain will help businesses create wealth responsibly while promoting safer communities and a greener environment.
Strategic Alliances
The demand for cost efficiency and transparency is fueling the need for increased collaboration and strategic alliances. These strategic arrangements involve shared risks and rewards that are beneficial for all parties and by fostering trust, collaboration, and long-term alliances there is better alignment of the overall strategy. These include shared commercial practices that can help achieve wider impact across the supply chain, value chain or ecosystem such as net-zero carbon reporting, increased SME supplier engagement for gov.uk opportunities and increased governance through open book audits that will increasingly involve emerging issues such as carbon and gender pay equity.
Evidence Nos 3.
For example, British Petroleum formed commercial and strategic partnerships with Aberdeen, Houston, and Microsoft in 2020 to meet the goal of decarbonisation, and the shared benefits that resulted were as follows:
- Shared initiatives to raise standards and set new sustainability benchmarks
- Investor engagement
- Joint Advocacy
- Knowledge sharing and learning
According to Mckinsey’s 2014 research, the value at stake from sustainability issues can be as high as a 70 percent impact on earnings before interest, taxes, depreciation, and amortisation (EBITDA) due to risks relating to restricted license to operate (Uber case study) or reputational damage (Southern Water case study) as shown in the graph below. This also shows that the risk that supply chain operations can be disrupted, delayed and cancelled due to lack of access to significant local resources e.g. power (Texas case study) can be up to 25% of value.
Sustainable Development Goals
From the case examples above, introducing sustainability into commercial strategy will not only help businesses avoid risks and loss of revenue but will also help address the United Nations (UN) 17 goals for sustainability that include gender equity, climate action, sustainable cities, and communities. Therefore, businesses and organisations should develop strategic plans that can be translated into a sustainable commercial strategy that is communicated clearly and early throughout their ecosystem and supply chain to generate more impact, long-term sustainable value, improve social equity and help achieve planned net-zero carbon emissions targets.
Shared Risk & Rewards
With growing uncertainty comes increasing risks. A sustainable commercial strategy can help businesses and projects tackle a vast range of issues such as cost efficiency, sustainability, value creation and shared risks or rewards. The right business model and appropriate business strategy will drive the efficacy of the control systems in place for cost efficiency, cost reporting and risk management. Partnerships strengthened by collaboration, shared sustainability protocols and the use of cost-based commercial contracts that share risk and rewards are a few of the additional benefits.
Evidence Nos 4.
Deloitte in their 2017 article written in a pre-pandemic era, touched on how a new transport ecosystem could shape the future. It touched on how the future of mobility could transform the way people and goods move about with shared and autonomous vehicles offering the opportunity for faster, cleaner, cheaper, and safer transportation and how these changes could dramatically result in shifts in the workforce. Their report spotted the profound impact on the labour force of a new mobility ecosystem and on how future work and mobility could intersect to shape tomorrow’s workforce. Undoubtedly, no one envisaged a global pandemic of these proportions, nor the urgency required to tackle climate change risks to people and infrastructure e.g., transport.
More recently the DFT’S plans to decarbonise transport stem from its research to understand the impact of COVID-19 on current and future travel. The research concluded that the short-term changes brought about by the pandemic, including increased home working, could remain for the longer term and become a more permanent shift in travel forecasts, creating increased uncertainty for transport projections and potential carbon emissions. The DFT recognises the impact transport plays in not just how we get around undertaking commercial activities but in fundamentally shaping our towns, living standards, health, and quality of life.
Emerging Trends for Sustainability in Commercial Strategy
- Increased changes in regulation, governance, and reporting
- Increasing emerging cost of carbon, raw materials, water, energy etc.
- Increased sharing of volatility risks and ecosystem rewards
- Opportunity for gaining competitive advantage
- Increasing stakeholder demand for impact reporting
- Reinforcing competitive advantage responsibly
- Opportunity for entering new markets
- Protecting business brand and reputation
- Prerequisite for attracting new investors or investments
- Increased transparency and accountability
- Increased supply chain collaborative arrangements
- Increasing social and small business representation
How can CFBL help you?
For real-life case-based training on how your commercial, finance, procurement teams and your supply chain can embed ESG factors in business strategy and implement protocols for emerging ESG costs like carbon contact ce************@cf*************.com . Cecelia is a strategic partner of the Sustainability Institute. Cecelia Fadipe, director of CFBL Consulting, is an economist, chartered global management accountant fellow of CIMA and cost consultant. CIMA is a signatory to the UN Global Compact, being a part of the Global Compact is a voluntary commitment to upholding the initiative’s ten principles, in the areas of human rights, labour, the environment and anti-corruption.
References
- https://www.forbes.com/sites/forbesbusinesscouncil/2021/02/10/why-corporate-strategies-should-be-focused-on-sustainability/?sh=18a06ffc7e9f
- https://www.sustainabilityexchange.ac.uk/files/corporate-sustainability-a-progress-report_1.pdf#:~:text=Corporate%20Sustainability%3A%20A%20progress%20report%20is%20a%20KPMG,business%20today%20and%20executive%20attitudes%20toward%20this%20issue.
- https://www.bp.com/en/global/corporate/sustainability.html
- https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Sustainability/Our%20Insights/Profits%20with%20purpose/Profits%20with%20Purpose.ashx
- https://sdgs.un.org/goals
- https://www.telegraph.co.uk/news/2020/08/29/uber-covered-safety-flaw-let-drivers-swap-photo-ids/
- https://deframedia.blog.gov.uk/2021/07/12/southern-water-fined-record-90m-for-dumping-sewage/
- https://www.utilitydive.com/news/lessons-from-the-2021-texas-electricity-crisis/596998/
- https://www2.deloitte.com/us/en/insights/deloitte-review/issue-21/transportation-ecosystem-future-of-mobility-reshaping-work.html
- https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1002285/decarbonising-transport-a-better-greener-britain.pdf