Support from investors and millennials mean ethical supply chains now a ‘necessity’

Rob Woodstock
posted by Rob Woodstock
27 July 2015

In the digital age, particularly with the prevalence and power of social media, unacceptable business practices hidden in extended supply chains can rapidly become media sensations and tarnish a brand that has taken years to build.

With this in mind, investors seeking the best returns for their capital are favouring companies with a strong ethical ethos. They're safer investments and can deliver outsized returns. An Accenture study found that 52 per cent of executives reported investor interest as an incentive for them to pursue sustainable practices.

At the same time talented employees are gravitating towards companies known for their ethical sensitivities. For millennials – the future of the workforce - it's seen as a given.

Interestingly, 46 per cent of CEOs reckon millennials are the most influential employee group, just behind customers, for driving sustainability over the next five years, something business leaders ignore at their peril.

Previously viewed as "nice to have", company executives have come to realise that ethical supply chains offer a major competitive advantage.

Indeed, there's a strong business case for being ethically run. Accenture’s study found that it can boost revenues by up to 20 per cent and strengthen brand values by as much as 30 per cent while reducing supply chain costs by up to 16 per cent and carbon footprints by up to 22 per cent. This is reflected in perceptions of industry leaders, where 87 per cent of CEOs see sustainability as an opportunity for growth and innovation and 80 per cent see it as a route to competitive advantage in their industry.

At first glance there may seem to be a disconnect between fair wages, eco-friendly supply chains and healthy profit margins, but if anything all three are inextricably linked, as ethical practices have emerged as an alternative source of market differentiation. 

Companies with sustainability as a key business focus have successfully balanced a commercial advantage with social and environmental advantages, resulting in strong customer loyalty and soaring sales. For example, rethinking product designs can lower the use of materials and reduce waste. Collaborating, even with competitors, can cut transport and production costs leading to lower energy use.

It's key to collaborate with customers, suppliers and other stakeholders – internal and external – to create ethical and sustainable outcomes across all business channels. However, 33 per cent of CEOs feel their businesses could do more by creating transparency in the supply chain to highlight areas ripe for sustainability gains.

Companies prioritising sustainability and strong ethics benefit from being more profitable and increasing market share, with the biggest benefit landing on the bottom line through new sources of growth and innovation. While the sustainability topic is not new, companies should regard ethical supply chains as "necessary" rather than "nice to have" – to ensure they remain current, competitive and relevant to investors, customers and the future workforce.

☛ Rob Woodstock is managing director operations strategy, UKI at Accenture.

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