With supply chain managers under constant pressure to hold down costs and maximise effectiveness, having the foresight to address risk and seize opportunity is as important as building good relationships among suppliers.
That is why the protection of natural capital like water, soil and biodiversity, which provide substantive value, should be a key concern for all procurement professionals.
Companies rely on a bounty of natural resources underpinning cross-sector supply chains. But the depletion of the quality and availability of these resources by unsustainable business practices is being exacerbated by climate change, a growing global population, and changing consumer demands. Already one fifth of the world’s aquifers is being eroded or degraded each year.
Maintaining a good reputation is enough of a reason for businesses to be more careful about the suppliers they use and the practices they implement in their supply chains. Consumers are increasingly demanding goods produced with minimal environmental impact and maximum social benefit. There are reports and websites that evaluate and rank companies’ performance side-by-side – even if the metrics themselves are a little dubious.
But the risks go beyond reputation; security of supply is at stake – with major ramifications on the bottom-line. Last year, Asda revealed 95 per cent of its fresh produce was already at risk from climate change impacts. In 2013, 68 per cent of Global 500 companies said that water-related issues posed a substantive risk to their business.
These figures should set alarm bells ringing in boardrooms across the country. The food, agriculture and extractives industries are most at risk, but all sectors are affected to a degree. Fortunately for supply chain managers reporting to senior management, there is a silver lining. First, risk mitigation is the key to maintaining licences to operate and increase company efficiencies. Second, it goes hand-in-hand with cost savings, and in some cases, additional income generation.
Earlier this year a report by the University of Cambridge Institute for Sustainability Leadership (CISL) set out some of the ways the companies on its Natural Capital Leaders Platform are working to protect natural capital. Agri-business Olam International, for example, is safeguarding its Californian almond yields from drought, by enhancing the water-holding capacity and nutrition of the soil as well as minimising water use. It is even investing $18 million annually on bees, in the increasing absence of pollinators naturally.
But it is still early days, the financial benefits have not yet been quantified, and these companies recognise their efforts alone are not enough to end environmental degradation at scale. A greater body of evidence is required for procurement professionals to draw on when making strategic decisions in supply chains.
CISL is seeking to work with a group of companies over the coming months, to determine what more they need to know to be able to assess commercial returns on investment in natural capital. It will take time to stop sustainability being sidelined and have it brought into the heart of business operations, but we hope this will be a useful next step.
To find out more click here.
☛ Gemma Cranston is senior programme manager at The University of Cambridge Institute for Sustainability Leadership. She works within the Natural Capital Leaders Platform, bringing together influential companies with a global reach to address their dependencies and impacts on natural capital. Follow her @GemmaCranston