The news that nine big companies, including retail giants such as Amazon, Unilever and IKEA, are pledging to achieve zero-carbon shipping by 2040, has been met with hope and scepticism in equal measure.
Today, 90 per cent of all trade moves by sea. Shipping makes up three per cent of global emissions, a figure that according to the International Maritime Organisation could rise to 10 per cent by 2050 unless we stop relying on carbon-intensive fuels. It’s therefore clear that materially lowering the carbon footprint of shipping is essential for the health of our planet. But it’s also ambitious and has obvious associated costs required to get there (which will lead to a resultant hit to global wealth - at least in the short term).
So beyond the sound-bytes and management-speak, how does the global commerce ecosystem make these promises a reality? In my mind, success will rest in two main areas.
First, companies need to be acting within a capitalist structure that incentivises them to do so. Words have no cost attached to them if shareholders do not see carbon-related output metrics in the same bucket as financial operating results. This has to come from investors, and to some extent regulators, in providing reporting metrics which facilitate carbon-related reporting too.
While the majority of executives today think (or rather, know) that ESG (Environmental, Social, and Governance) efforts have an impact on a company’s brand and reputation, only 48 per cent believe this actually affects the bottom line. It’s worrying to think that over half of business leaders see little correlation between sustainability and profitability. Or perhaps, they are just not properly incentivised to see it.
Second, it is in the nitty gritty of operations, which is where commerce actually happens. Whilst management tend to put a stake in the ground regarding corporate objectives, the men and women in their operational departments are the ones building, managing and procuring assets. This is where decisions are made that contribute to how companies are able to deliver on their net-zero ambitions. Furthermore, transparency and visibility over these operations allows for the information sharing between management and operational processes to be fluid.
This knowledge gap amongst executives is largely due to a lack of visibility of their supply chain and procurement logistics. With many buyer-to-supplier conversations still being carried out over email, or sometimes even with pen and paper, management teams remain blind to procurement details. This makes it easier for big businesses to avoid accountability when it comes to sustainable supply chains. Without the full picture of their carbon footprint, let alone the carbon footprint of their suppliers, how are they meant to know how much damage they’re doing to the planet? See no evil, hear no evil, speak no evil.
This is a common problem in the pre-digital procurement landscape (by this I mean dominated by millions of emails being pinged around between a myriad of business users). But the times they are a-changin’. Companies can now easily adopt new tech tools that bring full transparency of their supply chain communication with suppliers, facilitating proper oversight of ESG visibility. Data and digitalisation leads to increased awareness of what is going on, and that is critical for ensuring that purchasing decisions are done in line with organisations’ sustainability goals. This allows for a far greater accuracy in assessing suppliers’ contribution to the respective buyer's overall carbon footprint (and consequential impact on the planet).
When clear ESG standards are built into the RFx ‘Request For anything’ (RFP/RFI/RFQs etc.) evaluation process, the pressure on the supplier market to ‘go green’ increases. Because buyers can judge suppliers on their ESG criteria, and pick the ones that align with their values, suddenly sustainability metrics are there for all to see. Crucially, suppliers then become commercially incentivised.
It’s worrying to think that over half of business leaders see little correlation between sustainability and profitability
For too long, businesses have been leaning on existing relationships to solve their supplier needs. This is a hangover from the era of the handshake, old boys clubs and cronyism. With digitisation comes a more meritocratic market, a healthily competitive environment that encourages suppliers to deliver the best service, according to criteria such as cost, efficiency, and, of course, sustainability. We need creative destruction and competitive industrial markets: technology and digitalisation are key enablers of this, helping us get to a business ecosystem that aligns itself with investor and management objectives. Good actors will take the opportunity and rise to the top.
But change is not only in the hands of big corporations - policy makers need to acknowledge that measures to reduce carbon emissions can be accelerated with available digital tools for procurement professionals. Constructive collaboration between the regulators, procurement functions, environmental specialists and entrepreneurs can be an instrumental part of increasing sustainability across the supply chain within a dynamic capitalist framework.
The remaining question is whether this pledge will realistically be achieved, or whether these big name brands are “greenwashing” and jumping on the climate-friendly corporate bandwagon. I have always been a bit skeptical about how much individual consumers can move the corporate needle with regards to corporate actions that are unrelated to immediate service delivery and price. But that being said, my views are starting to change around this - we live in an era of increasingly high informational awareness driven by social media amongst consumers. This is empowering individuals, in particular younger generations who are choosing to shop from (i.e. fund) companies that share their values. This presents both a serious threat and opportunity to customer-focused organisations like Unilever and IKEA.
There is no doubt that making these eco-friendly changes will be a complex task for the nine large corporations involved in the pledge. However, the goal is well within their reach, and the journey to completion will be simplified by a digitised procurement process and enhanced visibility of supply chains. Net-zero by 2040 might seem ambitious, but hey - it’s worth a crack, and we need all the tools (whether digital or otherwise) to try and get there in the most efficient way possible.
Jack Macfarlane, founder & CEO of DeepStream