Those of us in the field may share a deep-seated belief that sustainability efforts across the product value chain pay clear dividends— but it’s nice to have proof.
Nearly all firms state that they have achieved business benefits from their product sustainability programs, according to the second Pure Strategiessurvey of companies involved in product sustainability, released today. The value derived from such efforts cuts across productivity, risk reduction, and growth opportunities. With widespread benefits, it is no surprise that more companies are ramping up their investment in their product sustainability programs.
Sales on the rise
Growth opportunities can be some of the most rewarding benefits from a company’s product sustainability program. Benefits such as increased sales, customer commitment, market value, and reputation, unfortunately, were less likely to have been achieved by firms in the survey than productivity or risk reduction. However, studies consistently find that corporate sustainability efforts enhance market value. The disconnect may be due to the challenges in identifying the growth attributable to product sustainability efforts.
Working with their customer contact center, the Hewlett-Packard Company identified the business value linked to environmental inquiries or requirements. The company determined that customer interest in product and supply chain sustainability was connected to more than $24 billion of existing and potential revenue in 2014.
The research found that it’s not just a few firms such as HP that are seeing these benefits. 47 percent of surveyed companies in 2015, up from 32 percent in 2013, attributed increased sales to their product sustainability efforts. Other recent reports have found similar results — for example, revenues from sustainable products and services grew six times the rate of overall company revenues between 2010 and 2013.
Productivity and risk reduction top benefits
Productivity and risk reduction have led the gains in product sustainability program benefits in the past two Pure Strategies’ surveys. The top benefit cited by respondents this year was employee engagement, which has been consistently rated a top benefit from product sustainability. Research by Project ROI found that this is connected to up to 13 percent greater staff productivity and notable savings from reduced turnover and stronger employee commitment.
Direct cost savings are often among the first productivity benefits firms experience, partly because they are easier to measure, such as logistics or manufacturing efficiencies. One approach to tracking this is to initiate cost-monitoring as part of programs. The Clorox Company measures cost savings generated from sustainability improvements such as reducing greenhouse gas emissions, waste, energy, and water use, delivering the firm an average of $15 million in cost savings annually since 2008 and achieving $122 million in cost savings in fiscal year 2014.
Anheuser-Busch InBev invests in sustainable agricultural practices as part of its product sustainability program. John Rogers, Global Director of Agricultural Development at Anheuser-Busch InBev, notes that, “our company’s product environmental programs are delivering efficiencies from the farm through to logistics, reducing risk and improving resilience for the farmer and our company.”
The company has identified indirect cost savings through its farmer-engagement efforts. These programs enable consistent raw material quality to help deliver process efficiencies such as reduced waste. Last week, CDP reported that over a third of food, beverage, and tobacco companies have lower costs as a result of carrying out agricultural management practices with a climate change benefit across their supply chain.
Investing in sustainable agriculture also reduces risk through greater farmer engagement and loyalty to the firm, helping offset crop failure risks and the higher costs associated with spot market purchases. Project ROI estimates that corporate sustainability efforts protect up to 10 percent of the firm’s value from risk reduction. Supply chain risk reduction was the second-most frequently cited benefit from product sustainability programs in this year’s survey.
Top performers report twice the benefits
Top-performing companies report earning nearly double the benefits compared to companies with less advanced programs. Building corporate alignment and business integration are key to their success. This includes building clear goals that are relevant to the business and measuring corresponding progress, such as the:
- Amount and portion of revenue from sustainability-driven products/brands
- Growth rate of sustainable products/brands (compared to rest of company portfolio)
- Portion of product launches or product portfolio with sustainability improvements (over baseline)
Tracking value from employee engagement and other cost savings along with risk reduction should not be overlooked, as they are common benefits from product sustainability programs. But surprisingly, two-thirds of companies surveyed are not able to estimate the dollar value of the benefits gained from their product sustainability efforts.
Quantifying these benefits for management can validate the investment. Firms starting out need to justify initial spending while companies with more advanced programs must measure their success to rationalize further investment. Top-performing companies have prioritized this work and are more likely to measure business value from product sustainability efforts and report greater earnings and across more types of benefits. This is one of several key approaches leading firms include in their product sustainability programs, as described in the Pure Strategies’ report, Advancing on the Path to Product Sustainability.
Leading companies also look at their investments with a broad view — not expecting every strategy to deliver business value but instead expecting that their aggregated efforts will yield an overall benefit. These leaders understand that levels of achievement can vary from year-to-year, and subsequently hold a longer view of the value of their work.
Top-performing companies have shown that there are notable productivity, risk reduction, and growth opportunities from product sustainability investments. The question is not whether to invest but how much and where. Advancing on the Path to Product Sustainability helps answer the latter question by revealing the keys to developing a robust product sustainability program that in turn delivers the business the greatest returns.