“Sustainability in the supply chain is increasingly considered as critical to delivering long-term profitability, replacing financial cost, value, and speediness as the chief concern.”
Adopting sustainability practices can make smaller companies more competitive in supply chains
The effects of the worldwide economic downturn, combined with environmental degradation and social volatility, are not conducive to a successful business environment. Small and medium-sized enterprises (SMEs), in particular, are susceptible to external shocks of this nature and are often the worst affected by a negative economic environment.
The current challenges of population growth, a rising middle class and rapid urbanisation which fuel demand for food, water, energy, land and other resources are impacting on company long-term strategies, their clients and other stakeholders. Against this background, there is a definite shift in the corporate world towards implementing more sustainable business practices and incorporating sustainability in business strategies throughout the value chain.
The production of goods is an essential component of a well-functioning economy and society. Manufacturing has long been an economic engine. However, globalisation has resulted in many manufacturers electing to compete against each other in a ‘race to the bottom’ driven by consumer demand for lower prices and superior quality goods, while regulatory controls and operational costs have soared, putting profits under pressure. This approach, even in a global context with the use of low cost labour or less restrictive regulation, is unsustainable in the long run.
A sustainable supply chain pertains to an organisation’s environmental risk management and waste-related expenses in the supply chain or logistics network. Sustainability in the supply chain is increasingly considered as critical to delivering long-term profitability, replacing financial cost, value, and speediness as the chief concern.
Supply chain sustainability includes projects to lower energy costs, reduce waste, and apply green technologies within transportation and logistics networks. Even greater impact is achieved through collaboration with internal and external supply chain participants to re-evaluate methods of delivery, products, packaging as well as monitoring systems.
As one of the prime culprits in creating the various sustainability challenges, companies have a pivotal role to play in seeking solutions. They can help address some of the challenges through responsible corporate actions that include transparent and balanced reporting, enhancing corporate accountability towards a wider set of stakeholders within a much broader set of social and environmental issues. This type of reporting has a direct bearing on an organisation’s long-term viability and corporate reputation.
In the context of the widespread and growing recognition of sustainability challenges, sustainability accounting and reporting practices have developed considerably in recent years. Through the identification and connecting of economic, social and environmental costs and benefits, accounting processes and practices have a key role to play in helping organisations develop more sustainable operations. Sustainability reporting is about offering proof to stakeholders that the entity is not only a going concern in the short-term, but that the company is thinking strategically about the evolving world around it, and is planning to mitigate predictable risks while seizing the business opportunities that coincide with emerging challenges.
Sustainability reporting is not an afterthought to profit, nor a nice-to-have, but rather a fundamental driver of future growth and ultimate sustainability. Despite there being no current legislative requirement for SMEs to implement a sustainability strategy and produce sustainability reports, there is mounting pressure from consumers and investors for more sustainable products and services. In addition, SMEs that form part the supply chain of larger, listed companies may be forced to adhere to the specific reporting requirements of their larger customers.
Benefits of sustainable business practices for SMEs
Developing a sustainability strategy and adhering to internationally accepted reporting guidelines, such as the Global Reporting Initiative (GRI) G4, will assist SMEs to unlock the benefits of sustainable business practices.
As is the case with larger businesses, SMEs taking a long-term view on managing environmental and social risks can achieve improved growth and cost savings, advance their brand and reputation, strengthen stakeholder relations, and boost their bottom line. Strategic integration of sustainability will assist SMEs to better anticipate and respond to long-term trends and the effect of resource use, while addressing stakeholder expectations.
In particular, SMEs that form part of larger company value chains stand to benefit. Implementing sustainable business practices and demonstrating a passion for sustainability will unlock competitive advantages, as larger companies will prefer suppliers that observe best practice in harmony with their own sustainability objectives.
In addition to these benefits, SMEs that embrace sustainability in business will have a better understanding of the impact of systemic risk and resource constraints on business operations. Identifying and addressing environmental and social concerns related to products and services can be a differentiator in certain markets, while opportunities for business innovation can be realised when environmental and social challenges are seen as opportunities to meet society’s needs.
Melanie Annandale CA(SA) is a Director, Enfinitude Sustainability Consultancy