Michael Forhez and Anil Pahwa of Infosys Consulting on Sustainability

Sustainability is one of the latest, perhaps most important, trends to impact the consumer goods (CG) industry in many years. But what is its ultimate purpose, and why is it critical that we wholly embrace this social, environmental, and yes, business imperative?

Assuming corporations, both domestic and around the world, are sincere in their intentions for taking sustainability on -- versus doing so for purely public relations reasons -- how can they work together to do what is required? And, to this point, how should we analyze the problem across all dimensions as well as track and measure our progress?

Finally, what can CG suppliers and retailers do within our own ecosystem to design, mutually encourage and reinforce improvements in manufacturing, packaging, distribution and reclamation processes -- while also supporting consumers in their lateral efforts -- to drive changes that will make sustainability real and lasting?


The Ultimate Purpose of Sustainability

Most corporate managements around the world now recognize that the creation and maintenance of long-term shareholder value depends on the company's ability to understand and respond to the demands society places upon them.

Having penetrated the consciousness of society in general, and with many private and government institutions initially driving the agenda, our industry has begun to embrace its own role and responsibility in the matter.

Making a real commitment to sustainability recognizes that social, environmental, economic and other factors affect the business. But, it is important that management also realize that sustainability has other implications that might not seem obvious at the start. These include both the risks and opportunities arising from any major initiative where governance standards, engagement strategies, reputation, corporate culture and accountability for results will either support and reinforce the mandate or show the degree to which the company says one thing, but does another.

A study, conducted in May 2007 by the GMA and Deloitte Consulting, on how consumer products companies balance these opportunities and risks also examined the reasons why companies must take this subject more seriously. In summary, three key issues arise:

• Environmental implications of conducting business: CG companies have a large environmental footprint across the value chain from sourcing, to consumption, to disposal, drawing heavily on natural resources at each step.
• Changing consumer awareness and preferences: Consumers are being exposed to more eco-friendly products and are now "buying green" in increasing numbers, with 17 percent of U.S. households falling into the "Lifestyle of Health & Sustainability" category and another 21 percent into the "Naturalites" category. It's not hard to imagine, apart from price and performance, that sustainability might soon become the decision maker for consumers.
• Governance and compliance requirements: Currently any environmental/ sustainability reporting remains voluntary in most countries, including the United States. The emphasis on compliance, however, is gaining ground as agencies, like the Financial Accounting Standards Board, are working on guidelines for public accounting of environmental matters.

Responsibility Versus PR Exercise

Research among companies in the United States and the UK indicates that while there is a significant focus on sustainable initiatives in the industry maturity levels differ by country and organization.    

For example, consumer businesses based in the European Union are ahead of their counterparts in the United States on this issue. However, more than 60 percent of these companies state that the key drivers of sustainability initiatives are internal, with a reduction in operational costs, commodity risk management and the upholding of corporate values being the main points of focus.

While most companies state they are measuring and reporting sustainability progress, there is little consistency or depth in understanding what, precisely, is being accomplished.


Sustainability and the Future

AMR Research predicts that the next few years will be critical for manufacturers and retailers as they establish their roadmap toward green leadership. The following are just a few examples of how sustainability is shaping business decisions in our industry today:

• There has been a 300 percent increase in climate change regulations over the last five years.
• There is a 17 percent chunk of "green buyers" in the United States, and retailers are rolling out green initiatives at rapid pace. For example: Wal-Mart plans to invest $500 million per year in technology to reduce GHG emissions; Toys "R" Us launched an eco-friendly toy line; Safeway goes solar; Metro launched a green program; and Tesco is testing the use of "carbon labels" on its branded products.
• By 2012, The Procter & Gamble Company plans to reduce its carbon footprint by as much as 40 percent, in part by cutting the size of its packaging. Other CG manufacturers are following with their own internally established goals.

As more and more companies begin to adopt sustainable practices, and with regulatory compliance becoming a norm, it is clear that sustainability is not a passing fad, it is here to stay and will become more important in the years to come.


Making Sustainability Sustainable

If your company has not already done so, very soon you are going to have to examine -- in ever greater detail -- just how your existing business model is responding to and coping with the demands of the sustainability movement.

Sustainability is more than just raw commodity, water or energy conservation. You will have to look at such issues as an optimized value chain, a focus on manufacturing using cleaner materials throughout the product lifecycle, and even consider working with scientific bodies, NGOs and government organizations to gain expertise and insights on what it means to be truly sustainable.    

It's a big agenda and, if you are just beginning the journey, you may be asking where to start. Some practical ways to make sustainability real include:

• Creating a sustainability asset management scorecard for the entire enterprise to improve operating performance and reduce energy consumption, fugitive emissions and wastage
• Reducing your carbon footprint by optimizing in-bound and out-bound transportation fleets using spatial and temporal proximity models attached to purchase order data
• Leveraging product lifecycle management capabilities such as collaborative workflows, alerts and dashboards in direct support of your sustainability initiative and through product development support and supplier management
• Direct to consumer outreach through the Internet, green labeling and consumer service lines to inform and encourage green behavior from point-of-purchase to disposal and recycling

The above methods represent ways to make a tangible dent in creating a sustainability model that can get results. But, this work must also change habits and processes that have been long ingrained into the core of our industry.

As with every business transformation, an initial assessment and gap analysis should be conducted first before designing and implementing a comprehensive program. In future articles, we will dive deeper into this first step, including offering greater detail for creating specific, measurable, and yes, sustainable results.