For the first time in history, in the year 2018 over 50 %  of the population (3.8 billion people) was living with sufficient economic resources as to be considered “middle class” or “rich”. Future projections place this number at 5.3 billion by the year 2030.¹ The forthcoming consumer class and the purchasing power that it entails have a major positive impact on the present value of any consumer company: the higher the expected growth, the higher the present value. 

Nevertheless, because world, business and social leaders are exerting high pressure on reducing greenhouse-gas emissions in line with the Paris Agreement resolutions, poor sustainability performance can negatively affect growth projections. Furthermore, sustainability doesn’t just encompass environmental but also social aspects, and demands exist in this sphere as well.  The 2020 World Economic Forum’s Manifesto, for instance, exhorts companies to promote respect for human rights throughout their entire supply chains.²

Thus, it becomes imperative that companies adapt, diminishing the natural and social costs of their products, while remaining competitive in the market. For this reason, an increasing number of consumer companies are embracing and integrating sustainability practices in their long-term strategy.  This new tendency, besides minimizing negative environmental and social effects, translates into numerous advantages and has a beneficial repercussion across strategic stakeholders, an element  that can play a key role in the success of a business. Properly implemented sustainable practices improve talent acquisition and retention, reduce supply chain costs, have a positive impact on the stock performance and translate into a boost of brand value. Consider as an example the clothing brand Patagonia. In 2012, Patagonia adopted a marketing strategy centered around the idea “buy less”, which in turn increased sales in $543 million and allowed them to open 14 new stores. ³

But what structural component acts as the most efficient lever to achieve these goals?  Since the supply chain generally accounts for more than 90 % of the environmental impact of a typical consumer company, it is evident that by shifting the focus towards it, businesses will most effectively tackle the issues in their global sustainability agendas. 

In order to design a more sustainable supply chain, the traditional linear configuration should give way to a network model, where suppliers are no longer considered an external cost to be minimized, but active members of the sustainability strategy, that eagerly engage in creating value across social, biological and industrial levels. Within the supply chain, special attention should be paid to procurement. Planetary boundaries are already affecting supply chains and the availability of certain resources is under high stress.⁴ GrainCorp, an Australian agriculture business, suffered a 64% cut in 2014 profits due to a drought, and in 2018, as a similar drought hit Europe, barge shipping came to a halt for three months, notably affecting the transportation industry. Thus, the need of evolving towards a regenerative economy, where business resilience and ecological regeneration go hand in hand becomes more urgent every day.⁵

Unfortunately, up until this point, there is a substantial gap between theory and practice, as most companies are having a tough time trying to carry out a transformation in their supply chain.

Some of the main obstacles that consumer companies are facing are imposed by their suppliers. According to a survey published by The Sustainability Consortium (TSC), less than 20 % of participating companies have a global outlook of the sustainability performance of their supply chains. This can translate into serious risks for the reputation of a company. Following the introduction of new suppliers in 2017, Apple’s labor and human rights violations in the supply chain doubled in a year, which derived in a troublesome scrutiny of their practices.⁶

Often, the problem originates directly at the consumer company, that imposes unrealistic expectations on their first-tier suppliers. In multi-tier supply chains, lower-tier suppliers, commonly small to medium privately held companies, receive little attention and pressure from the media and other stakeholders, and they are often the worst equipped to tackle any sustainability-related issue. Lack of expertise, resources and regulations make lower-tier suppliers the biggest risk in the sustainable supply chain of any consumer company. A study carried out by Harvard Business Review on the practices of three MNCs considered “sustainability leaders” revealed that their lower-tier suppliers, some of them situated in the United States, repeatedly lacked environmental management systems and procedures for handling labor exploitation or accident reporting.⁷

In order to overcome these hurdles, consumer companies can adopt three main procedures, that will help bridging the gap between theory and practice:

Firstly, for every step in the supply chain, it becomes essential to determine how natural and human resources are handled. This can be achieved with the help of different tools offered by organizations such as TSC, World Wide Fund (WWF) and CDP, which provide standards, indicators and metrics that help detecting sustainability hot spots or allow the gathering of material information about sustainability for stakeholders. Companies can also develop internal programs that help tracing their resources. The Body Shop, a cosmetics company headquartered in the UK, has committed to ensuring that 100% of its natural resources are sustainably sourced by 2020, a strategy that has stimulated its brand value and placed it as a market leader for natural cosmetics.

Secondly, to set long-term sustainability goals and align supply-chain sustainability goals with the global sustainability agenda. It is crucial to address the 3 Ps of sustainability (Profit, People and Planet) collectively. Procurement managers should work together with those in charge of ecological and social issues, and  they should be rewarded for hitting the 3 Ps. 

And thirdly, to include first- and lower-tier suppliers in the overall sustainability strategy, requiring from them to establish their own sustainability goals, assisting them in the process and making sure they comply with the targets. This can be achieved directly, by evaluating and surveying suppliers on their environmental, social and procurement practices, or indirectly, by providing training and incentives. This way, consumer companies are insourcing the responsibility, and not considering it an externality. Campbell Soup Company, for example, is working closely to farmers, offering them guidelines and technology that promote optimization of fertilizer use and improve soil conservation.

The expected value of these practices can be quantified, and they have proven to be financially beneficial. As an example, an analysis implemented on Brazil’s beef industry, the second largest beef producer and consumer in the world, revealed that sustainable and deforestation-free practices are expected to raise the revenues of ranchers (12-23%), slaughterhouses (0.01- 0.1%) and retailers (0.01 – 0.7%).⁸ But it is not compulsory to focus on future prognosis. Already in the past, sustainable strategies have turned into successful stories for several companies. When Coca-Cola cut down on packaging in 2009, it saved them an estimated $100 million. This and similar success stories prove that sustainable practices can be cost-effective.

Consumers are starting to show concern about the sustainability practices of business and the impact that these have on the environment. This turns sustainability into a key player in the future market position of any consumer company, and urgent measures in this regard are expected from all of them. An effective kick off point is to remodel supply chains, and although a shift towards a more sustainable supply chain faces many obstacles, several practices can serve to bridge the gap between theory and practice. Experiences from several companies have proven that sustainable practices are crucial for resilience and success, and can place a company in an advantageous position for the consumer boom that is expected to come over the next decade.

¹ H. Kharas und K. Hamel, „A global tipping point: half the world is now middle class or wealthier.,“ The Brookings Institution, September 2018.

² Ecovadis, „The impact of supply chain sustainability: Growth, Valuation, Brand and Society,“ 2019.

³ M.-C. Bosco, „From Yosemite to a Global Market: How Patagonia, Inc. has Created an Environmentally Sustainable and Socially Equitable Model of Supply-Chain Management,“ Pomona College, Claremont, California, 2017.

⁴ Volans Ventures Ltd., „Procuring a Regenerative Economy – The Critical Role of Sourcing in Generating The Future We Want,“ January 2020.

⁵ Anne-Titia Bové and Steven Swartz, „Starting at the source: Sustainability in supply chains,“ McKinsey and Company, November 2016.

⁶ J. Murdock, „APPLE: HUMAN RIGHTS VIOLATIONS IN SUPPLY CHAIN DOUBLE IN A YEAR, REPORT REVEALS,“ Newsweek, August 2018.

⁷ Verónica H. Villena and Dennis A. Gioia, „A More Sustainable Supply Chain,“ Harvard Business Review, April 2020.

⁸ Tensie Whelan, Bruno Zappa , Rodrigo Zeidan and Greg Fishbein, „How to Quantify Sustainability’s Impact on Your Bottom Line,“ Harvard Business Review, October 2017.