Amit Basu is the Founder & CEO of Artisan Furniture, the world’s first artisan marketplace.
The cogs of any business must run smoothly to be efficient and profitable. Introducing sustainability at every turn is now also an essential requirement. Some business owners might groan at the word sustainability or at the phrase “environmental, social and corporate governance (ESG),” but it is better to embrace them and see how they can work for your business rather than push against them.
Large companies are spending billions of dollars to improve their sustainability and ESG efforts in order to have the right credentials in today’s business environment. They have to do this because their customers are increasingly aware of carbon footprints and the urgent need to reduce them.
In a survey from Deloitte last year, 29% of all U.K. consumers stopped purchasing certain brands or products because they had ethical or sustainability-related concerns about them. Meanwhile, SurveyMonkey found that “more than a third of respondents (35%) would buy a product that’s better for the environment over another that’s slightly cheaper.” These trends do not appear to have been dampened by the pandemic. Further underlining this is the news that, in September, Stanford University will open its first new school in more than 70 years: the Stanford Doerr School of Sustainability. It will take an interdisciplinary route to accelerate solutions to the global climate crisis.
In retail, taking an ESG and sustainability focus across supply chains is not new. The scandals of poorly paid and badly treated textile workers in Bangladesh have been widely reported. Companies that previously overlooked how workers were being treated in source markets have had to step up to prove they are not inadvertently harming these locals while also ensuring better traceability.
The point here is that these things matter. From an ethical viewpoint, they should matter to us personally, but they also matter from a business perspective. Brands and shoppers look at your social stance—how you treat the weakest in the supply chain and how you treat the environment. None of this is easy, and it can also be costly. For new businesses and startups, building social responsibility and traceability into your system from the beginning is the simplest and best way forward. Paying fair wages locally and seeking environmental certifications such as those from Forest Stewardship Council are just two ways to engender trust on the part of the buyer.
Beyond Trust—A Necessity
Today, it is more than a question of trust. Sustainability and ESG are now built into the psyche of larger companies. The Dow Jones Sustainability World Index shows that the biggest corporations in the sector have also done very well over the past decade, though around 25% of them are tech companies that have been strong performers in their own right. Nevertheless, the trend is clear.
Your customers will likely have criteria that you need to meet before they will even consider taking you on as a supplier. Or, if you are an existing supplier who can’t meet these criteria, they may not hesitate to take you off their lists.
The reason is that more companies are signing up to the United Nations Global Compact and its 17 Sustainable Development Goals, and supply chains are ranked as the biggest challenge because of their scale and complexity. A study from SAP and Oxford Economics last year indicated that few consumer products companies had much visibility into their own processes—and even less into that of their suppliers—but this will change in the coming years. The Business and Sustainable Development Commission has estimated there will be $12 trillion of market opportunities involved to achieve the UN’s SGDs worldwide.
In another sustainability report from Goldman Sachs, chairman and CEO David Solomon said: “Beyond targets and plans, clients need capital and tools to help them align their sustainability goals with their financial well-being. It’s the very complexity of the challenge that demands a holistic approach.”
At my company, we were recently successful in completing the comprehensive Goldman Sachs’ 10KSB program, which puts a lot of emphasis on how sustainability and social responsibility must dovetail with more obvious business goals. It was an inspiring project and has spurred me towards the goal of becoming a B Corporation (a company that is certified as meeting high standards of social and environmental performance, accountability and transparency).
The heart of the ESG and sustainability drive starts with your own values, vision and purpose and how these impact your supply chain and vice versa. Set these down in writing—perhaps within a mission statement—so that they can be memorized by everyone in the company. It is important that you know where you stand on these two topics so you can defend your position, because the next time you are trying to do a deal with a company like, for example, Walmart, they will ask you! This company has clear guidelines on supplier standards, and CEO Doug McMillon tells his more than 100,000 suppliers to “ensure you thoroughly understand the compliance aspects.” No mincing of words there. Walmart has sourcing policies and position statements for everything from seafood and animal welfare to apparel and plastic packaging, requiring that products meet certain criteria in order for Walmart to sell them.
In this respect, there is a trickle-down effect as the biggest players force changes below them. Venture capitalists, too, are looking at your “good guy” credentials before investing, so if you are looking for capital as a startup, a sustainability agenda is essential.
And remember: While you may have to toe the ESG and sustainability line of your bigger clients, you should also expect defined minimum standards from your own suppliers and partners. This way, we can all do our part in reducing carbon emissions along the entire supply chain while also helping to reduce social inequities around the world.