When it comes to sustainability, today’s operating environment requires businesses to take a strategic approach that drives value across the whole organization. But as companies continue to anchor sustainability into their business strategy there isn't always a clear path on how to execute these new initiatives.
In a complex landscape with ever increasing demands from stakeholders, the scale alone makes it difficult to pin down where to start. No matter what part of your organization you work in, there’s one place every business has in common to kickstart their sustainability journey.
It begins with your processes. “When you prioritize sustainability into your existing processes, you’re already on your way to making significant change,” says Janina Nakladal, Director of Sustainability at Celonis.
Nakladal recently sat down with an industry expert, customer, and partner of Celonis who can all relate to this challenge. Coming from different parts of the world with varying points of view and specialities, it all boiled down to a common denominator - processes are the true engine to sustainable transformation.
EcoVadis - the leading business sustainability rater - recently published a report on business sustainability risk and performance based on data drawn from 65,000 ratings of more than 40,000 companies.
Measuring across nine industries - from manufacturing and transport to finance and professional services, the average company scored in the mid 40s out of a possible 100 points in the scorecard.
The companies they evaluated demonstrated considerable progress in Human Rights - like eradicating child labor in global supply chains. On the environmental side, they saw enhanced performance with how companies manage water usage, recyclability, and the circulatory of their products.
While these efforts are a great start, there is enormous room for improvement.
“Procurement is a real laggard in sustainability,” says Emily Rakwoski, CMO at EcoVadis. “But, it’s an area that has tremendous potential.”
When a company takes a multi-tier approach they must look at how they are managing their suppliers. The aim is to create a cascade of sustainable practices that flows smoothly throughout the supply chain - from one tier of suppliers to the next.
“There is no way a company can do a sustainability transformation without procurement,” says Alejandro Basterrechea, Head of Procurement Excellence at Zalando, Europe’s leading online fashion platform with more than 38 million active customers in over 17 European markets.
Sustainable procurement is the process of finding, sourcing, and acquiring goods and services while considering environmental and social factors. And the benefits are substantial when it comes to long term effects and the quality of a business.
At Zalando, a significantly large portion of expenditures are with third party providers. “We need those partners. This is where procurement really plays a leading role,” says Basterrechea.
Suppliers are a large factor - impacting CO2 emissions, natural resources, labor rights, and responsible sourcing, to name a few. When you invest in the right suppliers, you save valuable costs - while reducing adverse impacts upon health, social conditions, and the environment at large.
At Zalando, processes and data are their source of truth - a well designed governance model that ensures they are going in the right direction. Zalando leverages Celonis to gain the transparency they need in their P2P process so they can identify their execution barriers, like manual operations or maverick buying.
The key to continued improvement? Track your progress.
“We have objectives we have to measure and monitor. These metrics are key to our sustainability and ESG objectives,” says Basterrechea. “Celonis helps us manage and analyze this critical data for full transparency.”
The unpredictability of outcomes generated by disruptive technology, population growth, depletion of natural resources, and climate change creates an increasingly challenging place for businesses. This is further complicated by the public’s demand for more transparency.
When it comes to rolling out a new sustainability program across your organization, many discover a lack of subject matter expertise at the helm. Instead, front line business leaders working across multiple functions strive to reign in sustainability initiatives.
“Companies often struggle with finding the right approach when it comes to driving sustainability,” says Dirk Hermans, a partner at EY.
According to the UN Climate Change, the number of commitments to reach net zero emissions from local governments and businesses has nearly doubled in less than a year.
The key to achieving these kinds of commitments requires an integrated approach. When a sustainable strategy is not integrated transparently into performance management, such as an emissions target the CEO communicates, how does the company get there?
“What we see with our clients, typically, measuring performance for carbon emissions is a manual, intensive process. While some companies collaborate with BI solutions, they’re still not getting an accurate, real-time look at their underlying processes,” says Hermans.
“It’s all about traceability and transparency,” says Hermans.
Recently, Hermans and his team co-innovated and launched EY’s Sustainability Workbench which leverages Celonis as a Service (CaaS) to track and monitor the carbon emissions level across each activity of a process and understand the contributors in order to take pre-emptive measures across its value chain. This tool helps companies directly contribute to their sustainability goals - all by starting with their processes.
The new solution allows companies to make management decisions based on operational efficiency goals and CO2 reduction targets. And, it goes further by helping businesses evaluate potential loan opportunities from an ESG lens.
“We have a moral, economic, and operational purpose when it comes to diversifying our supplier portfolio. So when it comes to prioritizing sustainability, we start with the data,” says Basterrechea.
At Zalando, Basterrechea can identify and assess different suppliers and what industries have the highest sustainability impact. He can then use the data to prioritize those suppliers with the highest impact.
In some cases, it’s about their CO2 emissions, other times it’s about ESG standards or reducing waste. Zalando measures the internal data captured by Celonis and evaluates it including external data from third party providers.
“Some of our suppliers are already doing advanced measures for their sustainability commitments, which is something we uncovered and can now track,” says Basterrechea.
“It’s a journey companies are going on to manage their footprint. And now they need to take their suppliers along on that journey,” says Rakowski.
Some industries are already taking significant action in categories where there is certain exposure. For example, the chocolate industry has a strong fair trade commitment - supporting farmers and workers as they improve their lives and communities. The Sustainable Apparel Coalition, an industrywide group of over 100 leading apparel and footwear brands, developed an index to measure the environmental and social performance of their products.
“Your suppliers shouldn’t see the rating process as a punishment - there should not be an expectation that all suppliers are going to overperform the averages. That’s not realistic,” says Rakowski.
Instead, it’s an opportunity to discover where your supply chain is right now and where you want to move everybody in their improvement journey.
Start by understanding where your suppliers stand. Consider uploading your data into a tool like a sustainability rater to quickly see which suppliers represent the greatest risk in your supply chain. From here, take a collaborative approach with your high risk suppliers. Communicate your goals and offer training to suppliers. Ensure they have a Code of Conduct in place that promises improved behavior. Consider offering ethical incentives to implement and adhere to the enhanced sustainability practices.
The Harvard Business Review recently pointed out that investors are increasingly asking a different question, “not whether a company has good intentions but whether it has the strategic vision and capabilities to achieve and maintain strong ESG performance.” Instead of simply communicating policies, companies need to show outcomes.
Companies should continue to design sustainability programs that address the expectations of their customers, employees, and investors. They need time-bound goals, to incorporate sustainability into their operations and increasingly incorporate it into their business strategy. This is where they will create the most significant business value.
As we continue to face increasingly greater risks in today’s operating environment, start with your processes. Identify your supplier base, and move from intention to results. This is where the greatest opportunity lies.
“The two main topics of the future are sustainability and digital transformation,” says Hermans.
“We have a lot more tools now than we had before. One of them is Process Mining - the possibility is definitely there. With the right mindset and the right support, we have a bright future ahead.”