16 March, 2010

A present danger

Sergio Abranches

Climate-related risks and greening the supply-chain are common features of most presentations about sustainability and corporate social responsibility. Sometimes they are presented as “trends” or future threats. But they are not something that will happen in the future. They are already part of the daily affairs of most companies. And they are inseparable from each other.

Climate-related risks are a matter of present concern to every major insurance company (here, here and here) and to an increasing number of institutional investors. Green procurement is a key competitive factor today (here). Not a trend for tomorrow. Companies are looking deep into their supply chains not because of their view of the future, but because of present dangers to their business. They know they have to reduce their carbon footprint. WallMart Nike and Timberland banned beef and leather produced in the Amazon because of present consumers reaction to evidence that their procurement behavior was contributing to deforestation. Every company will have to account for GHG emissions caused by their demand for products and services as well as for the impact of what they sell on consumers’ carbon footprint. The time of the company that is clean and green indoors, but pays no attention to what it buys and to what happens to the goods it sells is over.

Going green is not easy. This is now a stock phrase. But, no matter whether easy or hard, going green has become a necessary and urgent step to every industry. To some industries, how to go green has a straightforward answer. It may be hard, but the knowledge base already exists. It will require leadership from the top; getting the right response from the corporate citizenry; better integration between procurement and finance; finding qualified people to lead changes; develop capabilities along the supply-chain.

Some industries still find greening their services a difficult and elusive task (here). On a recent roundtable at Cornell’s prestigious School of Hotel Administration, participants found that green standards for the industry are unclear and consumer’s views inconsistent. Hotels are reluctant to implement sustainable systems although they recognize the need to green their operations. It is a bit surprising to read that. From the standpoint of hotels’ supply-chains there are plenty of visible points where greening is possible and straightforward.

To anyone having a long view on what is happening now and of probable future trends, climate change-related risks are no longer a matter of doubt or probabilities. Probabilities are so high, that one can’t simply design a plausible “no climate change scenario”.  The long view tells us that the economy is already reshaping itself responding both to structural crises and risk-driven change. Greening the supply-chain is part of the present drivers of competition and innovative behavior. It is no longer a feature of future scenarios. Future scenarios are about things that go beyond a green supply-chain.

The ongoing process of corporate greening is at its beginning, but it is already visible. It is very likely one of the paramount factors that may lead to a new long-cycle of investment and economic growth, within less than a decade. Just think for a moment about the enormous dynamic push of leading companies at the top of the productive and commercial sectors greening their supply-chain. This movement forces all suppliers of major companies to also green their own supply-chains, if they want to stay in the economy’s major clusters. And their suppliers will have to follow suit for the same reason, and so on. The demand for green or low-carbon supplies where there are none, becomes an irresistible incentive to innovative startups. This movement goes from the global economic clusters, to the national ones, and to the sub-national ones.

There are already systemic movements visible in the global economy. They point to emerging processes and behaviors that will effectively reshape the corporate environment. Present production and consumption patterns that still appear to be dominant will inexorably be replaced. We are already riding the giant waves of a scientific, technological and behavioral revolution in every field of human activity. Overlooking these movements is accepting a present danger, not disregarding a possible future threat.

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