Does prioritising ethics and social responsibility in your supply chain pay off?
September 23, 2016
‘Born Green’ is a term used to describe companies who have prioritised ethics and corporate social responsibility (CSR) from the very beginning. Traditionally these companies have been the leaders in promoting CSR. However, as time has passed, implementing CSR programmes that tie into the fabric of a company’s supply chain processes has become the norm.
What’s more, many organisations are now adopting the ‘Triple Bottom Line’ (TBL) accounting framework which evaluates their performance against social, environmental and financial factors in order to measure broader business goals.
Some of the top companies on the 2016 Green Rankings List include Shire PLC (health care), BT Group PLC (telecommunication services), and NIKE Inc. While it would be nice to think that their CSR programmes were born from a purely ethical and moral grounding, they also have practical benefits. Lower material costs, increased efficiency, reduced waste, reduced transport expenses, access to government incentive programmes and an improved brand image are just some of the benefits big businesses are gaining from a CSR focused approach. But to what extent are these benefits at odds with revenue generation and how can companies strive to prioritise CSR?
Why are companies sceptical about integrating CSR into their supply chain?
There are still businesses sceptical about the importance of corporate social responsibility and fully integrating it into their supply chains. For larger corporations, in particular, it can be difficult to make transparent, effective, and quick improvements. Despite their best intentions, the sheer scope of the corporation’s supplier network makes this a huge challenge. There are also those that fear it will be too costly to set up and maintain worthwhile ethical practices. In the end, it often comes down to a choice of profits over ethics. They believe that incorporating CSR into their supply chain will have a detrimental impact on their bottom line. But, are the two mutually exclusive? Quite simply, the answer is no, as there are numerous cost benefits to be gained by prioritising ethics.
The cost benefits of prioritising ethical practises over immediate returns
Leading British retailer, Marks & Spencer, has shown that profitability and ethics can go hand in hand. Their 2016 Plan A Report highlights that nearly 73 per cent of their products now have ethical quality. Furthermore, food waste is being reduced by nine per cent due to charity donations, and water and energy use in their stores and warehouses are down by 31 and 39 per cent respectively. They did all of this, and more, while turning over a profit of £689m.
Below summarises where the cost benefits and savings can be seen:
- Increased share price – Your share price will increase because environmental impact can be priced by the investment community. Effective environmental policies improve your company’s market value because they mitigate risk.
- Customer loyalty – By boosting your reputation, you will also improve customer loyalty. By showing a genuine commitment to ethical practices, you give your business a competitive edge. Customers prefer to purchase from credible businesses that they feel they can trust. Thus, this not only drives more revenue, but also shareholder value and stability.
- Avoiding reputational damage – You also need to consider what would happen if you did not incorporate CSR into your supply chain. You risk significant damage to your brand. If unethical practices occur, you could find yourself losing a lot of customers. Trust is notoriously difficult to rebuild, and it would cost a lot to try and rectify this problem.
- Reduced operational costs – You can reduce operational expenditure by making changes that result in lower material costs, increased efficiency, lower energy bills, less waste, and reduced transport costs.
- Customers prepared to pay more – If you are known as an ethical retailer, you will find that customers are prepared to pay more for your products. Take Lush as a prime example. Despite a recession, their business performance remained strong. They prioritise ethical practises over cheap labour and low cost ingredients. Research also proves this to be true, with a recent Nielsen global study concluding that 72 per cent of consumers aged 15 to 20 years old would pay more for products and services that come from companies who are committed to positive social and environmental impact.
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