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Brain circuits

Do you know how others perceive your ESG?

Published 20 October 2022 in Brain circuits • 3 min read

Sustainability is long past being a buzzword. It’s becoming a regulatory requirement, but what should be more important to leaders is that their approach to sustainable is solid. A report released by Accenture and the World Economic Forum found that companies that successfully embed effective ESG (environment, social, and governance) practices generate, on average, more than 20% higher profits. “Unfortunately, many companies appear to view reporting as an environmental strategy itself, rather than as a tool to measure progress towards environmental targets” (Ref: Herva, M., Franco, A., Carrasco, E. F. & Roca, E. (2011), Review of corporate environmental indicators, Journal of Cleaner Production, 19(15), Pages 1687–1699.

To some extent, we have all witnessed greenwashing. Sometimes it is hard to tell whether a company is serious or not, and that’s where executives need to pay attention to be sincere. For today’s exercise, consider these aspects of sustainability and how your own company would be perceived by investors or other stakeholders who were critically evaluating your ESG.

Where does your sustainability function exist?

Are the key sustainability responsibilities in your company within operations, procurement, or in marketing and communications? When the question is posed this way, it’s probably pretty clear to see how an outsider would perceive your level of seriousness based on this. While it is important to have communications professionals on your ESG team to write and communicate your emissions and strategies, if you want to really become more sustainable, your ESG professionals need to be deeply embedded into your operations.

Are you reporting Scope 3 emissions?

While this is not yet a requirement, Scope 3 emissions (those emissions your company isn’t directly responsible for but occur both upstream and downstream in the manufacturing process) account for the vast majority of GHG emissions. For this reason, you should not only be reporting scope 3 emissions, but you should be evaluating your suppliers for their sustainability commitments.

Are your purchases all new?

If you aren’t considering how to reuse materials in your operation, you need to be. Companies that are serious about sustainability are looking at ways to use material inputs that already exist, rather than taking more from nature. If your organization hasn’t considered this, it may be eclipsed by competitors who have.

Is there transparency in your supply chain?

Before companies can start improving the activities within their supply chain, there must be a clear picture of the situation faced by all parties involved in the production of goods. Better transparency allows partners to work together to create sustainable options at all aspects of production.

For executives it can be helpful to step back and view their organization as an outsider would to assess whether you will be taken seriously when you communicate your ESG goals. Of course, it’s far easier to be taken seriously when your commitment is real, so an important step is involving supply chain leaders and helping your partners to assist you in reaching your targets.

Further reading: 

Sustainable supply chains: time to get serious by Ralf W. Seifert and Yara Kayyali Elalem

Authors

Ralf Seifert - IMD Professor

Ralf W. Seifert

Professor of Operations Management at IMD

Ralf W. Seifert is Professor of Operations Management at IMD and co-authoredThe Digital Supply Chain Challenge: Breaking Through. At IMD, he directs the  Digital Supply Chain Management program, which addresses both traditional supply chain strategy and implementation issues as well as digitalization trends and new technologies.

Yara

Yara Kayyali Elalem

Yara Kayyali Elalem holds a bachelor’s degree in Civil and Environmental Engineering and a master’s degree in Management, Technology, and Entrepreneurship. Currently, she is pursuing her PhD in the Technology and Operations Chair at EPFL. Her PhD research focuses on demand forecasting for new products and operational flexibility strategies for sustainable sourcing.

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