ESG Investing For Dummies. Brendan Bradley

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СКАЧАТЬ range of new technologies will be required, such as chemical recycling and turning residual waste into fuels and chemicals, while new systems of data collection will be needed to monitor the fulfillment of obligations.

Studying the Effects of a Company’s Operations on the Environment

      Businesses don’t operate in a vacuum. In a global economy reliant on cross-border trade, convoluted supply chains, and diverse workforces, companies are constantly challenged by environmental issues as well as product safety and relationships with regulators and local communities. Therefore, managing these factors is simply part of maintaining a competitive advantage in today’s economy.

      A company needs to use best management practices to avoid environmental risks and capitalize on opportunities that produce long-term shareholder value. Where companies earn excess profits by externalizing the cost of environmental and social issues upon the communities in which they operate, investors risk paying the price when this is corrected, and costs are internalized to the company’s financial statement. In recent years, shareholders have experienced considerable losses following the negative environmental impacts of oil spills, mine explosions, and unsafe products. While there isn’t just one solution to circumvent such catastrophes, identifying material environmental impacts and mechanisms to reduce these can help mitigate risks and even identify new opportunities.

      The following sections discuss two working areas of a company’s impact on the environment: direct operations and supply chains.

      Direct operations

      Evaluation of environmental issues can reduce costs by, for example, minimizing operating expenses (such as raw-material costs or the real costs of water and carbon). Therefore, when analyzing the comparative resource efficiency of companies within given sectors, investors should look for correlation between resource efficiency and financial performance. Studies suggest that companies with more developed sustainability strategies will outperform their peers. One approach is to integrate environmental policies into their operations strategy and functions, incorporating operations such as product design, technology choice, and quality management. Companies that don’t acknowledge the consequences of environmental problems on the operations function may not succeed in the future in a competitive market, so this element of operations strategy needs to be aligned with the corporate strategy.

Large companies are transferring sustainability from the bottom line to the top line. They are becoming more sustainable and implementing changes tied to their direct operational control. For example, strengthening distinctive competence in terms of operations objectives contributes toward a competitive advantage. The environmental properties that an organization can control determine whether a particular activity, product, or service creates emissions, waste, or land contamination. Other issues that a company may be able to influence include the environmental performance or extended life of product design, minimizing the use of material resources and energy in packaging, and improving the biodiversity of land use.

      

Therefore, organizations should ensure that environmental inspections are undertaken on a regular basis to mitigate factors that could impact the company. While larger companies have more resources for such activities, it’s equally important for small and medium-sized businesses to consider the influence of external factors on operations, as they may be more vulnerable to such issues. Moreover, this helps organizations take advantage of opportunities before their competitors, tackle issues before they become substantial problems, and support plans to meet shifting demands.

      Supply chains

      Companies can’t always control indirect environmental factors, such as those in the supply chain, but they can influence suppliers and users to reduce, minimize, or eliminate the impacts that are caused. Sustainable procurement is firmly on the agenda, and companies don’t want to be linked to suppliers with questionable business models, as this generates negative media coverage. Many firms have implemented a supplier code of conduct that requires suppliers to follow the core principles of the UN Global Compact (see Chapter 1) within the areas of human rights, labor standards, environment, and anti-corruption. Suppliers are obligated to impose similar principles on their suppliers.

      In many industries, the vast majority of issues around sustainability are external and related to providers across the supply chain. In particular, for companies in some industry sectors, suppliers’ operations are responsible for over two-thirds of a company’s total CO₂ emissions. Large, multinational companies are the ones looking to improve on this the most, as they realize the importance and weight that supply chains have, and their priority is in finding ways to hold their suppliers accountable. Many have begun to apply a risk-based approach, where they focus efforts on areas with the greatest impact, recognizing that supplier subdivision is an ongoing process. Potential suppliers are prescreened on a number of factors, such as country, sector, and reputational risks, including compliance with sanctions. Based on the prescreening, high-risk suppliers are further assessed, which then determines whether additional engagement is pursued to advance sustainability performance. This can include developing a company’s technological systems, scoring suppliers, making public targets, or considering an inter-industry collaboration.

However, one of the clearest barriers is the struggle to monitor complex supply chains and find the know-how to assess suppliers’ sustainability, particularly when there’s a lack of support from top management or government agencies. The companies that have applied sustainability scores, using a supplier scorecard, can distinguish and choose between suppliers with comparable quality and cost while estimating how eco-friendly the suppliers are. Firms using public targets will claim that they’ll only work with suppliers that use low-carbon technologies or have waste reduction programs. Moreover, some companies request suppliers to set their own reduction targets and urge them to, for example, deploy renewable energies or start providing biodegradable or recycled packaging materials. Finally, through industry collaboration, where a collaborative network is formed with suppliers, intermediates, or civil society, companies can help improve the broader industry.

      

Whatever the approach, suppliers must be encouraged to share their sustainability challenges so that both sides generate better solutions together.

Defining “Green” for a Company

      Reports suggest that from 2007 to 2009, eco-friendly product launches increased by more than 500 percent. More recent surveys have found that two-thirds of senior management see sustainability as a revenue driver, and half anticipate that green initiatives will present a competitive advantage. This striking change in the corporate mindset over the last ten years reflects a developing consciousness that environmental responsibility can contribute to growth and differentiation.

      Supporters of green companies argue that it’s more efficient to go green than to continue adding toxic chemicals to the atmosphere and the environment overall. However, challengers dispute the environmental claims of some “green companies” as exaggerations and have raised allegations of greenwashing (see Chapter 6 for further information), where a company is claiming to be green when its practice suggests it is not.

To appreciate the advantages of a green business, you need to understand what the term means. If a company makes a determined attempt to decrease its negative environmental impact, it can rightly claim to be “going green.” Typical measures include starting recycling and reusing procedural programs, as well as buying green products СКАЧАТЬ