Tradeshift’s Q4 Index of Global Trade Health suggests trade activity is recovering after a year of turbulence. It is clear however that the pandemic, far from being an outlier, is rather a harbinger of the sort of shocks we can expect in the years to come, as climate change and other disruptions take hold. We talked to Bain’s Jenny Davis-Peccoud and Juliane Stephan about how the lessons learned from COVID can be applied to addressing climate change and the emergence of the CFO as a champion for driving ESG best practice.
Q&A with Jenny Davis-Peccoud, Head of Global Sustainability & Corporate Responsibility Practice at Bain & Company, and Associate Partner, Supply Chain, Juliane Stephan
To what extent do you feel like COVID has set climate change back on the corporate agenda?
Jenny Davis-Peccoud (JDP) - We have seen headwinds and tailwinds for ESG through the time of COVID, but on balance it’s been an accelerator. Companies were already waking up to the benefits of becoming more purpose-driven. The past year has helped crystallize some of that thinking. Adapting to different restrictions has brought the kind of impact we have on the world around us into sharp focus.
Dealing with a difficult situation has also encouraged employees to think more about the kind of contributions we can make to other issues in the world. Regulations like the European Green Deal are bringing additional attention and impetus to change. Finally, investors have been paying more attention to sustainability during the COVID crisis. ESG related stocks outperformed other stocks by a significant margin.
Climate change and ESG have been key conversation topics for some time now. Are we still at the talking phase or are you seeing evidence of real action?
JDP - Businesses are setting ambitious targets and that brings a level of accountability across the board. Leaders are also doubling down on their existing goals. The likes of Nestle and Unilever increasing their level of funding and commitment to addressing specific challenges. Another thing that’s really moving things forward is the banks and other funding sources. They’re combing through portfolios and prioritising companies who can help them live up to their own ESG targets.
Juliane Stephan (JS) - We see a lot of activity on the supply chain side as well. It’s surprising how little companies actually know about where suppliers get their parts from and don’t really understand all the different nodes in the system. When COVID hit, companies needed to look at these ecosystems at a far deeper level. They learned the value of traceability and visibility for resiliency. This information can also be used to make better decisions about sustainability.
In the past, it was quite common for people working in supply chains to see efficiency and sustainability as conflicts. But with COVID, and the pressure to find a new way of doing business, having more data and visibility around suppliers will bring about a convergence of objectives around sustainability, cost efficiency and creating more agile supply chains.
Regulators, investors and consumers are putting more pressure on companies to be transparent about their supply chains. How big a role is technology playing in helping companies get ahold of that information?
JDP - Technology is making it far easier for organizations to go deeper, quicker. Companies like Ecovadis have built up a huge repository of information about suppliers. Organizations can tap into this data to get ahead in a way that simply wouldn’t have been possible ten years ago.
We’re seeing the introduction of cutting edge technologies to get more objective data around their supply chains. For example, some food and natural resource companies are using satellite technology to see what's going on on the ground at the point of supply. So, if a supplier makes a commitment to preserving the natural habitat in their origins, satellite images will tell the buyer whether they’re living up to that commitment. You’re also seeing cross-industry initiatives like the IBM Food Trust using blockchain and artificial intelligence to help improve traceability across supply chains.
Reconfiguring supply chains to be more sustainable requires investment. How can organizations manage that kind of additional cost?
JDP - There’s a lot of friction and inefficiency built into traditional supply chain relationships. One of the things that we're seeing is new approaches to try to take out some of those points of friction. By working more collaboratively across the chain, partners are finding they can access more sustainable products for cheaper than they could have before. There’s also more willingness among consumers to pay a premium for sustainable goods if you can prove there’s a real value proposition in there. Add these two together, and there’s a very solid commercial case to build from.
Not all of the changes we’ve mentioned will happen overnight. What can we expect to see more of in the next year or so?
JS – Sustainability-linked projects we’re seeing now are heavily aligned to bottom-line efficiency. UPS is a great example. They developed a platform for the routing of their deliveries which was able to reduce the carbon footprint significantly. But it also saves them a lot of time and fuel so it has very tangible business benefits. Companies are increasingly focused on these use combined cases. I don’t see many supply chain managers coming out of COVID and simply going back to the way things were before.
JDP - I think we’ll see a lot more incentives and pressures accelerating change. At a company level, we’re starting to see the CFO start to take a more active role in driving the agenda. If you read some of the announcements from the L'Oreal CFO, Christophe Babule, sustainability is moving into core financial planning, from budget capital allocation through to budget capital allocation. That’s where the rubber will really start to hit the road.
The impact of global trade has made it clear that organization reconfiguration required for sustainability issues will come at a cost. Read more in Tradeshift’s Q4 Index of Global Trade Health.
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