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Consumer companies must partner with their value chain and their peers to deliver positive business impact and create sustainable value.
In brief
- It’s time to recognize that companies wanting to achieve their sustainability goals and commitments can’t do it alone.
- Working with their value chain partners (and ecosystem) to improve collective impact will mean they can meet their goals and their consumers’ expectations.
- Exploring new partnership alliances will enable companies to collectively solve shared systemic problems.
Increasingly companies are judged not just on the impact of their own activities, but on those their products and partners have throughout the value chain. The result? From “Scope 3” supply chain emissions to branded litter to poor labor practices in a garment workshop run by a subcontractor, brands are expected to take responsibility and to act to address any failings.
For some, regulation is the trigger and compliance the end goal. But others are looking beyond this. Many companies are choosing to step forward and change, not simply reacting to pressure, but to shape a sustainable future. They’re seeing this as an opportunity to take ownership.
Are you keeping pace with consumers’ expectations?
Doing this is becoming more important by the day. In a world where everything is visible, consumers know immediately when a company fails to meet their expectations. And those expectations are rising.
Take our recent EY Future Consumer Index. Of almost 14,000 consumers we surveyed worldwide in May 2021, 77% believe companies have a responsibility to manufacture sustainably. And 68% say businesses must ensure all their suppliers meet high social and environmental standards.
These rising expectations are following through into consumers’ behavior. Over half – 55% – now consider the environmental impact of production in their purchasing decisions.
Two approaches for staying ahead
What to do? The reality is that sustainability is a collective challenge that no company can tackle on its own. And it’s one for the CEO to lead on and strategy teams to embrace. The only effective approach is to partner with others – in two ways:
- Partnering across your value chain – working closely and collaboratively with your value chain partners to collectively unlock value and improve your impact.
- Collaborating for systemic sustainable solutions – forging alliances can drive a positive effect several magnitudes greater than if companies acted alone, their collective nature building bigger scale and therefore higher financial viability.
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Chapter 1
Partnering across your value chain
Unlock value and improve your impact by working collaboratively with your value chain partners.
Organizations have a growing responsibility to ensure their supply chains are sustainable, and in doing so, there is opportunity to generate both financial and non-financial value for themselves and their partners.
For example, EY research with the Coalition of Inclusive Capitalism shows that investing in sustainable supply chains can add 12% to 23% to overall value chain revenue. It also finds that organizations with supplier diversity programs generate a 133% higher return on procurement investments than those without.
The key to realizing such benefits lies in working closely and collaboratively with your value chain partners to collectively unlock value and improve your impact beyond the simple transactional function of making and selling products. Seek greater visibility into the behavior of your suppliers and partners – both upstream and downstream – and their impact on sustainability issues. And then use those insights to rethink and reshape how you engage with them, through the following actions:
1. Consult to define the standard you want to set
Before you embark on any commitments, understand what’s viable based on what you know and how quickly you want to deliver change. Collect feedback from suppliers and partners. Understand which ones won’t want to meet the standard you expect or will struggle to and why. And work out how to help them close the gap. It’s also important to listen to your suppliers – finding out what they’re challenged by, and how increased collaboration and integration might help achieve common sustainability goals. Remember, as part of a value chain, your partners will have their own standards that they’ll expect you to meet too.
2. Set the standard
Understand what sustainability means to your organization and your stakeholders, what your goals are, and how you can provide the evidence to communicate progress. This is an opportunity to refocus your sustainability strategy as a driver of growth, value and innovation. Be ready to demand data-based targets from your suppliers, rather than merely asking them to reduce emissions, and to widen the scope of your scorecards to measure the factors most important to your business.
3. Communicate it
Be clear about your expectations and the timeline for meeting them. Understand the contracts and contractual agreements you have in place – don’t be caught out. Establish and communicate the support you and your value chain partners can bring to enable the targets you set to be both ambitious and achievable.
4. Measure it
Build or leverage the capabilities to monitor and track supplier metrics and progress, capture certifications, and identify potential risks. Allow them access to your system to feed in their data, but visit them regularly too: your visible commitment and support will help foster change. Be honest and open about what it takes to be part of your ecosystem. Plus, be sure all of this is reflected in investor and stakeholder communications.
5. Improve it
Having clear expectations and targets for your suppliers’ behavior will help you spot those falling short and understand how they can change. Provide support and incentives to help them, e.g., loans to buy necessary equipment, centralized training and technology to keep everyone on the same page. As you achieve your goals, set your sights on new ones.
6. Scale successful initiatives across your business ecosystem
Once your standards-based ecosystem is up and running, share and scale up best practices across it. For example, cutting water use by 25% with one supplier might earn some favorable headlines – but a 5% cut across all suppliers may have a more meaningful impact.
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Chapter 2
Collaborating for systemic sustainable solutions
Forging alliances can drive a positive effect many magnitudes greater than if companies acted alone.
While being able to set, measure and monitor sustainability standards across your value chain is vital, it’s only part of the story. Many challenges can only be resolved through working together and sharing responsibility with a wider business ecosystem.
What do we mean by a business ecosystem? Essentially, a grouping of organizations that come together to create higher value collectively than they could individually.
When focused on sustainability initiatives, the positive effect of such alliances can be several magnitudes greater than if the companies acted alone. What’s more, their collective nature builds bigger scale and therefore higher financial viability.
Harnessing the power of combined expertise …
Clearly, there are challenges to building ecosystems. Almost half (46%) of consumer-facing companies don’t prioritize the role of ecosystems in innovation. And when they’re asked why collaboration with other organizations fails, 39% point to a focus on low-value or non-core initiatives and 38% a lack of strategic alignment.
But overcoming these hurdles pays dividends. While a common problem might appear insurmountable for one company, the ability to solve it could exist within a broader ecosystem. If one company commits to meeting a sustainability target, progress may be difficult and the overall impact negligible. But if a consortium of companies aligns on the same standard and works together to resolve it, then the path is easier to navigate, and the final impact is exponentially better.
So, when looking to identify the root cause of an issue, think about which players are impacting all the levers involved and engage with them. And don’t limit yourself to your value chain: be ready to bring in competitors, governments and other third parties too.
What’s more, when reaching out, look to collaborate with other consumer-facing companies; you’ll often get a warm reception. EY Reimagining Industry Futures research shows that 44% look to ecosystems to access new skills, knowledge and competencies, and 42% to accelerate innovation.
… by making collaboration work
However, delivering against common goals requires more than being in the same room. It also demands a common commitment to making collaboration work. This means sharing tough problems, choosing like-minded collaborators, and building trust between all the parties.
All of this is already happening. Over the past few years, there’s been a tidal wave of alliances, each rapidly accelerating its membership. By the end of 2020 the number of international environmental organizations worldwide was approaching 200, with most counting many global consumer products and retail giants among their members.
What’s clear is that companies are increasingly accepting they can’t solve systemic sustainability challenges on their own. They’re realizing that the goals they’ve set for 2025 or 2030 will require a degree of scale only achievable by pooling resources.
The reality is that sustainability is a collective challenge that no company can tackle on its own. And it’s one for the CEO to lead on and strategy teams to embrace.
Partnerships are evolving in two ways
As collaborations gather momentum, we’re seeing two strands of change emerge. One is a move from non-competing alliances – the likes of Paboco and Pulpex – toward alliances between active competitors. A great example is Every Bottle Back, which was launched in 2019 by leading players in the soft drinks industry, a sector often cited as a major plastic polluter.
The second shift is toward alliances targeting growth and innovation. Traditionally, most partnerships were aimed at using synergies to unlock value chain efficiencies or access new markets. But the latest wave is focused more on fueling growth and innovation – including the co-creation of products that bridge the gap between the partners.
As we approach COP26, governments are thinking along the same lines, looking to collaborate with business to tackle issues that are bigger than government or business alone. Everywhere you look, people are realizing that only a joint effort can save the planet.
Five steps to take
To help your organization meet consumers’ rising expectations around sustainability, consider these five steps:
- Recognize that you won’t be able to achieve your goals and commitments on your own.
- View your value chain as an ecosystem that collectively delivers on a shared purpose and common goals, rather than a network of suppliers geared to meeting your business objectives.
- Consult to set standards. Communicate them. Measure and improve impact.
- Look beyond your immediate network to find the best solutions, even if that means working with your competitors.
- Open up and don’t be afraid to share – if companies seek to protect what they have, the scale needed to effect real change won’t be achieved.
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Summary
Collaboration is critical if companies are to deliver their sustainability vision. They can’t afford to go it alone. Their value chain is not just a means to an end, but a source of positive impact and potentially new value too. Companies need greater visibility into the behavior of their suppliers and partners – both upstream and downstream – and their impact on sustainability issues. Finding new partners and forging new alliances will drive innovative solutions to industry problems, generating shared value as they do so that’s aligned to their sustainability ambitions.
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