Suits the C-Suite
How sustainable supply chains enable business transformation
Supply chains underscore sustainability and serve as the core of an organization’s ESG-related goals and objectives. With this in mind, supply chain leaders are taking the necessary measures to safeguard resources while identifying new opportunities to drive results. EY teams conducted a global supply chain survey, the EY Supply Chain Sustainability 2022 Report, which polled respondents from countries like Argentina, Canada, and the US for insights from the retail, technology, and agriculture sectors. The findings indicate that several executives have long-term goals for sustainable supply chains, but only some have the acumen, programs, and technology to assess their progress. Some challenges included costs and a need for a strong business case to justify expenditures. According to the US Environmental Protection Agency, more than 90% of an organization’s greenhouse gas emissions and around 50% to 70% of its operating costs are attributed to supply chains. As such, executives can clearly realize significant sustainability-related benefits to greening their supply chains in the long term. The study discovered that eight in 10 supply chain leaders are gearing their initiatives toward more sustainable operations. They are increasing efforts toward decarbonization, proper use of natural resources, ethical sourcing, and fair trade. They are also trying to increase innovation, lessen risk, and realize a greater return on investment for ESG-related initiatives. In the Philippines, many manufacturers, retailers, and local governments have taken steps to reduce plastic use in favor of more environmentally friendly materials. For example, several cities have implemented ordinances banning the distribution and/or use of single-use plastics for onsite dining. Several cities have also banned the distribution of plastic bags in their establishments. With the Philippines counting as a significant contributor to the plastic problem, accounting for 750 thousand metric tons of plastic waste entering the ocean in 2010, the Philippine Alliance for Recycling and Materials Sustainability (PARMS) and its member companies have committed to the Zero Waste to Nature, Ambisyon 2030 (ZWTN 2030) initiative. The initiative aims to divert waste from landfills by recycling materials and resources, supported by strategies and a roadmap with specific implementation timelines and targets to ensure that none of the industrial or post-consumer packaging waste generated by PARMS members ends up in nature by 2030. In addition, with the government’s passage of Republic Act No. 11898, also known as the Extended Producer Responsibility (EPR) Act of 2022, obliged enterprises established their own EPR programs for the EPR registration deadline in February. With the Act now being implemented, there is greater anticipation that the country will see a significant increase in its overall recycling rate. While the EPR Act initially covers plastic packaging, the coverage will gradually expand to encompass other materials as well. This article will delve deeper into the most salient insights from the report with the aim of supporting executives in achieving their sustainability-related goals. LACK OF TRANSPARENCY AND ROI-BACKED SUSTAINABILITY EFFORTSThe demand for supply chain-related visibility has increased with the burgeoning expectations of employees, regulators, and stakeholders. Consumers are becoming more mindful of ESG-related matters, such as sustainable sourcing, organizational health, and work conditions. The report showed that supply chain visibility was a top priority that year for executives, compared to it being a second priority for previous years. In addition, there is a crucial need to assess risks and plan for disruptions and crises. However, only 37% of respondents reported end-to-end supply chain visibility. Collaboration programs, data analytics, and digital tools can help businesses set KPIs and establish overall governance. Organization-wide visibility is a comprehensive initiative, and companies can use it to assess program effectiveness, track resources, and understand labor conditions. Management can also capitalize on technology to identify and home in on operational efficiencies. Notably, the report revealed that 33% of organizations lack a business case for sustainable supply chains, whereas almost half of the respondents reported that their companies have difficulties in measuring sustainability-related returns. Consequently, lacking a solid business case could lead to a shortage of financial support for long-term efforts. FOCUS ON END-TO-END SUPPLY CHAIN TRANSFORMATIONAs much as 61% of businesses reported that cost savings and efficiency were primary motivators for undergoing supply chain sustainability initiatives. Even so, financial gain was not the only benefit. According to Andrew Winston from a Harvard Business Review Whiteboard Session, organizations should prioritize four elements to concretize return on investment for supply chain sustainability: 1. Cost reduction. Improve operational efficiency, lessen material waste, and minimize carbon footprint. 2. Revenue growth. Assess how sustainable supply chains influence market share, profitability, and stock price. 3. Supply chain risk management. Create long-term sourcing strategies and manage compliance and regulatory risks. 4. Intangibles. Delve into sustainability’s relationship with brand reputation, customer loyalty, and talent retention. Moreover, 55% of supply chain executives expect improved operational risk management in the next three years, whereas 31% already reported more efficiency and productivity. Regarding long-term returns, 54% of respondents said they expect an increase in share price or other benchmarks of shareholder value. TAILOR-FIT SUSTAINABILITY-RELATED INITIATIVESExecutives must determine how sustainable supply chains fit into their business strategies. Businesses can structure their efforts by identifying how supply chains enable their goals. Deploying technological capabilities to improve visibility can boost supplier and stakeholder engagement. Organizations can broaden their RoI metrics to include intangible impacts and sustainability results. Given the ever-changing nature of the global market, companies need to go beyond standard business-case drivers such as customer loyalty, market share, and revenue. Enterprises should adopt an end-to-end approach, focusing on cross-functional collaboration, planning, and distribution to identify new opportunities. C-LEVEL CONSIDERATIONSAround 10% of respondents stood out in terms of progress in sustainability-related areas, and their organizations are realizing considerate benefits. One thing they have in common is their considerable focus on transparency. More than half (57%) of this group have public-facing sustainability goals. In terms of material gain, almost half of these trailblazing leaders have already reported a better employee experience. Compared with other respondents, these executives are reaping financial gains despite focusing less on cost-saving measures. At least 25% have reported increased revenue from their supply chain sustainability initiatives, while 43% expect an increased share price in the next three years. Lastly, the data show they are more likely to use sustainable supply chains to protect their corporate brand. Supply chain sustainability has become increasingly important as global market expectations evolve. Organizations are starting to identify financial and nonfinancial opportunities of ESG-related efforts, and executives who know which KPIs to prioritize are already reaping the benefits. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co. Benjamin N. Villacorte is a partner from the Climate Change and Sustainability Services team of SGV & Co.
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Accelerating sustainability with emerging technology (Second Part)
Second of two partsThe most recent EY Reimagining Industry Futures Study, which examined executive attitudes and intentions toward 5G, IoT, and other emerging technologies from respondents across 1,325 global firms from various industries, found that organizations are increasingly relying on these emerging technologies to advance their sustainability initiatives. The study offers Chief Information Officers (CIOs) crucial solutions and steps to help their organizations rethink their future and demonstrates that emerging technologies provide advantages that include improved measurement, increased efficiency, and the capacity to create virtual goods and processes.Findings from the study demonstrate significant convergence between business technology and sustainability strategy. The first part of the article discussed emerging technology as sustainability drivers, sustainability-related benefits of modern technology, environmental, social, and governance (ESG) as a key factor in emerging technology investments, enterprise sustainability strategies already benefiting from 5G and IoT, and how sustainability imperatives are changing perspectives towards industry ecosystems and technology suppliers.The second part of this article discusses differing industry perspectives on emerging technology and sustainability, and considerations organizations can make to ensure expectations translate into long-term value creation.DIFFERING INDUSTRY PERSPECTIVESEnergy efficiency and business circularity expectations at the sector level showed notable differences when respondents were asked how they perceive the sustainability benefits of emerging technology. Despite the fact that 46% of respondents across all industries cite decreased energy usage as the top benefit, only 38% of the healthcare sector mentioned this benefit compared to 54% of the automobile sector. Only 35% of executives in government organizations mentioned reduced waste output, compared to 50% of executives in the manufacturing sector.The two industries most likely to point to benefits from emerging technology in gauging the environmental effect of their organizations were government and healthcare with both at 44%. However, evaluating the environmental impact of suppliers is seen as significantly less critical in government and healthcare but as a significant advantage among manufacturing and energy respondents.This is because reporting Scope 3 emissions makes it more necessary than ever. Industries are aware of the potential for new technologies to aid in measuring performance and advancement, but the scope of their ambition varies depending on whether they are concentrating on their own organization or expanding to include their supplier chain.CONSIDERATIONS FOR LONG-TERM VALUE CREATIONESG factors are already influencing the technology investment decisions of several businesses, and sustainability requirements are expected to overpower other considerations when selecting technology vendors.However, CIOs are able to do more to ensure that high expectations result in the production of long-term value through the following points of action:Long-term sustainable advantagesAlthough businesses are aware of the variety of sustainability advantages offered by emerging technologies, it is crucial that technology leaders concentrate their ambitions. Technology leaders have to carefully consider the combined impact of many technologies before prioritizing and phasing the important ESG outcomes they are seeking and selecting the best technologies that can deliver them. Another consideration is including ESG risks as part of the assessment, as ESG risk should be embedded in a company’s enterprise risk management process. In certain instances, these ESG risks can be resolved by utilizing appropriate technologies.Assessing environmental implicationsOrganizations can examine the carbon footprint and energy efficiency of their portfolio of emerging technologies, and make sure their approach directly ties into the overarching goals of the organization for lower IT energy use. They will have to be sure to consider how upgrading their IT to newer standards and technologies will improve sustainability, particularly in how it will impact their carbon footprint and energy efficiency.Sustainability agendas informed by techWorking closely together with other leadership roles and responsibilities will make sure that everyone in the organization is aware of how new technology can accelerate ESG goals. Discussions with the Chief Sustainability Officer (CSO), or equivalent role, will contribute to the proper assessment of the acquisition and use of new technology. This will ensure that existing digital transformation roadmaps continue to serve their intended purposes while sustainable principles take on greater significance as motivating factors.Sustainability as a guiding concept for relationships with technology suppliersCIOs are already giving sustainability capabilities priority when looking for qualities in technology companies. It is critical that businesses prioritize sustainability in their conversations with wider partner networks. Although decisions about vendors and technology investments are currently being made with sustainability in mind, there is still room for more cooperation in the future regarding circular business models and shared ESG objectives.Technological use cases created with sustainability in mindSeveral firms already have established IoT projects, and the rapidly expanding deployment of 5G and edge computing is progressively enhancing these initiatives. Sustainability-aligned results must be incorporated into use cases and deployment methods. To do this, CIOs must think about how new technology use cases might benefit partners, customers, and employees alike. They must also establish the proper feedback loops with technology vendors to make their vision a reality.Using emerging tech to drive sustainable outcomesWith sustainability goals coming under even more intense scrutiny, organizations will have to keep prioritizing the sustainability capabilities and credentials of their technology vendors in the future. CIOs will have to assess the benefits and drawbacks of developing technologies in achieving sustainability goals, creating long-term value and ultimately building a better working world. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Joseph Ian M. Canlas is a consulting partner and part of the Climate Change and Sustainability Services team of SGV & Co.
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Accelerating sustainability with emerging technology (First Part)
First of two partsWith sustainability and digitalization increasingly becoming a business imperative, organizations are relying more and more on 5G, the Internet of Things (IoT), and emerging technologies to advance their sustainability initiatives. The advantages these technologies provide include improved measurement, increased efficiency, and the capacity to create virtual goods and processes.These are some of the key findings of the most recent EY Reimagining Industry Futures Study, which examined executive attitudes and intentions toward 5G, IoT, and other emerging technologies from 1,325 global firms across a range of industries. The study offers Chief Information Officers (CIOs) crucial solutions and steps to help their organizations rethink their future, with findings demonstrating significant convergence between business technology and sustainability strategy.EMERGING TECH AS SUSTAINABILITY DRIVERSMore than half of surveyed businesses at 54% believe that emerging technology can significantly speed up their path toward sustainability, while 41% agree that new technologies play a mostly positive function but with some risks. This knowledge of potential drawbacks is in line with a 2021 study by Science Direct indicating that information and communication technology (ICT) as a whole accounts for 1.8% to 2.8% of greenhouse gas emissions and an even larger percentage of electricity usage.Interestingly, organizations in Asia are more likely to emphasize the importance of new technology than businesses based in Europe (62% versus 49%, respectively). This regional variation may be a result of the historical attention paid by European governments to the potential energy consumption problems posed by data centers and cloud computing.SUSTAINABILITY-RELATED BENEFITS OF EMERGING TECHRespondents believed that emerging technologies such as AI, automation, 5G and IoT can provide a variety of beneficial contributions to long-term sustainability plans. Topping the list of these benefits are decreased energy use, improved measurement and planning, and decreased waste output. The use of virtual services and workforce tools is another significant trend.Only around a quarter of respondents highlighted the advantages of adopting circular business models and renewable energy sources, suggesting that these might be areas that require more attention from the CIO community in the future. Nonetheless, the variety of positive results highlights the multifaceted potential of these technologies from a sustainability perspective.ESG A KEY FACTOR IN EMERGING TECH INVESTMENTWhen considering all emerging technologies, 35% of respondents identified environmental, social, and governance (ESG) as a leading factor in their decision-making, while 41% saw it as important. 5G investments were most likely to involve ESG as a key factor, with IoT close behind.ENTERPRISE SUSTAINABILITY BENEFITING FROM 5G, IoTCompared to other emerging technologies, the ESG implications of 5G and IoT tend to weigh more heavily on business investment decisions. Organizations investing in these two technologies are more likely to already see current benefits compared to other organizations who looked at a broader scope.As a result, 5G and IoT are even more directly tied to many of the ESG advantages associated with emerging technologies as a whole, with 48% highlighting the increased productivity benefits from 5G and IoT, compared to just 22% for all developing technologies. More than half (55%) of those currently investing in 5G and IoT said that these investments assist in improving sustainability planning and forecasting compared to 39% of organizations who believed that the same could be said of emerging technologies in general.SUSTAINABILITY IMPERATIVES CHANGING PERSPECTIVESThe qualities that businesses are looking for in their IT vendors are evolving as sustainability takes center stage in the technology strategy of many CIOs. More than 75% of businesses claimed to give priority to vendors who can explain how emerging technologies affect the environment. Companies also considered that suppliers need to do more to include sustainability into their service offerings.These viewpoints are reflected in the qualities that businesses look for in their technology vendors, where respondents prioritized speed of deployment and execution, end-to-end solution capabilities and sustainability credentials and capabilities. However, corporations predict that sustainability credentials and competencies will be even more sought-after in the future.Business ecosystem strategies that facilitate the acquisition of new skills and competencies through partnerships with vendors and other businesses will also be able to provide sustainability benefits. Eighty percent of businesses concurred that, over the next five years, working with other groups and sectors to develop circular business models will become significantly more crucial.The second part of this article will discuss differing industry perspectives on emerging technology and sustainability, and considerations organizations can make to ensure expectations translate into long-term value creation. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Joseph Ian M. Canlas is a consulting partner and part of the Climate Change and Sustainability Services team of SGV & Co.
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Understanding the implications of the EPR Law (Second Part)
Second of two partsThe circular economy concept has been given more and more attention through the years and has now materialized in the Philippines through the Extended Producer Responsibility (EPR) Act of 2022 and its Implementing Rules and Regulations (IRR). In fact, the Philippines is one of the few countries around the globe with active regulations or national programs on the circular economy, counting itself among Scotland, Canada, South Africa, China, Japan, Singapore, and the European Union.Because of the huge potential of the Act to accelerate the transition of the Philippines to a more circular economy, all companies, not just obliged enterprises, can play a critical role in this ambition.In the first part of this article, we discussed six recovery programs, six reduction strategies and additional steps that obliged enterprises can undertake as part of their EPR programs. In this second part, we discuss EPR registration, EPR implementation, and keeping confidence through third-party assurance.FROM EPR REGISTRATION TO EPR IMPLEMENTATIONThe EPR registration with the National Ecology Center due on Feb. 13 is just the prelude to a long-term transformation process for plastic waste management. Mobilizing large enterprises in an action-oriented approach would lead to greater positive impact, which can also influence the micro, small and medium enterprises (MSMEs). MSMEs may voluntarily comply with the law by introducing small-scale EPR programs, but the real challenge lies in implementation.Since both reduction and recovery methods are required to fully comply with the law, investment in technology, innovation, facilities and product development are needed. Partnerships with local governments and the informal waste sector are also highly encouraged to ensure the engagement of key stakeholders in EPR programs. Because the EPR requirements set forth in the law may be demanding for some, authorizing a Producer Responsibility Organization (PRO) can serve as a viable additional platform for EPR program implementation.Obliged enterprises are required to have a system in place to account for their plastic footprint and engage an independent third-party auditor to certify the veracity of their reported plastic footprint, recovery and EPR program compliance using uniform standards established under the law. In this case, it would be advantageous to set up an internal auditing system as early as now to avoid delays and setbacks in the future. This will also allow obliged enterprises to thoroughly review the strategies and schemes that best suit their company.KEEPING CONFIDENCE THROUGH THIRD-PARTY ASSURANCEThe initial waste footprint to be submitted in time for the EPR registration can be self-declared by the obliged enterprises. However, after the first-year implementation of their EPR programs, obliged enterprises would need to report their compliance and recovery targets achievement, assured by third-party audit.While the submission of an EPR Law Compliance Audit Report (ECAR) is required for the government to monitor and evaluate the compliance of the obliged enterprises with their respective EPR programs, having third-party assurance provides transparency and confidence to businesses and their stakeholders that their efforts are contributing to a greater purpose.The first ECAR submission is still in July 2024 covering the EPR programs implemented in 2023, and the following should be covered in the report:• Footprint declaration for the volume of the obliged enterprise’s plastic packaging brought into the market during the period covered;• Recovery or plastic packaging waste diversion based on third-party audited diversion or credits;• Determination of the equivalent plastic packaging waste footprint reduction resulting from other EPR programs;• Confirmation of confidential information declared by the obliged enterprise.ADVANCING CIRCULARITY IN BUSINESSESEmbedding circular economy strategies in a company’s overall strategy and shifting to a circular model from a linear model can benefit the entire company and positively impact its operations, growth, and legal compliance. A circular economy is a type of economic structure that aims to reduce waste and unending resource usage. It represents a fundamental change in how stakeholders manage the use of goods and resources at their core. The goal is to maintain resources and their value in the loop rather than the present take-make-waste cycle, and to reimagine future business models suitable to creating a more sustainable society.In advancing circularity, companies can reassess their product designs and material options, and target to reduce waste generation in their whole operations cycle. Businesses that utilize durable, renewable, and recyclable materials can lessen its reliance on scarce and expensive resources as well as reduce their susceptibility to supply chain disruptions. Companies can also employ more sustainable procurement.Essentially, deciding to go with the more sustainable choice in applicable aspects of operations can make a huge impact and take the company a step closer to circularity. Additionally, shifting to a circular economy creates new jobs and revenue sources within the process of looping materials back into the system, including sorting, collecting, refurbishing, and remanufacturing, which is uncommon in the linear economy and opens businesses to new ways to drive growth.BEYOND COMPLIANCE: TAKING STEPS TOWARDS A CIRCULAR ECONOMYTaking into consideration the target timeline in the EPR, companies should now be ready for their plans and strategies on the implementation of their EPR programs for 2023. The first submission of the ECAR will cover the 2023 EPR programs. Obliged enterprises or PROs are required to establish and implement accounting, data recording, and auditing systems for their respective EPR Programs.The implementation of effective EPR programs goes beyond compliance — it also benefits companies through cost and tax reduction, energy savings, and favorable investor and consumer perception of their brands.The EPR Act of 2022 is an opportunity for businesses to contribute to tackling the growing volume of plastic waste in the country, preventing the loss of valuable resources and reducing environmental degradation. Since the IRR has been published, businesses must now step up and act to monitor and evaluate their plastic waste generation. By beginning to build partnerships and strategies for EPR program implementation, they can take a significant step towards a circular economy. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.Benjamin N. Villacorte is a partner and Erica Nicole D. Gomez is a senior associate from the Climate Change and Sustainability Services team of SGV & Co.
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