Should Companies Invest in Sustainability?
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Short Communication Civil Eng Res J Volume 7 - Issue 4 - March 2019 DOI: 10.19080/CERJ.2019.07.555717 Copyright © All rights are reserved by Yossi Sheffi Should Companies Invest in Sustainability? Yossi Sheffi* MIT Center for Transportation and Logistics, USA Submission: February 23, 2019; Published: March 15, 2019 *Corresponding author: Yossi Sheffi, MIT Center for Transportation and Logistics, USA Short Communication Three of the most revealing results of the research that led In April 2018, MIT Press published my book, Balancing to my book are that Green: When to Embrace Sustainability in Business (and When Not To). The book was a result of five years of primary research A. Companies cannot control most of their emissions even interviewing hundreds of executives in industry, government if they wanted to and NGOs. My original intent was to argue, as did others, that B. Most consumers are not willing either to pay more or business should take the lead because many governments are incur slight inconveniences in the name of sustainability, and paralyzed by discord and political calculus. Industry, I thought, being the source of most environmental impacts, can and should C. Jobs and economic development are more important lead the way (Figure 1). than sustainability. 1. It’s Outside the Four Walls For almost every company, most of its environmental footprint of a company’s products is not in its own operations. Instead, it comes from either its upstream supply chain (the deep-tiered network of suppliers, sub-suppliers, sub-sub-suppliers, and so on) or from downstream in the use phase (when consumers use and discard the product). Examples of use-phase impacts include exhaust emissions from automobiles; electricity-related emissions for consumer electronics; the footprint of making hot water when using laundry detergents, shampoos, and soaps; and many others. This is important to remember as one judges corporate claims of environmental achievements. Every product is based on a bill-of-materials (BOM), specifying the components of the product, their sub- Figure 1: Balancing Green: When to Embrace Sustainability in components, and their sub-sub-components. Some electronic Business (and When Not To). products have 15-20 echelons in their supply chain. Their intricate composition is based on materials and minerals that must be extracted from the earth, yet the companies making and Over five years and over 500 pages later, I now realize that selling the electronic product is not likely even to be aware of not only business is not taking the lead -it really should not do who the deep-tier suppliers are. While companies know who it. To understand this viewpoint, we have to think about what their “Tier 1” suppliers are - those are the suppliers they buy role industry plays in society. Vast supply chains span the globe from and pay -they typically don’t know who the suppliers of to deliver goods and services to humanity. Through advances in these suppliers are. Most suppliers regard the identities of their information and communications technology, companies have sub-suppliers are as a trade secret and a source of competitive lowered their costs and vastly enhanced their levels of service advantage. In addition, in some cases they fear that the so that more people can afford and enjoy more goods whenever manufacturer will bypass them and buy directly from their sub- and wherever they desire. These advances have enabled new supplier. Even if a manufacturer identifies a sub-supplier buried business models, such as electronic commerce and omni- deep in its supply chain, it has no leverage over it and therefore channel, allowing delivery of many products in a day or two or no ability to convince or pressure such a supplier to become even in hours, at affordable prices. more sustainable. The reason is that the manufacturer has no Civil Eng Res J 7(4): CERJ.MS.ID.555717 (2019) 0087 Civil Engineering Research Journal commercial relationship with such a supplier. Furthermore, the the least expensive products regardless of its environmental sub-supplier may not even know that its own product ends up characteristics. Furthermore, consumers are not willing to used by the manufacturer. tolerate lower product performance or less convenience. When McKinsey, the management consulting company, surveyed The issue with use-phase environmental impact can be 1,000 consumers in Europe and the US, it found that less than even more difficult. For some products it is simply a new design 10 percent of consumers said they were willing to pay a 25 with no behavioral change required. A more energy-efficient percent higher price for green goods. Realistically, such surveys refrigerator or computer might be identical in performance and overestimate the impact of eco-labels: Survey participants tend operating instructions to the less-efficient model it has replaced; to respond the way they think the survey creator wants them it simply uses less energy (yet it may cost more). Others, such to respond, or they may want to appear progressive and caring. as a cold-water detergent, might involve some modest change Data from actual product sales experiments, in contrast, show to an otherwise familiar practice. Finally, some changes, such lower premiums for sustainability labels and sometimes no as electric vehicles, might demand both behavior changes (e.g., premium. British researchers, using an ordinary least squares learning to manage the range of the vehicle and find charging model based on dozens of indicator variables, found the premium stations), as well as concomitant consumer investments (e.g., for Fair Trade coffee already on the market to be only 11 percent. installing charging facilities at home). A New England study of 26 grocery stores found that eco-labels In addition to designing products for efficient downstream had mixed effects on sales and price premiums. usage, companies may have to influence and educate consumers When a Fair-Trade label was added to two previously on the benefits and efficacy of new, environmentally responsible unlabeled coffee varieties (one selling for $10.99 and the other products, and how to use the product in a sustainable fashion. $11.99 per pound), sales volumes of both increased by about For example, dry shampoo110 is a specially formulated spray or 10 percent. When the prices of both coffees were raised by $1 powder that absorbs excess oil from the hair and scalp, allowing per pound, sales volumes of the higher priced coffee remained for a longer period between wet hair washes. Unilever claims elevated, whereas sales of the lower-priced coffee dropped by that it can replace a wet wash 60 percent of the time. Consumers, about 30 percent. This result suggests that wealthier consumers apparently, do not believe the product has the same efficacy, may be willing to pay a premium for sustainable products, while value, or appeal; dry shampoo accounts for only 3 percent of the more frugal consumers might use sustainability attributes only global market. as a tiebreaker among equally priced products, rather than an Because of such difficulties, companies focus on their own inducement to pay more. Finally, in an on-going study by the MIT operations and report on their efforts in glossy brochures and Center for Transportation and Logistics, consumers were simply triumphant press releases. For example, Coca Cola tout the observed while making buying choices between clearly-marked reduction in their water use. It reduced its water consumption in sustainable products (soaps, detergents, paper products, etc.) its own operations from 2.7 liter of water per liter of beverage to and regular products in several Boston area supermarkets. Early 1.96 Liter per liter of product. Meanwhile, the sugar beet farmers results show that only four percent of consumers choose the deep in its European supply chain that supply the company sustainable products. guzzle 28 liters of water per liter of Coke. And, while McDonald’s These and other observations of actual behavior (rather is working to scrap the use of plastic straws in its restaurants than questionnaires) suggests that the majority of consumers - an inconsequential initiative -- it keeps serving beef, despite in developed countries refuse to pay more for sustainable the fact that cattle is responsible for about 10 percent of all products. The situation is even more alarming because for the global GHG emissions, mainly through its emission of methane, vast majority of consumers in developing markets, sustainable a greenhouse gas 28 times more potent than carbon dioxide in products are a “luxury good.” In other words, if they will attain its impact on global warming. The point of this section is that in the standard of living of Western consumers, including air most cases companies cannot really have a significant impact on conditioning, concrete buildings, and automobiles, no amount of sustainability because they have no control and little influence sustainability initiatives by consumers and companies will bring over their deep tier suppliers or customers. Consequently, most a reduction in the rate of carbon emissions growth. do what they can within their own operations, but are not putting it in the context of their actual supply chain-wide environmental Finally, for readers who think they are willing to pay more Sayimpacts. vs. Pay. or be somewhat inconvenienced in the name of sustainability, I pose the following questions: i. how many of you or your fellow consumers refuse In many polls and surveys, consumers claim they want more to purchase items from Amazon (or other e-commerce sites) sustainable products and are willing to pay more to for them. But because of the wasteful item packaging which ends up in retail data shows that very few actually do. Faced with a choice landfills? at the supermarket shelf, the vast majority of consumers choose How to cite this article: Yossi S.