Sustainability is no longer an add-on to business strategy in today’s global economy.
To remain competitive, meet stakeholder demands and futureproof itself against further challenges, a business must have a science-based sustainability plan.
Companies large and small now take their environmental impact seriously, with many moving to renewable energy and minimising waste.
But a business’s environmental impact does not stop at the company gate.
What is meant by indirect environmental impact?
Indirect environmental impact does not result directly from a company’s actions. They can come from other positions in the supply chain, such as the suppliers providing the raw materials needed to make a product. This is also known as “upstream”.
These impacts can also be located “downstream” – that is, by the disposal of your product by consumers at the end of its life cycle.
The role companies play in value chains mean they are able to significantly reduce environmental impact throughout a product’s entire life cycle.
For example, when a smartphone is produced, energy, water and other resources are needed to make the phone and its accessories, such as a charger, as well as its packaging and shipping from factory to warehouse.
But the impact does not end there. If we examine the suppliers that make elements such as the battery and touchscreen, there are additional impacts on the environment. These suppliers also depend on other suppliers for their raw materials, such as metals, which in turn have an extra impact on the environment.
On the customer side, once the phone is no longer of use, unless it is recycled, it will become waste, with additional environmental impact.
What are the risks of indirect environmental impact?
According to a recent global risk report by the World Economic forum, we are putting too much pressure on the environmental systems on which we depend.
These pressures, says the report, could lead to predictable and unpredictable changes, causing severe harm to the global economy.
Fast and meaningful action is needed in order to save the global economy as much as $30trillion, it adds.
What does this mean for businesses?
#1. Lack of resources
We are running low on fossil fuels already, as well as some key metals which are used to make many of the products that have become common in modern society.
It could take only a few decades for these to run out.
When resources become scarce, they become expensive, as demand remains high. And this could severely harm the company’s bottom line – or mean they are unable to find enough raw materials to make their product in the first place.
With targets such as net zero forming an important aspect of government policy, regulations and laws have already been implemented to reduce environmental impact.
Such regulation is only likely to increase further, affecting businesses significantly.
For example, manufacturers can now be held accountable for proper waste management
Businesses need to comply or face heavy fines, or worse.
#3. Reputation damage
A business’s success can be lost or won depending on its reputation.
Supply chains can be easily tracked by consumers and regulators, so if a company isn’t looking at its product’s entire life cycle when it comes to waste and emissions, it could find itself in hot water.
For example, fast fashion retailers have come under increasing scrutiny regarding the manufacturing process of their garments and their transportation from countries such as Bangladesh and China.
And it’s not just customers who are scrutinising a company’s sustainability. Investors are also keen to support companies that operate in the best interests of the environment, thus boosting their own credentials and reputation.
Listen to our training experts discuss how your business can become more sustainable, in our green skills podcast
What can be done to manage indirect environmental impact?
If a business hasn’t already adopted serious sustainability initiatives, backed by science and led by a qualified sustainability manager, now’s the time.
Even those late to the party will benefit from action if it is done correctly and with the best intentions.
Although initial investment into research, innovation and technology may be costly, it will likely lead to greater efficiency, profitability and also futureproof the business against further challenges.
Training your employees in green skills and equipping them with knowledge about laws and regulations through TSW’s range of courses can also help to secure buy-in and make sure sustainability is taken seriously company-wide.
What environmental impact does your product have?
Examine your product’s entire life cycle.
Record all materials, resources and energy used to make, transport, sell and use your product.
The results should be recorded in a material flow diagram, showing all inputs and outputs along the value chain.
At this point, you should share insights and engage with all stakeholders, including suppliers, to find solutions.
How can we reduce impact?
At this stage, connect each material flow to an environmental impact, such as steel production to CO2 emissions.
Each value chain is different, so there is not a one-size-fits-all approach to measuring your environmental impact along the value chain.
By using a science-based approach, you will be able to gather the most specific data which will best equip you to make specific changes that are relevant to your business.
What are our targets?
Once you have your findings, your next move is to establish your company’s vision for the future.
What are priorities? What are your targets and how quickly can you achieve them?
Communication and engagement is essential at this stage in order to secure stakeholder buy-in, which will impact your rate of success.
Use the insights you have found to help you make the changes needed to reduce your environmental impact.
Robust conversations may be needed with your suppliers and you may need to make large investment in changing your materials and processes.
For example, you could begin sourcing renewable energy or recycled materials.
This will also have an impact on your marketing strategy, as you’ll want to let everyone know about the changes you are making to reduce your product’s environmental impact.
Most importantly, find out if the changes you are making actually work.
Greater scrutiny means that businesses cannot afford to make meaningless statements or changes.
Customers, staff, investors, suppliers and regulators will want to see proof that your efforts are having a real impact.
Ultimately, this will mean your business becomes more efficient and profitable, as well as improving its reputation.