RED OR GREEN? - ONLY A CHANGE OF COLOUR?
For now, most small and medium enterprises are not required by new legislation to report their greenhouse gas emissions or to reduce them. But the evidence is that they will soon be under pressure to follow the lead of big businesses.
Consider the biggest general retailer in the United States, Wal-Mart. As part of a sustainability push, Wal-Mart imposed tough new conditions on its suppliers, asking them to document and reduce their carbon emissions.
The company is compiling an inventory of the carbon emissions embodied in the products lining its shelves. Its plan is to introduce carbon labelling and give priority to products that are aligned with its own measures for environmental sustainability - for example, stocking energy-efficient light bulbs at the most lucrative eye-level shelf spots.
Prospective suppliers must make a submission to Wal-Mart, outlining what climate change means to their business, the likely implications of carbon restrictions and whether this will impact on the company's ability to supply Wal-Mart.
Could such practices be adopted by a big Australian retailer, such as a Coles or Woolworths? Already Tesco and PepsiCo in the United States are following suit. They see an opportunity to gain a competitive advantage by establishing their green credentials. And if their strategies prove a winner with consumers, other retailers will follow.
The pressure on suppliers comes as big businesses tackle the final and most complex stage in managing their greenhouse emissions.
People are starting to realise that direct emissions are only half of the story and that to fully understand their emissions profile, they need to incorporate emissions embodied in supply chains.
The push for sustainable supply chains will be led by retailers because consumers are worried about climate change and want to do what they can.
The point of customer interaction is a pretty powerful thing - and it gives you leverage over the entire supply chain. There has been a mainstreaming of environmental concerns as a business issue.
And companies are seeing more than reputations benefit from making their supply chain sustainable. Saving energy saves money - a benefit for SMEs - and the effect multiplies along the supply chain - a benefit for their customers.
It's not the actions of the small or medium size companies in isolation, it's how you make the system as a whole work better. For example, you might use recycled metals as an input in your production process. If you work with the producer, you might redesign the metals so they are easier to dismantle. Then it doesn't consume as much energy in the recycling process.
SMEs along the chain need to take the initiative and develop a collaborative approach with their big customers, or risk being muscled out by rivals ahead of the game. Gaining the attention of big customers is not easy.
Large companies' supply chain policies usually have clauses saying that they promise to engage with suppliers in an 'open conversation' but it is often difficult for SMEs to play the hard line card and actually insist on a negotiation.
Instead, suppliers could put forward the business case to their customers. In order for big companies to put this in place, they really need a business case that demonstrates the benefit of the policy for all stakeholders. You might not achieve any efficiency gains or cut costs because these arrangements are not usually structured as a two way conversations
SMEs that can bring their big customers to the table will gain a competitive advantage. Companies will need to share cost reductions in an appropriate way. There will be a cost advantage immediately - if there are five potential suppliers and one has a lower cost of doing it greener, it will begin to pick up most of the work.
Supply chain policies and criteria developed by big companies can be used simply as a filtering process, rather than to achieve an economic outcome for the supply chain.
The introduction of ISO 14064, the international standard for greenhouse gas accounting and verification, has helped businesses along supply chains to join forces.
Business has been able to use the standard as a driver for improvements or cost reductions to a supplier's product that can ultimately be passed on to the end consumer. If there are requirements for suppliers to provide more energy efficient inputs - then savings can be shared along the supply chain.
However, it is important for SMEs and their customers to sort out who takes the responsibility for data collection and the reporting liability.
Some SMEs have teamed up with other suppliers to negotiate as a group under the auspices of an industry or trade association. A collaborative approach makes big savings possible.
SMEs with government customers are also facing change. At all levels, governments are overhauling their procurement procedures, asking product and service providers to lay out their sustainability credentials in tender documents.
When tendering with government, there are no legal requirements with respect to sustainability - reporting is voluntary, although a number of government departments require you to explain to them the environmental credentials of your company.
However, there can be traps for SMEs embarking on sustainability programs. One typical problem is finding that the scope of change is much bigger, and more expensive, than they first thought. The cost needs to be balanced against real analysis of the competitive advantage.
The Victorian Employers' Chamber of Commerce and Industry (VECCI) has set up an advisory program for SMEs looking to become more sustainable called Grow Me the Money.
Most agreed SMEs are feeling pressure to adopt sustainable practices, but cost saving is a big attraction. Part of the reason for going green is in response to community expectations and pressure from customers and staff.
Research by VECCI found that 50 per cent of businesses thought that implementing sustainability initiatives would help them save money.
So red tape is now turning green.
CEOs can differentiate and aim to be better by being environmentally friendly and it can be inexpensive. Easy to implement measures include implementing paper policies, ie recycled and non print document policy; auto sensor switches to reduce energy costs; review of energy suppliers; use of telephone/video conferencing in preference to travel/accommodation re face to face meetings etc. etc.
This tendency above in business mirrors a shift in society's attitude. Consumers are already choosing environmentally friendly products and Generation X and Y are asking questions at interviews like 'Are you a green organisation?' and 'Do you have a sustainability policy?'
As a result of this, the skills shortage may put some companies in jeopardy if they don't adapt. Therefore, if you want to position yourself for the future, get on board and think green - it's now the way to go!
Tony Martin - Director and Strategic Financial Coach, Advantage One
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