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Should the distribution sector aim for carbon neutrality?

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Dave Berridge, secretary of the Automated Material Handling Systems Association (AMHSA), looks at how sustainability can add value to a business.

14_Dave Berridge.jpgSustainability is becoming increasingly important for warehouse operators and, consequently, their suppliers. With consumers being ever more aware of climate change and environmental impacts, brands are very conscious of their image. Some of them also realise that their environmental, social and governance (ESG) policies can create long-term value.

Google, for example, recently committed to carbon-neutral shipping by 2020 and to using recycled materials in all of its products by 2022. Amazon has recently pledged that it will achieve carbon neutrality by 2040, and is purchasing 100,000 electric delivery vans to help achieve this goal. IKEA, meanwhile, is going one better, aiming not just to be carbon neutral, but carbon positive, by 2030.

Automation can help

Of course, there are lots of ways in which warehouse operators can reduce their carbon footprint. These include energy efficiency strategies such as the use of skylights, solar panels, LED lighting and roof insulation. Logistics automation can help in a number of ways – for example, by reducing the need for energy-hungry lighting and heating; through dynamic handling systems that are designed to optimise material flows; and the use of software to optimise space utilisation and drop sequence in delivery vehicles. But no amount of energy-efficient measures can achieve carbon neutrality, so what does this actually mean? Specialist consultancies undertake a carbon audit of the operator’s storage and distribution facilities.

This audit will measure the annual emissions generated by energy usage and calculate the amount of carbon dioxide emitted in metric tons (the volume of a metric ton of carbon can be visualised as a 27-foot-high cube). Based on these results, the operator then purchases sufficient carbon offsets to achieve carbon-neutral status. Carbon offsets cover projects such as hydroelectric power stations, wind farms and forest conservation or reforestation.

Reducing costs

Global sustainable investment today exceeds $30 trillion, according to the 2018 review of the Global Sustainable Investment Alliance. This represents a 68% increase since 2014 and ten times the 2004 value. Why are companies motivated to reduce their carbon footprint? Part of the answer is to save costs, of course, but this is not the full picture. Research shows that there is long-term value for businesses in implementing sustainable strategies, particularly in terms of staff engagement and opportunities for growth.

Motivating employees

Recognising the impact of a company’s ESG strategy on its workforce is not a new idea; the economist Milton Friedman wrote in his ‘Social Responsibility of Business’ article in 1970 that: “…it may well be in the long-run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government. That may make it easier to attract desirable employees, it may reduce the wage bill or …have other worthwhile effects.”

With growing environmental awareness among consumers and employees, social and environmental responsibilities overlap more and more. A strong ESG proposition can help firms attract and retain the best employees, as well as enhance workforce motivation and thereby increase productivity. Conversely, a weak ESG profile can drag productivity down.

Enabling growth

Growth is another reason for companies to adopt a sustainable approach. In a study conducted by the management consulting firm, McKinsey, 44% of companies surveyed identified business and growth opportunities as the impetus for starting their sustainability strategies. Sustainability credentials can help businesses to enter new markets and expand in existing ones. Trusted brands encounter less friction in new markets in terms of ‘red tape’ and gain traction more quickly with potential customers. Other research by McKinsey shows that customers claim to be willing to pay more for sustainable products and services. This study found that over 70% of consumers across multiple sectors would pay an extra 5% for a green product, provided it offered the same performance. 

Virtuous circle

So, sustainability is one of the ways in which brands can develop relationships with customers and stakeholders that build business resilience and create value. This can, of course, be in conflict with shareholders’ objectives when it involves additional expenditure but, in the longer term, shareholders should see the added brand value in their equity.

With the regulatory framework continually shifting to limit emissions and reduce single-use plastics, businesses may find it pays to get ahead of the game now. Through its impact on customers and employees, sustainability can potentially fuel a virtuous circle of job creation, productivity and wealth generation.

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