Should businesses turn to sustainable sourcing to increase profit margins?

As sustainability has continued to become a source of widespread concern over the years, one assumption has remained consistent: Eco-friendly products are more expensive than conventional items. This principle remains largely true even in a climate where green energy, carbon reduction and organic materials are matters of greater attention than ever before. For consumers, the question is whether or not the extra investment in sustainable goods is worth it. Does it offer additional peace of mind? Is the product of a higher quality?

However, businesses must take a different angle when evaluating whether a sustainable procurement process makes sense. Green practices and environmentally friendly materials involve increased upfront expenses (which is why they're costlier to consumers), but return on investment is ultimately determined by hard numbers - namely, can sustainable product sourcing keep profit margins consistent?

Green procurement as spend management strategy

Increasingly, companies are finding that they have to seek out ways to ensure that sustainability can coincide with cost reduction and strategic excellence, as reducing environmental impact will not simply boost revenue on its own. But as ecological issues grow more pressing and businesses begin to feel their effects more clearly, the areas of overlap between sustainable sourcing and long-term business viability may grow more natural and easier to identify.

In a post for GreenBiz, sustainable business experts David Meyers and Sissel Waage suggested that business will increasingly need to react to environmental phenomena and incorporate those efforts into their broader strategies.

"As concerns grow about climate change and water, among other environmental issues, internalizing externalities is the name of the game today - with the ultimate goal of creating incentives to avoid risks and create net positive corporate impacts," wrote Meyers and Waage.

But the positive impacts that Meyers and Waage pointed to need to go beyond improvements in brand image - they must be real, measurable budgetary benefits. The Dow Chemical Company, Shell, Swiss Re and Unilever recently published a joint whitepaper that evaluated the respective benefits of green (environmentally focused) versus "gray" (conventional, man-made) infrastructure. The firms pointed out that green solutions are based on "custom-made, location-specific design" and thus more difficult to standardize and replicate, which drives up engineering costs. However, green infrastructure comes with lower overall expenses: Power consumption is minimal, and using as few machines as possible cuts maintenance needs.

In evaluating whether sustainable procurement can increase profit margins, firms should consider how they can implement green logistics in ways that reduce operating costs.

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