Incorporating sustainable principles into the procurement process has become a more popular strategy than ever before, and there are a number of factors driving this change. One of them is that many consumers in the United States and other developed nations have become increasingly aware of environmental issues and committed to finding solutions to these problems, and they want major brands to approach ecological problems with the same level of seriousness that they do. The growing number of companies that have embraced sustainable initiatives means that people now don't have to settle for environmentally unfriendly products; they can simply take their business elsewhere.
However, while holding on to customer loyalty is certainly a primary driver behind the adoption of sustainable practices, it's far from the only factor. Many firms are also aiming to limit the impact that their processes have on the environment as part of their long-term spend management strategies. Ultimately, as certain resources grow more scare in the coming decades, using renewable energy to power production and sourcing products from suppliers that do likewise can help mitigate the risk of disruptions.
Sustainability creates market shifts
Meanwhile, as supplier relationships based on green products and practices continue to become more common, a variety of markets and sub-niches within the retail and consumer goods spaces are undergoing change.
The International Institute for Sustainable Development recently released its State of Sustainability Initiatives Review 2014, and according to the report, green products have continued to become mainstream. This is especially true in the food industry. The researchers found that coffee produced in accordance with sustainability standards held a 38 percent share of the market in 2012, a considerable increase from 2008, when it stood at 9 percent. Meanwhile, standard-compliant cocoa went from 3 percent to 22 percent of the market during this same time period, and sustainable palm oil jumped from a 2 percent market share to 15 percent.
However, the report noted that while sales of sustainable products are also increasing, demand hasn't grown at quite the same rate as supply. This phenomenon may be something of a double-edged sword for market change.
"This situation means that companies have ample choice for sustainable sourcing (positive outcome), but also suggests that the market may be placing downward pressure on the prices of sustainable products due to oversupply (negative outcome)," the researchers wrote.
Companies adapt to the trends
This is not to say, however, that companies are reconsidering the viability of sustainable product sourcing. The fact that oversupply of these products exists may actually suggest that firms are thinking ahead, trying to anticipate the demands of consumers in markets that continue to shift rapidly. The confidence that companies have in these efforts is supported by just how much growth sustainable products have seen in recent years. The IISD report revealed that while the conventional commodities industry grew by 2 percent in 2012, the market for sustainable products expanded by 41 percent.
In light of these developments, companies in food, retail and other sectors continue to demonstrate their commitment to finding environmentally friendly ways to source their products. According to Sustainable Brands, spirits producer Bacardi recently announced that it intends to ensure all of its raw materials are 100 percent sustainably procured. It will source its sugar cane from suppliers in Fiji that protect the Great Sea Reef that surrounds the islands. Furthermore, the company intends to incrementally slim down its packaging by 10 percent in 2017 and 15 percent by 2022, in addition to cutting greenhouse gas emissions by 50 percent and water use by 55 percent.
As sustainable products flood the markets and demand continues to shift, firms may need to ensure their financial benchmarking solutions price these items carefully and correctly.