How ESG Can Help You Attract New Customers and Build a Brand Your Consumers Trust
Almost $2 trillion.
That record-breaking number is how much Americans spent shopping online during the pandemic, from March 2020 through February 2022—a whopping $600 billion increase from the previous two years. And, it’s an upward trend not expected to drop anytime soon. In fact, in 2022, e-spending broke another record surpassing $1 trillion in a single year, the first time that’s ever happened. The market is projected to continue to grow, likely increasing more than 54% between now and 2027.
As U.S. consumers shift their shopping away from brick-and-mortar and onto the web, they’re buying just about everything online. Clothing and shoes make up a huge part of the market, followed by food and beverages, bags and accessories, cosmetics, and even pet products, electronics, and drugstore purchases.
More online shopping is great for ecommerce businesses and the third-party logistics (3PL) companies that support them, but it also creates new and unique challenges, especially for eco-friendly companies that want to prioritize sustainability as their businesses boom.
What is Sustainability in Ecommerce?
What it means to be “sustainable” in business varies widely across geographic regions, industries, business-to-business, and in some cases from person-to-person. In terms of sustainability in ecommerce and logistics, it’s all about finding ways to operate most efficiently while decreasing negative environmental and societal impacts—without driving product prices higher than customers can stomach.
Sustainable ecommerce is about focusing on more than just your revenue and budget. It’s about decreasing your company’s impact on the planet and the people around you. And, it’s increasingly important to customers who will want to do business with you.
According to Kantar’s “Finding the Future: Sustainability Trends Report,” nearly 80% of consumers say they want to purchase environmentally sustainable products, a decision that’s heavily influenced by cost-impact.
According to the trends report, customers are interested in a range of sustainability issues, such as:
- Renewable energy
- Reusable and environmentally friendly packaging
- Farming, agriculture, and food waste
- Companies making green investments
- Biodiversity (keeping the earth healthy)
Vue.ai, a company that helps retailers incorporate artificial intelligence (AI) into business, lists sustainability as one of the top 20 challenges for retailers today, noting that 60% of consumers are ready to alter purchase patterns to lessen their environmental impact.
Another report from Nielsen indicates that more than 70% of online shoppers have already adjusted their habits to reduce environmental impact and are also buying more sustainable products.
ESG and Your Bottom Line
Consumer expectations have greatly shifted since the pandemic, and that’s especially true for online retailers, ecommerce businesses, and logistics companies. A poll commissioned by Google Cloud discovered that 82% of consumers want the values of the brands they buy from to align with their own, and another 75% say they’ve stopped doing business with companies where there is a conflict of interest in those values.
To meet changing consumer demands, executives and board members at many ecommerce businesses and 3PLs have started to adopt environmental, social, and governance (ESG) standards. These standards help organizations establish key performance indicators (KPIs) and other metrics to determine how well they’re meeting their environmental and social impact goals. ESG is not a mission or a vision. It’s a set of governance-based standards at the operational level that defines policies, processes, and procedures to meet these objectives.
ESG is about:
- Creating less environmental impact
- Respecting the environment and consumer society at large
- Implementing effective governance controls to meet these objectives
- Focusing on profitability as it aligns with sustainability goals and customer values
Companies that fail to implement effective ESG policies don’t just risk the potential of losing customers and sales. In some cases, investment groups are making sustainability a key part of conversations about which companies they will and won’t fund. ESG strategies are now integral parts of company investment valuations. The good news? Investors may see companies with solid ESG governance as less risky and therefore be more likely to invest or expect a lower return on capital.
Impact of Sustainability Measures on Retail and Logistics
Whether you’re a small ecommerce business managing your own product storage and distribution, or you’re a 3PL handling warehousing and logistics for other companies, sustainability strategies have broad implications on how you operate your business. It can affect everything across the supply chain, from who you choose to purchase inventory and products from to how you store, pick, and transport products for your customers—all while meeting your other business objectives.
Sustainability is critically important in logistics because its impact can be felt across the entire consumer and supply chain lifecycle. Yet, for 3PLs and fourth-party logistics (4PL) companies, insight into sustainability across the supply chain can be challenging, especially the more complex your operations grow and the more third-party vendors you use for services. But, the same can be true for tier 1 businesses that don’t have the time, resources, or skilled professionals to conduct supply chain analysis for insight into how second- and third-tier businesses implement sustainability strategies.
However, just because it’s challenging doesn’t mean making sustainability part of your company culture isn’t worth it. In fact, some may argue the long-term pros vastly outweigh the short-term cons. While the sustainability benefits will vary based on your unique business factors, here are three that are applicable across industries, especially for manufacturing, warehousing, logistics, and ecommerce:
1. Reducing your environmental impact could increase your bottom line. Example: Re-evaluate your transportation and delivery methods, all the way down to the route-level. Are your drivers or third-parties using the most efficient routes? By decreasing the number of miles driven, you can save money on fuel and vehicle wear and tear and also decrease your carbon footprint.
Have you ever heard that UPS drivers never make left turns? It’s not just an urban legend, it’s company policy. While the drivers can make left turns if they have to, the company discovered that by eliminating them they were able to reduce driving time and time wasted idling at redlights. Even in instances where this process increases route distance, it ultimately results in more cost-savings and carbon emission reductions. This and other ESG-focused strategies have resulted in more than a million cleaner miles driven every day, according to UPS.
2. Your sustainability commitment can build life-long customers. Customers want to do business with companies that demonstrate their values align with their consumers. When companies do this effectively, they attract new value-aligned customers to their business and create relationships that can make those customers lifelong product champions.
Patagonia, an outdoor clothing and gear design company, gets a lot of praise for doing this effectively. The company notes the clothing industry contributes to at least 10% of pollution behind the climate crisis. As such, Patagonia has made a commitment to change how it makes products, everything from using 94% of recycled material in its current product line, to growing organic cotton (which saves water and reduces carbon dioxide emissions by 45%), to investing in ways to reduce greenhouse gas emissions, and increasing the percentage of its products created by Fair Trade Certified workers.
3. Sustainability can improve your brand reputation. Trust, a report from PWC says, is the “new currency for business,” with 71% of consumers saying they will stop purchasing from a company if it loses their trust. Another 50% say organizations are responsible for buildingtrust with their consumers. That means when it comes to sustainability, your customers expect you to be transparent and do what you’re saying you do.
As the customer base for online retailers continues to boom, ecommerce businesses like Amazon have invested in materials, processes, and technologies to meet customer needs—and demonstrate they take those needs seriously. One way Amazon is doing this is by committing to minimize packaging, even though packaging is a critical part of the Amazon customer experience. Since 2015, the company says it has reduced per-shipment package weight by nearly 40% and eliminated more than 1.5 million tons of packaging. It even has a Frustration-Free-Packaging (FFP) program that incentivizes vendors to adopt industry-recognized best practices for packaging and shipping.
Building a Sustainable Future
So, how can you become a more sustainable business, and do so without driving up costs for products and services, meet existing customer needs, and scale for future growth? Here are 10 ideas to help build a sustainable 3PL or ecommerce business.
1. Get comprehensive visibility into all of your operations with data and analytics to build your sustainability program. While a lot of businesses spend a great deal of time thinking about operational resilience in revenue sustainability, the concept of driving operations from an ESG perspective is still relatively new for many ecommerce and logistics businesses. To get started on your sustainability journey, you need to understand where you are now, and that requires visibility, from the front office to customers, all the way down your supply chain. Consider adopting a software solution like Extensiv to give you insight across all of your operations, from the front-of-house to the warehouse, so you can evaluate your ESG strengths. This, along with the data analytics the platform provides, will help you make better data-driven decisions to drive your sustainability program and develop short- and long-term ESG strategies.
2. Audit your existing supply chain. When many companies think about sustainability, they think primarily about what they can change or do to decrease negative environmental and social impacts. However, an often overlooked and critically important area is your supply chain. Once you’ve established the key objectives of your sustainability program, conduct a supply chain audit to evaluate how well each of your third-party vendors align with your sustainability goals. Do any of these partners introduce ESG-related risks? Can you mitigate them or do you need to seek out new suppliers?
3. Use sustainable materials, not just for shipping, but across your business, and adopt sustainable production processes. For example, seek out products, inventory, and supplies developed from recycled products. Use recycled materials in your own production processes, too. You could also consider using renewable energy sources like solar or electric in production and manufacturing.
4. Use environmentally friendly and biodegradable packaging. Recycle and reuse packaging where you can. For example, use packaging that enables you to ship products to your customers but can also be used for returns as needed. Encourage and incentivize customers and suppliers to recycle and reuse, too. Also, when shipping or for distribution, make sure packaging fits appropriately. Stop using oversized containers that require filling with other materials.
5. Focus on shipping and transportation automation and efficiencies. Instead of drop-shipping on demand, can you still meet customer needs by shipping a greater number of products at once? Consider decreasing the number of smaller shipments you send out by building a strategy to increase volume while decreasing delivery distance and repeated delivery steps. Offer incentives for customers who ship or receive in bulk. If you out-source shipping, transportation, and freight, seek out companies that demonstrate they have similar ESG goals. UPS and FedEx, for example, have committed to becoming carbon neutral by 2050 and 2040, respectively. DHL Group says it will reduce logistics-related emissions from its delivery fleet to zero by 2050.
6. Decrease over-orders, rushed inventory, and returns. Product and inventory management should play a key role in your sustainability program. There is a lot of waste, not just in materials and products, but also other carbon-emission related processes involved in shipping, receiving, and warehousing. Consider using a warehouse management solution like Extensiv so you always know how much inventory you have, where it’s at, when it’s running low, and even automatically reorder the amount you need based on data analytics and forecasting. You can also use Extensiv to decrease product returns by ensuring all product descriptions, SKUs, and barcodes are accurate and complete, and that the products you pick and send are correct and meet quality standards.
7. Make sustainability part of your company culture. Being a sustainable company should be a core part of your business. It’s about more than just developing and managing a program. It’s about living and breathing your sustainability values. In addition to training and educating your employees on your ESG priorities, consider incentivizing employees who come up with ideas to increase operational efficiencies and decrease your company’s negative environmental and social impacts. Get your executives and key stakeholders to buy in and ensure they understand why it’s good for business. Demonstrate the potential negative impacts of not developing a sustainability culture, specifically in financial terms, for example, loss of customers, brand and reputation damage, compliance or regulatory penalties, and loss in revenue and market share.
8. Do what you say you’re going to do and build it into your brand. Demonstrate to your customers, key stakeholders, and the general public that your company takes sustainability seriously. Explain existing ESG programs and initiatives. Set realistic, achievable goals to improve your environmental and social impact, make timelines to get there, and keep your word. Be a transparent company. If something goes wrong, don’t hide it from your customers. Remember, trust is paramount here. You can even use your sustainability activities as a sales and marketing tool to attract new customers and retain existing brand champions as your company evolves. Ensure all of your customer experiences, from point-of-sale to the end of your customer lifecycle align with your sustainability commitments.
9. Develop an internal and external communication plan that clearly outlines your company sustainability values, why they’re important, how they align with your customer base, and what you’re committed to doing. Avoid “greenwashing” by not overcommitting or misleading others about your sustainability efforts. Develop incident response and related communication plans to address any negative issues that may develop along the way.
10. Adopt technologies, robotics, and other intelligent systems to increase efficiencies, reduce waste and costs, and automate manual processes. You may not realize it, but you could be increasing your carbon footprint with how you manage day-to-day operations. Look for a solution like Extensiv that integrates with your technology stack—everything from point-of-sale (POS) to automated billing, invoicing and payments received, to managing inventory, shipping, transportation, and more – to decrease your environmental impact. For example, you might replace paper invoices with an automated, digital alternative.
Sustainability Starts Now
While many companies view investments in sustainability as a future return, the time to get started is now. By reducing ESG complexities and implementing strategies today, you can be well on your way to reaping sustainability benefits that will have lasting impacts on your business’ operational resilience.
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