Embracing the world of less

Sustainability initiatives can deliver benefits worth up to 70% of an organisation’s average earnings. That’s one of the conclusions McKinsey has reached from its research. But of course, many initiatives do not yield that level of benefit because they are not made operationally effective.

Contracts and commercial practices have a big role to play in delivering business results from sustainability. For example, many initiatives are focused on supply chain security. This requires a rethink of traditional approaches to contract terms and supplier management, essentially to develop partnering and shared commitment to results. Many companies are now investing in training and equipping their suppliers to ensure supply security, quality and integrity. This may include providing materials, support technology or research. Adversarial approaches designed to drive short term cost reductions are being replaced by longer term relational terms and agreements that ensure a robust and loyal supply base.

The counter-side of this approach is the new emphasis for suppliers to compete on better serving customer interests. The most stark example is in the area of sales measurement and motivation. The days when the supplier’s main goal was to maximise volumes are fast receding. Instead, customers want suppliers who offer innovative approaches to reduce demand, especially in areas such as water or energy use, or in the need for raw materials. This is propelling us fast into different forms of contract, such as shared benefits or payment by results.

Sustainability is not a fad. As the McKinsey study clearly shows, it delivers tangible business benefits and represents an unstoppable social, economic and political direction. Trading relationships sit at the heart of sustainability – so if you are not already involved in understanding and implementing associated contract and commercial practices, it’s time to get engaged.