Corporate India Requires a Purposeful Sustainability Agenda

management thinker, Professor David Simchi-Levi (MIT) is worth mentioning. He has developed a supply chain stress test (akin to the financial stress test that was developed for assessment of the liquidity levels at banks and other financial institutions in the aftermath of the 2008 global financial crisis) using certain metrics.

He has devised the following metrics: Time to Survive (TTS): The time taken by a node in the supply chain to return to full functionality after a disruption has occurred (measured in days/weeks).

Time to Recover (TTR): The maximum duration of time that a supply chain network can match supply with demand after a disruption at a particular node (measured in days/weeks).

Performance Impact: The potential loss or impact on sales revenues and operating profits caused by a disruption (measured in terms of monetary value).

E-Commerce and Quick Commerce:

The advent of e-commerce and quick commerce has resulted in heightened customer expectations with delivery windows ranging from 2-3 days to same day, to 30-60 minutes. A host of technology enabled startups and service providers in this space have given consumers and customers a wide range of options in addition to flexibility and convenience. This has shifted the lens towards reverse logistics and supply chain considering the enormous cost implications emanating from free returns and replacements.

The new age business models entail significant investments in the forward as well as reverse supply chain networks and related infrastructure. The birth of ‘Dark Warehouses’ that were created by quick commerce food and grocery players has modified the customer service paradigm. However, not all businesses have been successful, and some service providers have had to relook at their dark warehouse network from a profitability standpoint. The growth of e-commerce and quick commerce has also led to a manifold increase in warehousing and transportation infrastructure. Several technology-enabled logistics startups are collaborating with D2C, B2B, C2C, B2C and B2B2C brands to ensure timely availability of products through intelligent and efficient last mile delivery networks. Thanks to this burgeoning growth, the e-commerce logistics industry is expected to grow to US$9 billion in the next 8-10 years.

Sustainability and Circularity:

Sustainable, green, and circular supply chains are no longer buzzwords confined to textbooks and theory. Over the last 5-7 years, significant initiatives have been taken by corporates of various sizes and scales across sectors with respect to their people practices, product and process design and logistics footprints. Annual reports of corporates have a separate section related to sustainability initiatives related to the business and have clearly laid down policies with respect to stakeholder management, reporting, energy consumption, waste management, resource management, carbon footprint, triple bottom line (Economic-Social-Environmental impact; People-Profit-Planet impact).

The progress on the relevant goals from the list of 17 SDGs or Sustainable Development Goals are measured, tracked, and reported. The logistics industry and related operations contribute to around 3% of global carbon emissions and steps are being taken to reduce the carbon footprint through the use of alternative fuels, green energy sources, electric mobility, etc.

Certain industries such as plastics, packaging, consumer electronics, consumer packaged goods, fast moving consumer goods, pharmaceuticals, textiles, and apparel have started adopting and deploying steps related to material returns, segregation, re-usage, recycling, and refurbishing. In this regard, the role of ESG financing and green financing is beginning to gather pace, although there are challenges with regard to the efficacy and effectiveness of these models on the ground. It is also necessary to be vigilant and guard against ‘Greenwashing’.

Ethics & Diversity, Equity, Inclusion

(DEI): Responsible and ethical supply chains are no longer an exception. To build lasting customer and consumer goodwill, it is essential to adopt and demonstrate behaviours that build trust in the brand, product or service. In the light of the 17 UN SDGs mentioned in the previous section, it is incumbent on supply chain and logistics professionals to ensure adherence to fair business practices, labour laws and dignity of work.

The workforce deployed at the various operating sites such as manufacturing units, warehouses, distribution centers, fulfilment centers, dark warehouses, wholesale outlets, retail outlets, etc., need to be provided proper and safe working conditions. Any malpractice or fraud needs to be brought to light and thoroughly investigated. Yes, I do agree that this is easier said than done. However, any supply chain organization that demonstrates honest and ethical behaviour through their interactions with suppliers, customers, dealers and other logistics service providers, would sustain in the marketplace and as a result, garner financial benefits.

The other aspect in supply chain organizations is the increasing impact of diversity, equity and inclusion. There is a conscious effort being made to make the hiring, on-boarding, career planning and retention processes as diverse and inclusive as possible. In my opinion, this trend and positive development will gain more traction in the coming years and would only contribute to the quality of work, productivity, output and richness of discussions and debates within and outside organizations.

Digitalization and Technology: The critical role of digitalization, technology and automation tools in the logistics and supply chain function and industry as a whole can neither be ignored nor undermined. It is pertinent to note that the government’s draft ‘Digital Personal Data Protection Bill, 2022’ being reviewed, discussed, and debated, would go a long way in ensuring that consumer data is safe, protected and used for legitimate purposes with the consent of the end user. The plethora of online applications and related software bring with them issues related to data privacy, safety, and security.

Post GST implementation, supply chain and logistics systems have become more agile and responsive. It would

have ramifications for network design with respect to facility location, sizing, inventory placement, customer service levels, etc. This has led to the development and finetuning of optimization tools, network modelling, simulation tools, decision support systems, data flows and system integration.

GROWTH DRIVERS AND ENABLERS

Moving forward, the following ten elements or building blocks would act as growth drivers and enablers:

Human Capital: Just as any other function, our domain too needs skilled manpower across upstream and downstream functions. Re-skilling and up-skilling of logistics and supply chain professionals is an ongoing process. Both online as well as offline modes could be used.

Start-up Ecosystem: Start-ups have been playing a crucial role in the logistics and supply chain space in the last 8-10 years. A case in point is the role of LSPs, particularly logistics technology firms that provide their clients with last mile delivery, track and trace, performance monitoring and other smart solutions spanning inbound and outbound logistics.

Government Policies: The role of our central as well as state governments cannot be overlooked. A considerable amount of work is being done in this direction. The NLP, PM GatiShakti NMP, industrial and trade policies are prime examples of enabling initiatives to ease operational bottlenecks, bring about greater collaboration among project implementation ministries and partners, reduce operating costs and enhance customer service.

Compliance Mechanisms: For certain industries such as Pharmaceuticals, Food and Beverages, Agricultural, Commodities, etc., compliance with local and international laws is necessary. For other sectors, the scope of compliance needs to be extended to sector specific internal and external rules, processes, SOPs, and policies.

Infrastructure Investments (Both

Public and Private): From a macroeconomic perspective, credit growth has outpaced deposit growth with bank lending witnessing steady growth in the last few quarters. This augers well for our economy, which shall see increased capital spending in the coming financial year – be it in manufacturing, integrated logistics parks, transportation, roads, highways, ports, dedicated freight corridors, container terminals, container freight stations etc. A highly positive development is the ‘Industry’ status accorded to the warehousing sector.

Environment, Health, and Safety: EHS has seen renewed thrust in the last two years after Covid-19 struck the globe in 2020. We have been seeing an increasing level of awareness, deployment, and adoption across the end-to-end supply chain spectrum within companies from all sectors including products and services.

Logistics on Demand (Logistics-as-a-

Service): In my opinion, this is an area that would evolve going forward. LSPs could provide logistics services to clients and customers based on a pay-per-use or subscription model with cost structures devised accordingly. Also, there could be scenarios where transporters and warehouses could share infrastructure to reduce dead hauls and optimize truck loads and warehouse space utilization. This is easier said than done and would entail trust among partners in addition to the deployment of appropriate smart technologies.

Resource Sharing and Collaboration

Models: This is a focus area connected with the point above. Resource sharing could extend to all the logistics and supply chain resources and assets. The concept could be extended to areas such as Production-as-a-Service, Warehousingas-a-Service, Transportation-as-aService.

5G Connectivity: The future of connected & smart warehousing and transportation cannot be envisaged without quick and efficient system connectivity and network infrastructure. Here, the 5G enablement policies and initiatives being undertaken by the government as well as telecom service providers and gear manufacturers would prove to be a gamechanger in the next 3-4 years.

Sectoral Focus: Finally, specific sectors need specific initiatives and ongoing improvement projects with respect to logistics and supply chain initiatives. Although the underlying principles would not change, the complexity and the degree of change we would witness in the next 3-5 years would vary. All in all, there has never been a better time to be a part of our growing and evolving domain.

POISED FOR ASTOUNDING GROWTH

Finally, the National Logistics Policy (NLP) in conjunction with the PM GatiShakti National Master Plan and the ongoing Sagarmala (ports and inland waterways infrastructure modernization and connectivity) projects, Bharatmala projects (Roads and highways connectivity), multi-modal logistics parks (MMLP) projects and the dedicated freight corridors (DFC) networks would pave the way for our country to reduce our logistics costs from 14% of GDP to less than 10% of GDP and to improve our global ranking in the Logistics Performance Index (LPI). These initiatives that aim to seamlessly connect and bring the various project planning and execution bodies together would further strengthen India’s competitiveness in the manufacturing and exports sectors in the next 10-15 years.

Our journey has only just begun. We have come a long way and have a long and arduous journey ahead. However, the intent and direction are very clear, and the benefits would follow in the years to come. All in all, this is the best time to be a logistics and supply chain professional and be a part of this evolutionary and exciting journey.

Corporate India Purposeful requires a Sustainability Agenda

Corporate Sustainability in India is not sustainable, especially in its current state of awareness with the key decision makers in the higher echelons of the corporate world. Contrary to the general belief that corporates choose to merely comply, we are witnessing increasing number of corporates resolving to incorporate sustainability in their business. This growing intent is not adequately supported by the conviction that Sustainability can make a material impact on both the Business financial results and on the environment. Through this article, Capt. Tapas Majumdar, Founder Director, The Sustainability Practitioners makes his case on the Business and Environment impact of Sustainability.

GROWTH of Sustainability this far is largely driven by investors and regulators. This is especially true for those doing business with EU, who are currently leading the change. There is a definitive shift; if the CEO of BlackRock, Larry Fink, annual letter to CEOs is anything to go by. Larry acknowledges that the events of 2020 and the need for companies to transition to a net-zero economy and that throughout 2020, investors invested 96% more in

Capt. Tapas is the founder of The Sustainability Practitioners, an enterprising startup that is engaged in Sustainability Reporting and related activities. He is a senior Sustainability professional and an entrepreneur. He adds 25 years of industry leadership experience to the table coupled with his value system from the army tenure. Key competence areas include Sustainability Reporting (ESG), Board Evaluation, Corporate Governance, Independent Director, Business Start Up and Business Closure.

sustainable assets, over 2019. The stellar rise in the number of ESG funds in India and globally, is another strong indicator of the definitive shift of investments and regulations towards ‘Sustainable Businesses’.

There are a growing number of countries outside the EU who are picking up the clue and have put in place their own Sustainability agenda and frameworks, like, China, Singapore, South Africa, UAE, Australia and New Zealand and India, to name a few. Sustainability has decisively moved from ‘Nice to Do’ to a ‘Must Do’, we now need to move towards a more purposeful and impactful oriented sustainability agenda. It is now that companies can lead the change rather than trailing the change and stay ahead of the curve because we are already seeing sustainability impacting business.

Material Impact Point 1:

“Sustainability is impacting business already. It is not about your product or service being Environment friendly, it is about the way you manufacture and / or deliver your services.” Tesla was removed from S&P 500’s ESG index in May 2022. The regulator explained that Tesla’s “lack of a lowcarbon strategy” and “codes of business conduct,” along with racism and poor working conditions reported at Tesla’s factory in Fremont, California, affected the score. Tesla shares fell 6% and it looks like they will close year 2022, 30% lower. ExxonMobil, in the same period, was preferred due to its improved performance on Sustainability parameters.

Material Impact Point 2: “The

quality of your sustainability report is assessed by the impact of your sustainability practice and the data points are collected not just from within the company, but external sources as well”. Speaking of Business impact, sustainability practice was always understood to be practiced by your company. While this still stays relevant, those whom with you do business with are also increasingly getting roped in defining your sustainability practice, and it is impacting your business. The point in case is Adani Ports and Special Economic Zone Ltd. The company had a commercial contract with the Government of Myanmar for developing some of their commercial ports. With the military takeover, regulators in various geography discouraged business with Myanmar due to reports of human rights violation. Many companies, including Adani Ports and Special Economic Zone Ltd., were impacted. Adani Ports and Special Economic Zone Ltd., was removed from the ESG listing by the regulator. Adani Ports and Special Economic Zone Ltd. experienced an exodus of investors in the run up to the expulsion, and they saw a dip of 7% in their share that took nearly a quarter to recover. Additionally, they had to exit the investment and had to write down of appx. US$127 million.

Material Impact Point 3:

“Sustainability has decisively moved towards inclusion of those whom you do business with. The quality of your Sustainability practice will allow you a premium with regulators, investors, suppliers and customers. Leading the change will make your business more resilient.” All Birds, a company listed in the USA, that manufactures shoes, adopted ‘Sustainable Manufacturing’. They choose to manufacture their shoes using marina wool that used renewable and natural sources for manufacturing. While lifestyle revolution was focusing on

clothing, shoes however was not keeping up, which was their opportunity. All Birds, through inclusion of sustainability in their business strategy, not only got the focus back on shoes, they also created a niche segment of high end “Sustainable” shoes. Since listing in 2019, All Birds had lost 75% of its market cap, and had never made a profit since its inception in 2015 till early 2022. However, through all its turns, All Birds never saw a slump in demand on either side of the Atlantic, including in Australia and New Zealand and has already gone through five rounds of funding till date. It continues to remain investors preferred stock.

Material Impact Point 4:

“Sustainability is a Strategic Function and influences strategic outcomes that relate to profitability, continuity and decisively announces the responsible credentials of your business with respect to the environment.” While investors and regulations are the key drivers of the sustainability efforts globally, the main beneficiary is your business itself. The main reason why you should engage in Sustainability Practices is for your own business growth. The compliance and branding necessarily needs to be a subset of this. Heineken sets the right example of how a company can benefit from sustainability and they achieved this much earlier in 2015. From responsible sourcing from local farmers in Africa to reduced energy consumption and increased use of renewable energy and inclusion of circular economy in waste disposal is a good example of a company integrating sustainability in deriving profitable, equitable, inclusive and responsible growth. Material Impact Point 5: “A going

concern already has an ESG footprint. The key is to align it with the profit motive in an environmentally responsible manner. It is not the big thing that matter, it is the smaller things that are the gamechanger.”

ORIENTING SUSTAINABILITY FROM BUSINESS PURPOSE

Sustainability needs to be aligned to business. This starts with a serious introspection of the risks and opportunities (and I emphasize opportunities) the business faces currently and in the foreseeable future. This is done through a material mapping activity. All aspects of risks and opportunities to the business must be identified and then plugged into E, S and G categories, for further consideration of risk mitigation and opportunity maximization. Your business is a going concern, so it has been dealing with risks and opportunities in its normal course. One of the earliest published material map that gave a clear linkage to business was that of Nestle1. Though not mandatory to publish, the company did publish the material map. This brought to light the clear thinking within the company and the linkages to business. Improving ESG performance can also help lower operating costs. There are a number of ways ESG can help lower operating expenses. ESG often focuses on reducing energy consumption, which can help companies save money on utilities. Gazeley is a leading developer, investor and manager of European logistics warehouses and distribution parks with a 17 million sqft portfolio concentrated in the strategic logistics markets of the UK, Germany, France and the Netherlands, in addition to its operating portfolio, which is 98% leased to blue chip customers such as Amazon, UPS and Volkswagen. The design integrates ESG factors in construction of the logistics warehouse. In 2020, GLP, investor and developer of logistics warehouses and distribution parks, announced the delivery of the first net zero carbon development to be officially verified as Net Zero carbon for construction in line with the UKGBC Net Zero Carbon Buildings Framework Definition. Overall, the design has resulted in a 25.8% reduction in embodied carbon compared to a standard logistics building. They achieved this through a combination of initiatives that included roof top solar power generation and ergonomically designed workplaces. These, in turn, reduced the energy bills, reduced waste, and improved productivity. The occupants enjoyed the benefits of a reduced operating cost at greater productivity.

With the right and well planned ESG implementation strategy, the impact on cost of operations can even exceed 25% and that is significant. In addition, ESG emphasizes strategies to reduce water and raw material usage. As these resources become more expensive, ESG can help companies save money by eliminating waste and improving resource efficiency. ESG is GOOD for Business. Early adoption of ESG, especially for startups can be the difference between surviving and thriving.

In conclusion, I would say that to be in control of your sustainability agenda, is the best way to maximise from it. To maximise, it necessarily needs to purposeful. Sustainability strategy is made at the corporate level, however the success of it is measured at the impact level. Sustainability practice of your company must align to business and environment goals and ensure a transparent and verifiable method for stakeholders to validate. The marketability of such document then becomes incidental and not core, paving the way for business continuity and greater acceptance as an environmentally friendly company.

The opportunity for getting a head start is NOW.