Monday 22 April 2024

Federico Piro

Mideast companies find real value in environmental footprints

DUBAI, January 10, 2023

By Federico Piro

Footprint assessments have been a key tool for companies in the Middle East that are trying to understand the environmental impacts of their operations, value chains, and products or services.

They’re often used to assess multiple impact categories such as carbon emissions, water or land use, and resource depletion on the full journey from sourcing to manufacturing to use and disposal.

Large companies across the region rely on environmental footprinting techniques (including corporate reporting, life-cycle assessments, and environmentally extended input-output analysis) to back up sustainability claims and reporting, and the footprinting industry is growing as methodologies and standards proliferate. Growth is expected to continue as regulatory moves.

However, many companies find life-cycle assessments and other currently available footprinting techniques to be imperfect solutions. Companies need to choose from among many competing standards and techniques when estimating greenhouse gas emissions, for example. And those choices vary depending on the situation. They depend on whether the company is measuring its own footprint, that of the entire value chain, or trying to assess the environmental impact of a single product or broader portfolio. Worse, the end results often can’t be compared across competitors or product categories and result in data that is not useful for strategic decision-making. And different foot printing methodologies lack compatibility.

More troubling, the time and effort dedicated to backward-looking measurement can distract companies from focusing on the necessary transformation of the business to a more sustainable future. When they deploy footprinting without a clear view of strategic goals, companies waste an opportunity to spur innovation and improve the customer value proposition or to inspire levels of commercial excellence that enable them to outpace competitors.

A capability grows up
Many executives complain that in its current form, footprinting is becoming increasingly outmoded. Full assessments are time-consuming—often taking many months of manual work for detailed life-cycle assessments—and typically are unscalable. The analysis, which often covers only a portion of a company’s product portfolio, usually is divorced from the operational realities and day-to-day decisions that companies face.

Moreover, assessments are frequently a one-time exercise that needs to be updated every few years and often cannot be compared directly to competitor assessments, as methodologies can vary greatly.

The goal is to make environmental data on par with financial data to be used for day-to-day decision-making and reporting. Rather than estimating data across a product’s life cycle, for example, companies will receive upstream data directly from suppliers and in turn provide environmental data to their customers at the point of sale. Data collection and tracking systems will be scalable, dynamic, and fit-for-purpose—designed with the strategic imperative and commercial motion in mind.

In the future, there will be a blurring of lines across methodologies, with a need to slice data in different ways to answer different questions (such as looking at the carbon impact of a product across its life cycle for a product environmental label and looking at the carbon emissions of a company over the course of a year for reporting on progress on science-based targets). Critically, leaders will move from backward-looking measurement to forecasting and scenario analysis capabilities. Environmental data will be tracked through a tech infrastructure built on common approaches that enable high levels of comparability and calculate product or company footprint data at scale.

Getting there
That’s the quickly arriving future. As these capabilities swiftly evolve, winning companies will be those that set out to take full advantage even before a footprinting effort begins, using it as an opportunity to propel change at an unprecedented scale and pace.

For starters, they will differentiate by designing IT systems that serve their own specific operational and commercial outcomes. Going far beyond the step of measuring footprints, they’ll run an effective change management process to build the internal tools and capabilities they need and embed real-time environmental data into day-to-day decisions. Ultimately, what’s more, important than the data is how leaders use it to develop more sustainable products, meet customer needs, and enhance their value chains.

Success depends on leveraging data together with other capabilities, including commercial excellence, product R&D, pricing, and channel strategy, to create more sustainable and successful models. Without a clear plan to translate footprint data into customer value, it will remain largely an academic exercise. The best companies will establish a roadmap to use their data to inform transformation across the value chain, creating market demand and attractive commercial models.

Companies also will need to find ways to engage consumers through different value propositions. To that end, environmental impact data will allow them to provide consumers with facts on the impact of new products and to clearly articulate product benefits with a solid communications plan and marketing messages. But to advance to the next level, they also need to identify the right customer segments and the key issues for each, and to rely on the data for insights that will inform pricing and channel strategies.

And companies will need to create lower-impact value chains. After understanding how different packaging materials or different feedstocks provide lower-impact options, for example, building a successful sustainability strategy requires that companies engage with suppliers and develop the right commercial model, balancing cost and impact. These are moves that draw on a company’s cost management muscles as well as procurement and supply chain strategies.

As footprinting becomes more common, more complex, and more aligned with operations, winning companies will avoid the trap of focusing too heavily on the data instead of the end goals.

About the author: Federico Piro is Partner, Bain & Company, and Harry Morrison, Partner, Bain & Company.


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