Sunday, January 17, 2010

Walking the Talk: Patagonia’s Sustainable Supply Chain

S&P companies are making great gains in sustainability reporting. The number of S&P 100 companies producing sustainability reports with significant performance data increased by more than 30% in 2009, according to a report from the Sustainable Investment Research Analyst Network (SIRAN), a working group of the Social Investment Forum (SIF). Of these companies, many have adopted the Global Reporting Initiative (GRI) as a framework for reporting.

Surely, tracking and reporting this information using a widely accepted methodology makes companies more mindful of their environmental and social impact. It also increases their accountability to investors, consumers and competitors. But do these reports facilitate significant, business-driven progress toward more sustainable, less harmful practices? Are these companies actually more sustainable, or are they just protecting themselves from the risk of public disapproval? These questions are harder to answer.

Let’s take Patagonia, an outerwear company headquartered in Ventura, California. Patagonia is a fantastic example of a company that has differentiated its product and connected with new market segments by focusing sourcing and production to use sustainable materials. Although Patagonia is a private company, the outdoor gear leader has gone above and beyond reporting requirements, making sustainability an appealing trait in all its products. The company’s value proposition embodies this mission: make the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis. By communicating both its strengths and areas for improvement to consumers that share its passion for the environment, Patagonia has earned the trust and loyalty of a generally skeptical consumer base. Further, Patagonia’s consistently impressive revenues are indicative of its brand loyalty, even in a recession, and its operational excellence is an example for companies worldwide.

So how does a company like Patagonia go about integrating environmental into core business processes to ultimately benefit the bottom line and its community? From the inside-out. The company has developed an internal management system that values the advancement of human rights and environmental sustainability. Patagonia engages its suppliers through training and capacity building, continuous assessment, and a practical online reporting system. By developing self-sufficient factories that share Patagonia’s ideals, the company hopes to bring value to an efficient supply chain that bolsters its brand equity.

Many managers struggle to incorporate sustainable practices since the savings are less visible or quantifiable than say, quarterly earnings from sales. Patagonia has created a culture that thrives on creating sustainable business value that benefits the company, its community, and the environment.

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