BrazilSustainable footprint design: Six guidelines for assessing value creation
The emergence of sustainability is leaving almost no corporate footprint untouched. But how can sustainability best be integrated into footprints such as production sites, supply chains or ecosystem networks? Tim Ballenberger from EFESO Management Consultants outlines six guiding principles.
For a long time, the topic of sustainability played only a secondary role in the footprint design of many companies, for example based on the evaluation of location decisions according to criteria such as workforce, corruption or inflation. However, such an approach is neither holistic nor systematic, but selective. There is a danger that certain sustainability aspects will be recorded but not actually used for decision-making.
Significant added value only emerges when the issue of sustainability is integrated into footprint design with a holistic perspective. “Holistic” in this case means not only looking at the triple bottom line, i.e., the impact on the environment, society and the company. In addition, the principle of “Double Materiality” should be taken into account, as it is also implemented in the EU’s Corporate Sustainability Reporting Directive (CSRD).
Double materiality integrates two perspectives:
Outside-in approach
The outside-in perspective focuses on the risks related to sustainability aspects that a company faces. This includes a description of the most important dependencies in this area and how these risks are managed – for example, with regard to the specific consequences of climate change for the company.
In addition, the perspective takes into account the framework conditions for corporate action (e.g. political regulations, environmental risks, availability of raw materials) as well as social trends such as diversity, migration or demographic development.
With the “outside-in” findings, companies systematically record risks and opportunities in all phases of the footprint design process. They also use it to derive the key sustainability-related issues that have a significant impact on their business. A typical example is the evaluation of possible future sites according to their potential for the extraction and/or use of renewable energies. The site that performs best can prove to be a key factor in climate-neutral production and in achieving corresponding competitive advantages.
Inside-out approach
Conversely, the inside-out perspective sheds light on the company’s impact on environmental and sustainability aspects. Relevant topics can be, for example, its “impact” in terms of biodiversity, environmental pollution, corruption or working conditions. This creates transparency about the impact of the company’s own activities – and how these can be steered toward a positive impact.
A good example in the context of footprint design is the improvement of a company’s own carbon footprint. Three approaches often prove particularly effective here: First, selecting regions with a high potential for renewable energy for energy-intensive technologies. Second, reducing greenhouse gas emissions in the transportation and distribution network.
Third, transitioning to a circular economy. By returning products from the customer to the manufacturer, individual components can be reused after reprocessing, sometimes even entire products. This not only leads to advantages in material and energy costs. It also reduces the company’s carbon footprint, as fewer native raw materials are needed.
The six guidelines
Due to these framework conditions, sustainability is playing an increasingly important role in footprint design. Companies that have not yet addressed the topic in detail can use the following six guidelines for orientation:
1) Modulate the footprint design
Breaking down a complex task into manageable subtasks helps achieve results. Therefore, break down your sustainable footprint into the following sub-areas at the outset. These footprints must be successively coordinated and adjusted to each other based on the results achieved:
- Manufacturing: where is what produced with which technologies?
- Logistics: how are the finished products delivered to customers?
- Service: which services are provided where and how after the initial sale?
2) Define the sustainability focus
Depending on the industry and products, companies assess the relevance of sustainability topics and goals differently. In the steel industry, for example, using green energy to reduce CO2 emissions might be a high priority. In companies in the consumer goods industry, the focus might instead be on meeting high labor standards, while a manufacturer of chemical products is particularly concerned with the disposal of factory waste.
A materiality analysis helps identify and prioritize these issues.
3) Evaluate the financial impact of risks and opportunities
Those who evaluate the financial dimension of risks and opportunities support their decision-making in designing the sustainable footprint with business-relevant figures. In this way, the potential impact of sustainable action is integrated into the business case discussion. In the process, the relevant issues should be defined and financially evaluated using an agreed logic.
Only through this financial evaluation can the consideration of potential risks be effectively incorporated into the decision-making process.
4) Think beyond the boundaries of your company
Designing the Footprint opens up the opportunity for you to define the right framework for positive change in your value creation ecosystem. As a participant in a local ecosystem, more can be achieved together than alone. Chemical parks or logistics hotspots are a good example of this: waste materials from one operation serve as raw materials for others.
A similar example is the Port of Antwerp. As a European hydrogen hub, the port will support the local chemical industry on its way to carbon neutrality.
5) Formulate the circular economy strategy
The circular economy is a critical factor in addressing the climate crisis, and it can also be financially rewarding for companies. However, effectively implementing a circular economy strategy requires adapting your own value network. This usually involves all phases of footprint design – for example, if the production network has to be realigned in line with the changed value creation processes. Or if a backward-looking supply chain is to be set up for the return of used products.
Therefore, ideally, write your circular economy strategy before assessing your company’s sustainable footprint. Depending on which circular economy strategy you pursue, you will also arrive at different results when adjusting your footprint.
6) Create a transformation roadmap
The transformation of a company’s (global) footprint usually requires serious cuts and realignments. Thus, an implementation does not work overnight. A roadmap with milestones and “step-by-step” measures that are as realistic as possible can simplify the path to the desired, ideal footprint scenario.
