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#SRI — 30.08.2018

How Socially Responsible Investment Builds Sustainable Supply Chains

A growing number of firms are incorporating SRI, including supply chain sustainability, into their investment strategies. And the benefits are becoming evident.

It’s been five years since the eight-story Rana Plaza factory building in Dhaka, Bangladesh, collapsed, killing over 1,000 and injuring 2,500 garment workers. The most disastrous accident in the history of the garment industry made headlines around the world and gave rise to serious ramifications on the global supply chain industry and mass market fashion clothing brands.

Further investigation by the media revealed the inhumane conditions that the owners of some mass market brands impose upon manufacturers in order to minimize costs and maximize profits. Such conditions ranged from human rights violations to environmentally damaging practices.

In light of the Rana Plaza tragedy, both public and private sectors across the globe have banded together to ensure that brands and supply chain companies conduct their business ethically and do not compromise social and environmental sustainability in favour of cutting costs and increasing speed to market.

Smart stakeholders

Consumers today tend to have an acute awareness of the importance of sustainability and will seriously consider the social and environmental impact before they buy a product or commit to a certain brand. A Nielsen report showed that 55% of online consumers across 60 countries say they are willing to pay more for products and services from companies that want to make a positive impact on society and the environment.[1]

A report conducted by EY and UN Global Compact revealed a parallel in the way shareholders evaluate their investments. In fact, 88% of the institutional investors surveyed stated that they would reconsider or immediately rule out their investment in a company if it did not address risks in the supply chain[2].

Retail investors have also followed suit and a growing number of financial firms have incorporated socially responsible investment (SRI) strategies into their offerings.

Investing for impact

On top of making a positive change in the world and improving a company’s bottom line, the benefits of SRI are becoming more evident. The University of Hamburg released a research piece aggregating over 2,000 studies on the correlation between sustainability and corporate financial performance, finding that around 90% of the cases showed a positive link between the two.[3]

Another study conducted by the Harvard Business Review[4] revealed that sustainability does improve financial performance by impacting the following:

1.    Innovation

2.    Operational efficiency

3.    Risk reduction

4.    Employee recruitment

5.    Engagement and retention

6.    Customer and supplier loyalty

7.    Competitive advantage

8.    Reduced cost of capital

9.    Improved marketing and sales

The bottom line

A growing number of investors are incorporating SRI, including supply chain sustainability, into their investment strategies. For example, US-based SRI strategies accounted for investments totalling US$8.72 trillion at the start of 2016 – about 20% of all investment under professional management and an increase of 33% from the beginning of 2014.[5]

Asian investors are well-positioned to allocate their funds towards SRI in the supply chain industry, especially since many of the world’s biggest brands base their operations here. With consumerism in the region showing no signs of slowing down, it is imperative for supply chain companies to ensure that they are compliant with global sustainability standards.

It is also important for companies to start looking at sustainability as a holistic combination of environmental and social factors, and not separately. For example, a survey conducted by Asset Benchmark Research showed that Asian corporates scored the highest on environmental responsibility in 2017 (a 20% jump from 2015) and the weakest on social responsibility.[6]

It is clear that while great strides have been made in terms of regulations and compliance, there is still much to be done until supply chain sustainability becomes a mandate and not an afterthought.

What investors in Asia can do to drive this initiative forward is to make sustainability an integral factor in their decision making process and allocate their funds towards SRI-compliant companies that are fully ethical and mindful about their impact on the environment and society, and are making a conscious effort to improve in this space.

[1] https://www.fungglobalretailtech.com/research/deep-dive-supply-chain-sustainability-strategic-priority-apparel-retailers-brands/

[2] http://www.ey.com/Publication/vwLUAssets/EY-the-state-of-sustainable-supply-chains/%24FILE/EY-building-responsible-and-resilient-supply-chains.pdf

[3] https://www.tandfonline.com/doi/pdf/10.1080/20430795.2015.1118917

[4] https://hbr.org/2017/09/how-to-quantify-sustainabilitys-impact-on-your-bottom-line

[5] https://www.cnbc.com/2018/04/27/social-investing-gets-a-boost-from-an-unlikely-source-activists.html

[6] https://esg.theasset.com/ESG/34530/where-esg-leaders-are-falling-short-

 

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