Sustainability: A Product Life-Cycle Approach
A new approach to sustainability is emerging as consumer goods companies consider their total environmental impact—from growing raw materials to the consumer's disposal of their product. Sustainability is becoming a cradle-to-grave process and a powerful growth engine.
Every time we use a product—whether shampoo to wash our hair, detergent to clean our dishes, or soda to quench our thirst—greenhouse gases are generated throughout the value chain. Do consumer products companies consider consumers' emissions due to the product when they tally their greenhouse gases? Count their carbon credits? Or calculate their sustainability pledges? Not likely.
An A.T. Kearney assessment of the top consumer goods companies finds that while almost all companies worldwide (96 percent) evaluate ways to reduce their greenhouse gas emissions, only 63 percent work within their entire supply chains to do so, and only 21 percent embark on programs to lower the environmental impact associated with the consumer's use of their products. Rather than evaluating sustainability in terms of the entire life cycle of their products, companies generally stay within their traditional approaches, which focus mainly on internal processes such as manufacturing and logistics. Yet, we also found that in some categories less than 5 percent of the total impact of greenhouse gas emissions arise from these internal processes.
A product life-cycle approach to sustainability measures a company's total environmental impact—from raw materials, to production, distribution, consumer use, and disposal of the product by the consumer.
Today, it is becoming clear that companies must go beyond their traditional internal approaches and consider the entire product life cycle when measuring environmental impact. Future growth will depend on aligning with consumers' priorities. Companies are under pressure to create sustainable products, not only from consumers but also from governments, retailers and suppliers. As natural resources become scarce, companies must consider the long-term sustainability of their business models and broaden their approach to consider their total impact on the environment (see sidebar: Total Impact on the Environment).
As sustainability becomes a company-wide issue, leading consumer-focused companies are using it as a driver of change—to mobilize all functions around a topic that has the power to transform the business model and be a key pillar of future growth.
A New Approach to Sustainability
A traditional approach to sustainability concentrates mainly on manufacturing and logistics —reducing a company's environmental impact by improving production efficiency and optimizing truck loads. The end-to-end approach to sustainability considers a wider range of activities and makes cross-functional cooperation compulsory (see figure).
Supply. Within supply, the company examines how inputs are created. Were the agricultural products grown in a sustainable way, using water appropriately, and on land appropriate for the crop? Were animals raised in a way that minimizes their impact on the environment? Were chemicals processed in energy-efficient plants? Are materials used for the product environmentally friendly while still fulfilling product specifications?
Retailer distribution. Many companies consider outbound logistics, but there is a next step in the life cycle to improve upon: distribution and the retailer's impact on the environment in terms of energy and refrigeration. Pressure can be exerted on the major retailers all the way down to the mom-and-pop shops to ensure a minimal environmental impact.
Products that require electricity will have a larger CO2 footprint when used in coal-heavy China than when used in nuclear-friendly France.
Consumer use. Depending on the product type, the vast majority of environmental impact is incurred as the consumer uses the product. Food products are chilled and cooked, grooming products use heated water, and cleaning products use machines and hot water. While it may seem out of the company's control, how consumers interact with a product depends largely on product design and marketing.
Disposal. Influencing the consumer toward environmentally sound disposal practices can be done through choices in packaging types, weight, size, labeling and even external initiatives to increase recycling and reuse.
Thinking End-to-End: The Rewards
Considering a wider range of activities requires a larger investment of resources than a traditional approach to sustainability. Although there is more money involved, there are also more rewards. For one thing, the company now has a unique opportunity to examine its global impact across all categories and geographic regions. This can be powerful in standardizing a sustainability approach—not only can targets be set to maximize firmwide efforts, but also functions have to work together to develop mutually beneficial initiatives.
The following offers a brief discussion of the main advantages of the endto-end product life-cycle approach:
Identify drivers of environmental impact. Establishing a baseline is key to understanding what drives environmental impact, which will vary by category and geography. For example, products that require electricity will have a larger CO2 footprint when used in coal-heavy China than when used in nuclear-friendly France. It also helps to refine the options the company has in reducing its impact on the environment. It is a good idea to identify drivers that are within or outside of the company's direct control. For example, products that must be refrigerated throughout the value chain, such as yogurt, will incur a large portion of greenhouse gas emissions in the consumer-use phase, but the product could be stored in more energy-efficient refrigerators. Knowing this helps the company focus its efforts.
Understand environmental interactions. A product life-cycle approach increases awareness of the interactions of different environmental metrics. For example, a change in product formulation to reduce the amount of water in a product could increase processing and thus greenhouse gas emissions. Or a formulation change, such as making a quick-rinsing laundry detergent, could reduce both the amount of water needed and the greenhouse gas emissions created by wash cycles. A thorough examination allows a deeper understanding of the full implications of every decision.
Identify the future impact of consumer behavior. The product life-cycle approach identifies not only today's environmental impact but also the potential future impact, which means decisions can be more far-reaching. As portfolios change over time, both in terms of products and geographies, the major impact areas will shift. For example, as wealth increases in developing countries, more consumers may begin using disposable diapers, with a resulting increase in landfill waste. It is important to forecast where the future impact might be so that plans can be made to preempt the environmental impact.
Forecast external shifts. Companies that anticipate external market shifts will have time to refocus their environmental initiatives. For example, as the EU unites around higher rates of recycling through legislative changes, fewer company resources will be focused on recycling initiatives. However, other countries with less government intervention will need more private intervention to encourage higher levels of recycling. By understanding future trends, companies can avoid duplicating efforts and also locate areas where programs could have disproportionately large effects.
Turning Pledges into Targets
By using an end-to-end product life-cycle approach, companies get a clearer understanding of the actual impact they have on the environment. They can turn their sustainability pledges into business targets that can be implemented across the company ensuring that they can identify the drivers of sustainability and prioritize initiatives across the entire value chain all the way down to the consumer's use of the product. This way, internally, sustainability becomes a transformation driver, aligning the organization behind a single highly mobilizing goal. Externally, companies can move beyond the rhetoric to address their total impact on the environment.