It is well known that consumers are making more sustainable choices. Deloitte found that ethical and sustainability issues remain a key driver for almost a third of consumers, who claim to have stopped purchasing certain brands due to related concerns. But it is also now clear that investors have woken up to the fact that sustainability makes good business sense. One only has to look at the value of Tesla to see how much value investors place on the companies that offer consumers a clear conscience.
According to global professional services company EY, investors increasingly believe companies that perform well on environment, social and governance (ESG) are less risky, better positioned for the long term and better prepared for uncertainty. And institutional investors are now aligning their portfolios toward better ESG performance, in anticipation of a shift to a more inclusive capitalism in which societal need and business opportunity converge. No wonder Bloomerg has predicted that ESG assets may hit a staggering $53 trillion by 2025, representing a third of global assets under management.
The pressure on multinationals is rising fast. Investment managers such as BlackRock, as well as financial regulators such as the U.S. Federal Reserve, are now pushing major companies to disclose emissions across their supply chains and draw up plans to decarbonize their operations. Of course, businesses are also now expected to track Scope 3 emissions, encompassing indirect emissions including shipping and transportation.
With more attention from stakeholders and increasing demands for transparency, it is clear that there will soon be far less tolerance of token efforts to improve sustainability performance. Businesses are having to rethink basic questions about how they will compete and, in some cases, redefine their entire strategy for the new business environment. They are also recognising that they need to back up any bold commitments with credible plans for reducing emissions.
Logistics teams have a considerable role to play. They are now being tasked with building an accurate picture of their transportation carbon footprint so they can identify areas for improvement. Carriers are increasingly feeling the heat as a result. According to Maersk, around half of its 200 largest customers have set – or are in the process of setting – ambitious science-based or zero carbon targets for their supply chains. The major carriers recognise they must respond to the needs of their biggest customers and they are taking action.
Maersk itself has announced plans to introduce a fleet of 8 large ocean-going vessels to operate on carbon neutral methanol. It has also called on the International Maritime Organization (IMO) – shipping’s global regulator – for a carbon tax on fossil fuel-based marine fuels to accelerate the transition to cleaner alternatives. The global trade association for ship operators, the International Chamber of Shipping, (ICS) has since followed suit and the IMO is said to be mulling a tax on carbon emissions from ships which could raise $1 trillion over the next three decades.
Crucially, the carriers are themselves becoming more transparent. The major shipping companies have made emissions data available, some of them providing data across all transport modes and carriers. While experts believe there is still significant room for improvement in the accuracy of the data, some shippers are now able to set a baseline and begin to identify ways to challenge their emissions footprint.
The importance of emissions data cannot be overstated as it allows logistics teams to formally incorporate sustainability into their freight procurement strategies and weigh up any trade offs in terms of cost, capacity or performance. And thanks to AI and Big Data technologies, the number crunching can be done quickly and effortlessly.
Shippers are already opting to use different vessels, different transport modes and different carriers entirely based on carbon emissions data. Some are even opting to buy their own fleet of low-carbon trucks. Emissions data is making carriers accountable, ensuring the cleanest carriers are rewarded for their efforts and heaping more pressure on the broader shipping industry.
There is no limit to the amount of data that can be harnessed. Ultimately shippers will be able to leverage emissions data from each individual voyage to build an exact picture of their carbon footprint, taking into account fuel consumption and ship utilization. Meanwhile carriers will be able to leverage the vast array of data at their disposal to optimise shipping routes, prevent supply chain disruptions, better understand vessel fuel consumption and avoid perilious weather conditions that could slow down journeys.
While challenges remain, 2022 looks set to be a key turning point for the logistics industry. And with sustainability now at the top of the corporate agenda, there is a tremendous opportunity for logistics teams to add value to their organisation. Indeed forward-thinking logistics professionals recognise that by taking the lead they will gain much more than a clear conscience – they will also be among the leaders of tomorrow.