A paradigm shift in total cost of ownership: from procurement to product innovation
Companies are increasingly working with their entire value chains to lessen environmental impacts across the product life cycle. According to recent CDP data, 77 percent of Global 500 companies responding to CDP said they engaged with their suppliers on climate change strategies in 2016, up from 67 percent in 2013. Their responses also indicated that 58 percent of the Global 500 engage with consumers on climate change topics, as their consumers are demanding environmentally sustainable products and services.7
The following examples, taken from company disclosures to CDP in 2015, show how sustainability has become a necessity for businesses to satisfy increasing customer interest.
General Motors has invested $7.4B to research and develop future generations of electrified vehicles, “to develop and bring to market affordable products that incorporate technologies to displace petroleum with biofuels and electricity, improve fuel efficiency, reduce emissions, improve vehicle safety, and provide additional value and benefits to our customers.
Praxair, the industrial gas maker, has invested heavily to meet customer demand for products with a lower carbon footprint. In 2015, its new eco portfolio—applications that offer customers environmental benefit—accounted for 32 percent of sales, or more than $3 billion in revenue.
Alcoa discusses how “our customers are increasingly asking for innovations and products to enhance their energy efficiency and reduce the CO2 emissions associated with the usage of their products.… As a result of increased customer demand for energy efficiency, our Engineered Products & Solutions business group signed a number of valuable contracts throughout 2014, including a $1.1 billion 10-year supply agreement with Pratt & Whitney for enhanced, energy efficient jet engine components.”
Walmart’s suppliers report savings of $199 million through emissions reduction projects.
Unilever has made cumulative cost avoidance and savings of over €400m through eco-efficiency measures in our factories since 2008.
10% of electricity globally goes toward powering the entire IT ecosystem— including data centers and communications networks. Moonshot line of servers is part of a growing class of servers called Extreme Low Energy (ELE) servers or micro-servers. These server modules can support new Web-scale workloads, but use much less electricity and take up less space. Together, these innovations lower TCO by 15 to 75 percent.
In addition to multinationals, the U.S. government is integrating sustainability considerations into its value chain to run a more efficient budget. By applying the DoD draft guidance, Lockheed developed an in-orbit space servicing solution that extended the life of existing satellites by several years, saving $2.4 billion over 10 years. Over $2 billion are direct cost savings to the DoD, mainly the result of re-examining the materials used in satellites and rockets. By reducing the manufacture and the number of launches of satellites, a Lockheed Martin solution can greatly reduce the costs of operation and deployment as well as the societal/environmental impacts, while maintaining the resiliency of its constellation of satellites. On a per-satellite basis, the proposed space servicing solution has a return on investment of 274 percent.
In March 2015, the White House issued Executive Order 13693 to cut the U.S. government’s GHG emissions by 40 percent over the next decade from 2008 levels. This could save taxpayers up to $18 billion in energy costs as the government raises the share of electricity it consumes from renewable sources to 30 percent.
As more businesses and government departments choose to look at their value chains to better assess environmental risks and costs, we are witnessing the emergence of a smarter approach to business—one in which companies have a clearer understanding of how environmental factors translate into financial returns.
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