Comparing the Manufacturing Industry Overall to Manufacturers in the Dow Jones Sustainability Index Whether a manufacturer is in the early stages or well on its way to incorporating environmental sustainability into its business, it's clear that sustainability means change in the way manufacturers design, source, make, and deliver their products.
Sustainability is also integral to a company's financial performance; for several years, IDC Manufacturing Insights has compared the financial performance of manufacturers in the Dow Jones Sustainability World Index (DJSI) against the financial performance of more than 800 manufacturers worldwide tracked in our Global Performance Index (GPI). We've consistently found that manufacturers in the DJSI are more profitable than their peers in the GPI.
For our most recent analysis, we've conducted the review in a slightly different way to better track sustainability performance of a specific set of manufacturers over time.
- First, we've used the list of those companies that were in the DJSI as of October 1, 2009 rather than October 1, 2010. The difference between those lists is fairly small, but it allows us to have a year of financial data after the companies were already in the DJSI. We believe this gives us some indication of whether or not companies are able to sustain the financial benefits of environmental sustainability.
- Second, because we wanted to focus in on a longer term perspective, we've tracked only the subset of those companies that are in both IDC's GPI database and the October 2009 DJSI.
While the manufactures (and small set of retailers) that are in the DJSI still maintain their profit advantage, the gap is well of its peak in 2006 (see the Figure below).
Sustainability Adoption Increases Among Manufacturers
We could attribute this closing gap in financial performance somewhat to the impact of the recession, when companies that were already fairly sustainability mature decreased new investments or had already achieved cost savings in earlier quarters. However a larger factor may be that sustainability is increasingly being adopted across the board in manufacturing. In fact, SAM (the manager of the Indexes) commented in its most recent DJSI review that companies that were deleted from the index were very close to achieving best-in-class results with regard to sustainability in their respective sectors.
For manufacturers, many of those first sustainability steps forward are achieved with projects that yield cost savings together with environmental sustainability improvements, such as consuming less fuel or lessening the need for materials that are both expensive and hazardous. This would mean the benefits of those projects would contribute to profit improvements fairly quickly, and this may be what we're seeing in our figure as an indicator that sustainability is increasingly just another fact of life for business.
A few more data points to consider in the manufacturers and retailers that make up our sustainability subset of 129 companies:
â- Only 9 companies were new as of Sept 30th 2009
â- Slightly more than half the companies were also in the DJSI on September 30th 2002
â- Asset oriented manufacturers (primarily chemicals, pulp and paper, and metals) and technology oriented manufacturers (high tech, semiconductor, and consumer electronics) are equally represented segments at 30 manufacturers each, outnumbering brand oriented, engineering oriented, and diversified manufacturers.
More Manufacturing Benefits from Progress in Sustainability
While our figure only highlights the profitability advantage, we also find plenty of examples of manufacturers that have seen the following benefits from sustainability initiatives:
â- Increased innovation and the development of new revenue opportunities or market niches
â- Cost savings and productivity improvements by reducing waste and inefficiencies in the use of materials, energy, and water
â- Greater confidence in regulatory compliance data and processes, with visibility and access to regulatory data and more automated documentation
â- The ability to respond rapidly to unforeseen market shifts, or sudden regulatory changes, while maintaining market share
Sustainability and Compliance - Changing the Minimum Threshold
Hopefully, you noticed we reference compliance benefits as a result of a greater sustainability focus, and we believe the two topics - compliance and sustainability - go hand in hand. A company's ability to comply with regulations and customer mandates should be an important component of sustainability for manufacturers. We also see the connection as a way to ensure that sustainability runs deep in an organization and into its day-to-day operations and decisions, including compliance.
But the two topics aren't exactly the same. We are concerned that some manufacturers can look good from a sustainability perspective, but their compliance (including product or process safety) may only be superficial. And while we've always considered compliance as a minimum threshold or a "license to operate" for manufacturers, sustainability may be the next "license to operate" and a competitive barrier to entry, especially for publicly traded (and closely scrutinized) companies.
Advancing the Sustainability Conversation from Cost Savings and Efficiency to Revenue and Opportunity
At some point, we won't need to talk about sustainability as a separate topic. It will be part of business discussions every day, from a top-line and bottom-line perspective.
And as manufacturers embed sustainability into their businesses, we expect how they prioritize IT investments and use their IT assets will need to adapt as well. Over the next month, we'll publish a series of blogs that will review the ways in which manufacturers can approach environmental sustainability with IT, throughout the organization and the value chain, in products and processes, and even with compliance. We'll also compare the gaps between sustainability leaders and followers.
Let us know your thoughts on the connection between economic and environmental sustainability. Leave me a note in our IDC Insights Community or email me at email@example.com.