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August 30, 2007

Green Outsourcing: Companies Demanding More Environmentally Sound Suppliers
    by Anne Moore Odell

Brown-Wilson Group's newest "Black Book of Outsourcing" reports that businesses are including more environmental factors when choosing suppliers. -- Companies, shareholders and other stakeholders are asking for suppliers to follow stricter environmental standards. The Brown-Wilson Group, an outsourcing industry consulting firm, finds that corporations are shifting their responsibility for environmental concerns to the supply chain in their "Black Book of Outsourcing: 2007 Green Outsourcer Report."

The report was written after an independent study of outsourcing industry decision makers and analysts with a survey of 120,000 outsourcing users. In 2007, for companies choosing to use a supplier for the first time, 43% included green factors in their decision making process for choosing suppliers. Overall, more than 88% of executives said that the environmental commitment of suppliers would influence their outsourcing selection process.

"Global enterprises are increasingly focusing on the impact of their business on the environment, which is creating a new green responsibility for the organization's suppliers," said Doug Brown, Partner of Brown-Wilson Group, Inc. and Co-Author of "The Black Book of Outsourcing".

"This new expectation is prompted by internal and external opportunities for environmental compliance with the goal of a zero environmental footprint that the outsourcing buyer transfers operationally to their outsourcing vendors," Brown added.

Brown-Wilson credits the pressure from investors and consumers on public companies for more environmental accountability. This pressure is then extended from companies to their suppliers. Unfortunately, it seems that private companies are not considering greener outsourcing at the same rate as publicly traded companies. Brown-Wilson's research found that over 94% of executives from publicly traded companies are planning to add "green" clauses in their renegotiation processes, compared to only 36% of privately owned companies.

The report states, "Financially, investors that purchase stock in green outsourcing companies and their clients believe these companies will be successful in the long term, which will cause the stock price to go up, so they can sell the stock at a higher price and make money. Socially responsible companies can gain a competitive advantage over their peers through cost reductions, quality improvements, increased profitability and access to new and growing markets. Environmentally responsible companies also have less risk of environmental liability, which could have a major impact on future stock prices."

Suppliers are facing many environmental issues including energy consumption, waste disposal, recycling, and the use of hazardous materials. Developing countries such as India and China are facing the environmental issues on a large scale, as more outsourcing moves to developing markets that have less restrictive environmental laws or little enforcement.

Almost 25% of companies are asking their vendors to reduce their carbon footprint to have zero impact. Furthermore, 40% of companies are expecting suppliers to develop new green technologies, products and services, which reduce wastes, save energy and increase efficiency

Interestingly, only 7% of those surveyed plan any increase in passed-along costs from their vendors for being more green or providing green services.

Brown-Wilson's report lists the top 50 green suppliers in eleven divisions: Technology, Business Process, Financial & Accounting, Facilities Management, Call Centers, Human Resources, Supply Chain & Logistics Services, Document Process, Knowledge Process and Customer Relationship Management.

The Brown-Wilson report ranked Accenture & Accenture HR, CSC, Hewlett Packard, SAIC, Logica CMG, IBM Global, Pitney Bowes, UPS Supply Solutions, Johnson Controls, and Unisys as the top 10 green vendors.

"There's still a very short list of outsourcing firms who are making the grade as good stewards of the planet with significant implemented ecological commitments and dedication to environmental responsibility," said Wilson.

The Brown-Wilson Group offers 12 steps to develop a green outsourcing initiative at the end of their study. Beginning a green outsourcing initiative starts with a commitment by the company to contract with green suppliers when possible, and the Group suggests, involves close monitoring and evaluation of the program.

Many US- and European-based suppliers already have policies in place to help protect the environment, Brown-Wilson reports. Yet there are a large number of offshore companies that will need to change their behavior to stay competitive, they also note. Suppliers from developing countries will need to respond to companies demanding more environmentally sound practices. The question becomes, how can suppliers become green while not significantly increasing costs?

Looking at how a company manages its environmental performance is possibly a good indicator of how the company is managed overall. The report concludes, "We believe that if management cares about the environment, it is culturally disposed toward caring about other things, including employees, shareholders and corporate governance."

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