Digital Transformation: A Force Multiplier for Sustainability
By James Sullivan, Stephanie Overby | 13 min read
Unilever has long been at the forefront of corporate sustainability efforts, ranked number one in the 2021 Sustainability Leaders report produced by GlobeScan and the SustainAbility Institute – a position it has maintained for eleven years in a row. In 2020, the multinational consumer packaged goods company announced a new set of commitments designed to achieve net-zero emissions by 2039 and a deforestation-free supply chain by 2023.
But beneath these seemingly simple promises are challenges as knotty as the tangle of roots on the floor of a tropical rain forest.
Take deforestation: a complex problem and one that Unilever and the processes it uses to make its products have exacerbated for years. Palm oil, a key ingredient in products from food to household cleaners to cosmetics, continues to be a major driver of forest loss, animal extinctions, and climate change.
More responsible harvesting of the fruit from the oil palm tree is critical for manufacturers like Unilever that use the raw material. But tracing the sourcing and movement of harvested palm oil is tricky. Beyond that “first mile” of the supply chain on the plantation, harvested palm oil can be mixed with physically identical alternatives that may or may not be from sustainable sources.
The dilemma Unilever faces is universal: it’s how to reduce the complexity and cost of sustainability while flipping it into something that actually helps the business innovate and become more profitable.
“Technology is a force multiplier for sustainability solutions,” says John Frey, chief technologist for sustainable transformation at Hewlett Packard Enterprise.
Digital is the one lever an organization has that is both dramatically increasing in power and decreasing in cost. But many companies have not yet brought technology fully to bear on sustainability. Instead, they focus on digital transformation of existing processes, describing it as a mandatory journey but with no clear end point.
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Instead, sustainability and digital transformation have been pursued independently in most organizations and never the twain shall meet. Frey says he often asks digital transformation leaders what their strategy is for sustainable transformation. Most don’t have a good answer. “You have a sustainability organization and a technology organization and often those two don’t talk to one another,” Frey says. “I can’t tell you how many times I introduced a leader of sustainability to their own CIO and said, ‘You two should work together.’”
For companies trying to become sustainable, this convergence is aimed not simply at digitizing or automating business processes to make them more cost effective – IT organizations have been doing that for years. It’s about using the cost-cutting and process-rethinking powers of digital to make the business more sustainable and profitable.
I can’t tell you how many times I introduced a leader of sustainability to their own CIO and said, ‘You two should work together.’
- John Frey, chief technologist for sustainable transformation, Hewlett Packard Enterprise
The combination is crucial because no one is cutting companies any slack when it comes to making financial sacrifices in the name of sustainability. Indeed, investors have said they will not tolerate more than a few percentage points of profitability declines in the name of sustainability, as a recent PwC report noted.
Those organizations that do not incorporate digital into their sustainability efforts will find themselves hamstrung. It’s quickly becoming clear that without digital, it’s impossible to fully operationalize a sustainability strategy. Those organizations simply can’t push goals like tracking the sourcing of supplies, the carbon spent or saved on transportation and resource use, and the opportunities for savings, down in their day-to-day operations and decision-making.
The devil and the details
As Unilever can attest, the pathways to greater sustainability can be complex. That’s why it has put digital at the core of its sustainability strategy.
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Indeed, Unilever recently announced what may be a solution to greater palm oil traceability and transparency in the form of GreenToken blockchain technology. In a proof-of-concept project in Indonesia, Unilever’s suppliers created tokens – essentially digital twins – that capture the unique attributes linked to the palm oil’s origin and mirror the material flows. Those tokens, on top of a blockchain network, enabled Unilever to track, verify, and report in near real time the origins and journey that tanks of crude palm oil took through a long and complex supply chain from plantation to mill to refinery and into the company’s products.
It’s the latest digital building block in the company’s tech-enabled approach to ensure a more traceable and transparent supply chain, Unilever’s chief procurement officer Dave Ingram explained in the company’s announcement of results from the pilot.
As Unilever found, digital provides new levels of visibility – into equipment usage, energy, and material flows. It increases information transparency, allowing companies to gather and analyze data quickly to gain valuable insights that are key to deploying sustainable business models. It can enable greater efficiencies and, in turn, cut waste (for example, in energy, water, and materials) and costs.
In many enterprises, sustainability is itself a siloed organization within the business. More leaders are recognizing that these two areas should go together.
“Increasingly, successful organizations are realizing that both digital and sustainability are organization-wide responsibilities that need to be deeply embedded into the overall corporate strategy and vision, value chain, and business operations,” says Wesley Spindler, a managing director and global lead for sustainability and circular economy at Accenture.
Data is the superpower
Deploying technologies such as digital twins, machine learning, and the Internet of Things (IoT) – especially when used in combination – means organizations can use data more intelligently to drive both profitability and sustainability. Data can also enable trust through transparency, allowing organizations to track and monitor business practices beyond their own borders.
Take the fashion industry, one of the largest contributors to the global climate crisis, accounting for up to 8% of global greenhouse gas emissions. Much of this impact occurs at the raw materials stage of the supply chain, like when cotton is farmed or trees are cut down to create viscose, a silk substitute made from wood pulp. When brands source these materials, they often have little to no visibility on the environmental impact involved in acquiring them.
The fashion company Stella McCartney piloted a digital tool that assesses the environmental risk of different fabrics (and their sources) in relation to factors such as air pollution, biodiversity, greenhouse gas emissions, and forestry and water use, and provides risk reduction actions. Using the tool along with its sustainability strategy, the company identified that its cotton sources in Turkey were facing increased risks from water and soil loss. As a result, the clothing designer doubled down on investments in local farming communities and focused on water management and soil regeneration.
One critical aspect of intermingling sustainability and digital technologies is to monitor, measure, and have the right metrics.
- Yugal Joshi, partner, Everest Group
This kind of project represents a tangible potential of a digital-sustainability approach. “One critical aspect of intermingling sustainability and digital technologies is to monitor, measure, and have the right metrics,” says Yugal Joshi, partner at strategic research firm Everest Group.
While one fashion company illustrates the value of its digital-enabled tool, most organizations do not have good deep dive data on their greenhouse gas emissions and cannot build drill-down dashboards. As a result, Joshi says, many end up focusing on trivial matters rather than transformational ones. For example, a manufacturing company digitally transforming only IT adds little incremental value toward sustainability when compared with the digital transformation of manufacturing processes through digital twins, smart factories, smart supply chains, and more software-driven physical engineering.
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And the associated data that provides visibility into processes and the use of resources will be valuable for another reason: regulatory compliance. As business leaders consider their digital-sustainability strategies, the impetus for action continues to mount from public sector players. Increasing scrutiny of environmental, social, and governance (ESG) reporting and the creation of sustainability frameworks and metrics underscores the critical role of data – underpinned by technology – in sustainable transformation. In the United States, the Securities and Exchange Commission recently alerted public companies that it has proposed rules requiring them to report their greenhouse gas emissions in their periodic reports.
Globally, the International Sustainability Standards Board plans to give investors a baseline of sustainability disclosure standards, creating a single source of ESG truth for the capital markets. As investors push for more detailed information about sustainability-related risks and opportunities to guide their decision-making, companies will need to embrace the digital technologies to enable such reporting while also driving their own sustainable transformations.
“To do this, organizations must integrate sustainability data reporting into existing systems, building sustainability into the heart of the organization,” says Spindler. “Overall, what this all demonstrates for both digital [transformation] and sustainability is that to achieve their greatest benefits they need to be built in from the start rather than bolted on.”
The push for circularity
Or consider the Circular Economy Action Plan, adopted by the European Commission in 2020, which introduced a combination of legislative and nonlegislative measures to rethink how products are designed, promote circular economy processes, encourage sustainable consumption, and lessen waste. “Digital solutions play an important role in the transition to a circular economy,” Andrew Morlet, CEO of the Ellen MacArthur Foundation, says in a statement. “They enable businesses to embed circular practices across their operations, from designing products to reduce waste at the outset, to tracking the lifecycle of the materials they use.”
Colgate-Palmolive is an example of a company that picked up on this theme. The company introduced a new high-density polyethylene (HDPE) toothpaste tube early in 2022, the first to be recognized by external recycling authorities as recyclable. It has committed to eliminating a third of new plastics in its products and packaging and to achieve 100% recyclable, reusable, or compostable packaging by 2025.
And Colgate-Palmolive has adopted a digital tool that analyzes data up and down the value chain, according to its chief sustainability officer. The tool calculates costs for treating or disposing of post-consumer waste and moves to optimize material choices. The results of this analysis can help the company redesign its products to waste less. For example, a toothpaste brand manager can have visibility into the full product lifecycle and make design changes to reduce waste and decide how to lower the costs of the downstream reuse and recycling systems.
Beyond systems thinking to systems action
It’s not enough to focus efforts internally. For companies with supply chains, effective digital-sustainability strategies extend to suppliers and business partners. Emissions occurring in the value chain can account for as much as 80% of emissions across most business sectors, but historically they’ve been difficult to quantify, demanding much deeper data analytics and exchange of information with external partners.
Recognizing this problem, the World Business Council for Sustainable Development created the Partnership for Carbon Transparency (PACT) with the goal of enabling confidential and secure exchanges of granular, verified product emissions data across organizations. In late 2021, PACT introduced a framework for accounting and exchange of product life cycle emissions developed by 35 industry stakeholders. In April 2022, PACT announced the first exchange of standardized emissions data, which it said marked a key milestone in the development of an open, decentralized network infrastructure to support peer-to-peer sharing of data across value chains and industries.
Cross industry efforts are essential. There are also sustainable moves that individual enterprises can make in their own value chains.
It’s not enough to focus efforts internally. For companies with supply chains, effective digital-sustainability strategies extend to suppliers and business partners.
Schneider Electric launched its Schneider Sustainability Impact program in 2021 to measure and report on its progress along with its quarterly financial results. The company, which has aligned industrial processes with data capture and analysis necessary to achieve sustainability goals, is tracking not only its internal efforts, but also the impact of its customers and its suppliers. It has a goal of reducing 800 million metric tons of CO2 emissions for its customers by 2025. At the end of its 2021 reporting period, the company had achieved a 375-million metric ton reduction.
Schneider Electric helps its customers operate more sustainably through its digital transformation efforts. As Rik De Smet, a digital transformation consulting senior partner at Schneider Electric, recently shared in a blog post: “Examining an industrial organization through the lens of sustainability requires a closer look, not at the plant assets themselves, but at the function of those assets. Digital transformation allows a deeper view of how core assets are behaving.”
Deeper data capture and analysis lets Schneider and its customers understand not just whether a machine is working, but also how often a motor stops and starts and why a certain valve opens or closes, helping them make decisions with sustainability at the core. As De Smet explains, it might be possible for a motor to run half the time with little impact on process output and quality rather than having it run 24×7 just because that’s the way it was done before.
At the same time, Schneider is aiming to help its top 1,000 suppliers (representing around 70% of Schneider’s upstream carbon emissions) cut their carbon emissions in half – a more ambitious goal of which it has achieved just a 1% reduction to date. Schneider is providing those suppliers with digital tools and resources to help them quantify their carbon dioxide emissions and then use that data to set goals and strategies for reduction. The company also requires its suppliers to provide information that helps Schneider increase its own efficiency in planning, waste reduction, and energy usage and, in turn, gives its suppliers information to help them improve their inventory control. De Smit writes, “These types of digitized exchanges help assure that all parts of the supply chain are working together in a fashion that bolsters sustainability on each side.”
Digital technology also vastly improves monitoring and reporting on sustainability measures across the value chain. With IoT-connected devices and monitoring software, companies can track materials and equipment performance to report on sustainability initiatives with more accuracy and to build on efforts to optimize them.
Scaling digital technology adoption across value chains will be important. Acting alone, a company may not get strong ROI from digital-sustainability initiatives, says Joshi of Everest Group. “If an enterprise thinks broadly and includes its partners and other value chain elements,” he says, “scaling digital adoption will provide higher returns.”
The adoption also has to cover more than operations and the supply chain, to encompass product design and go-to-market functions, and “everything an enterprise does should embed digital tech with a focus on driving sustainability,” Joshi says.
People, planet, profitability
Most organizations accelerated their digital transformation initiatives over the last two years as a matter of survival. To advance long term, however, they will need to put the planet and its people at the core of their digital plans.
Neither digital transformation nor sustainability can succeed without the other. “Digital and sustainability will increasingly become the twin drivers of business competitiveness in the coming years,” says Spindler. Digital transformation – and digital data – are necessary to operationalize a sustainability strategy.
Unless companies embed sustainability in day-to-day decision-making, sustainability won’t take hold. “Building a road map to scale, one that drives profitable sustainability, requires technological solutions and disruptive innovations,” says Spindler. If companies don’t integrate their digital and sustainability efforts, their customers, consumers – and even the planet itself – will have something to say about it.
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