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ESG Makes An Impact on Logistics

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In Drive Toward Sustainability With These Three Tactics on the ECA Blog, we explored the benefits of a sustainable action plan in logistics and ways to get started today. In this post, we more closely examine a related topic - Environmental, Social, and Governance criteria (or ESG). ESG criteria are standards for a company’s sustainable operations and are especially relevant for investors who desire to make socially conscious investment decisions. 



What is ESG?

Where sustainability is an over-arching goal of meeting our own needs without compromising the ability of our future generations to meet their needs, ESG criteria provide standards to make sustainability measurable and reportable in the categories of Environmental, Social, and Governance impact. When a company determines its Sustainability Plan and its short and long-term strategies, it becomes focused on socially conscious investments and begins to drive sustainable performance. In turn, it sustains long-term systems through social and economic resources, not just natural resources. ESG helps make a Sustainability Plan actionable and broader sustainability goals achievable.

Environmentally and socially conscious investors use ESG data to measure sustainability and its impact on society through cash flow, sales, market share valuation, and performance metrics. Environmental data comes from energy consumption, water availability, waste and pollution, and the efficient use of a company’s resources. Social data includes the human aspects, such as employee engagement, supply chain management, labor, and human rights.  


The History of ESG

ESG policies and practices can be traced back to the 1950s and 60s when unions invested pension capital in affordable housing and health facilities. Some argue it began even earlier when faith-based organizations began to shun commodities and industries that conflicted with their beliefs. However, the 1960s were a turbulent social and political upheaval period, creating divergent but enduring movements, and ESG policies began to plant their seeds. By the 1970s, the United States marked the first Earth Day when Wisconsin’s Senator Gaylord Nelson rallied 20 million people to protest environmental destruction. Shortly after, the Clean Water Act was passed.  

Over the decades, corporations have evolved their business strategies to absorb other focus areas besides profit maximization. 


Why follow ESG Standards?

CEOs around the globe see sustainability as the base for growth in innovation and competitive advantages in their industries. They believe in positive returns when environmental and social factors drive leadership.  Take a look at mega-corporations, such as Wal-Mart and Amazon, who (amongst other actions) invest heavily in electric and autonomous vehicles for deliveries. Following ESG principles as a basis for growth is not just for the Amazons of the world. Companies of all types and sizes may benefit from the principles of ESG. 


Good corporate governance with a focus on ESG addresses long-term risks and offers transparency and diverse management (including oversight by board members and investors). It covers management structure, policies, and standards and avoids ethically questionable procedures. As a result, when applying ESG policies, companies see long-term, sustainable growth that generates increasing financial returns in hopes that their efforts improve our way of life. 


ESG and Sustainable Practices in Logistics

Advances toward sustainability and adherence to ESG criteria are making an impact on the logistics and transportation sector. Advances include:

  • Autonomous vehicles

  • Fuel economy

  • Robotics

  • Route optimization

  • Warehouse automation, design, and location planning


Another aspect of a sustainable logistics plan is reverse logistics. In our blog post Shippers - It’s Time to Rethink Reverse Logistics, we at the ECA describe the positive cascading effects of sustainable action utilizing ESG criteria.  “Besides the advantages of recovering asset value and minimizing waste, a sustainable reverse logistics strategy helps alleviate government fines for improper waste disposal, improve public perception of the shipping company, and reduce the risks of litigation, customer dissatisfaction, and potential regulatory action. Moreover, as more and more consumers become engaged in making socially and environmentally-conscious decisions about their purchases, information about the impact of their purchase on the environment and society is becoming more relevant. Smart retailers with a sustainable reverse logistics strategy are improving their supply chain transparency in response to this trend. Supply chain transparency allows consumers to make more educated purchases that are socially-conscious and environmentally-friendly.” Further, this evolving shift toward sustainable operations that follow ESG standards can go on to improve working conditions, diversify the workforce (including more female drivers), and update health and safety initiatives.  


Optimistically, the transportation and logistics sector is adapting. ESG considerations are increasingly prioritized in the fundamental decision-making by logistics owners and their teams. While the momentum is building, will it continue? Questions and challenges remain, including the Covid-19 pandemic. Such challenges can cause our ESG focus to temporarily shift. However, investing in sustainability helps us continuously discover ways to reduce the risk to our planet, our economy, and humanity. Change is constant. We do know ESG investing is not going away, so as stated by Mark Twain, “Plan for the future because that’s where you’re going to spend the rest of your life.”

Contributing Authors

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