Product Sustainability Isn’t a Cost. It’s the Fastest Path to Margin Growth

During a masterclass called “Decarbonize by Design: How Product Sustainability Fuels Business Growth”, Neil D’Souza, CEO of Makersite, interviewed David Linich, Sustainability Principal at PwC US. Digging into PwC’s “State of Decarbonisation” study, this white paper debunks the myth of sustainability being just a costly and painful exercise. 

Unlike what is reported by the media, firms are making some real progress in carbon emissions reduction and are also profiting from it. Moreover, product data is playing a key role in turning decarbonisation from a risk into a business opportunity.

The Unexpected Truth: What the Data Actually Shows

• Sustainability is shifting from a reporting obligation to a core driver of business value;
• Scope 3 emissions are more valuable than your CFO thinks;
• Product data is worth up to 25% revenue upside.

Everyone Thinks Sustainability Is Dead. 4,000+ Companies Say Otherwise

News headlines often report companies pulling back on sustainability commitments or net zero targets. Yet, PwC tells a different story. In its “State of Decarbonization” study, the firm surveyed 4,163 companies to assess their climate commitments and progress towards them. 

Contrary to the common narrative, PwC found out that 37% of surveyed companies are increasing their climate ambitions. Only 16% of respondents are dialing their commitments back, half of which are merely recalibrating timelines to achieve their carbon reduction targets. This just shows a more realistic approach rather than a lower climate responsibility. Furthermore, PwC reported a ninefold increase in the number of companies that have set decarbonisation goals over the last 5 years.

Another major finding was that products marketed with sustainability attributes led to up to a 25% revenue upside. This could be due to different factors such as applying price premium to low-carbon goods vs carbon-intensive products, sales increase driven by consumers’ trust, or new selling schemes (refurbishment, takeback).

“So this moves from, hey let’s report because there’s a lot of scrutiny on this topic to okay, what can we do to drive business, and I think that’s a fundamental change.” Neil D’Souza, CEO of Makersite

The Hidden Revenue Engine Lurking in Your Scope 3

Scope 3 emissions are the elephant in the decarbonisation room for any company. For this reason, their reporting could feel overwhelming. According to PwC, only 54% of companies are on track to reduce their Scope 3 carbon footprint. However, this figure would change if the remaining 46% of surveyed firms appreciated the financial advantages of tackling their value chain emissions. Scope 3 emissions include energy, fuel, waste and other elements that carry a cost attached to them. Therefore, driving them down will unlock margin opportunities. 

Among companies pursuing Scope 3 targets, PwC observed a trend in disclosing more categories, thus indicating an improvement in carbon accounting capabilities. For instance, enterprises are learning how to measure use-phase emissions (category 11). Besides being hard-to-decarbonise, this category significantly contributes to the climate footprint of organisations across different industry sectors. On the other hand, when it comes to another heavy-carbon category such as purchased goods and services, PwC’s research shows that most companies engage suppliers at a very basic level. The lack of a high-level supplier engagement is another indicator of companies missing out on Scope 3-related business opportunities. To capitalise on these, organisations should invest in segmentation, co-innovating, incentives schemes, etc.

“I take that one of the big drivers for Scope 3 decarbonization is counterintuitively not saving the planet but revenue and margin growth. And I think this is a good thing because when I started in this career my boss told me our job is to make the most sustainable products in the world that can be made.” Neil D’Souza, CEO of Makersite

Why Product Data Is Your Newest Profit Lever

Scope 3 emissions have always been seen as an accounting nightmare because they’re beyond an organisation’s control. Nevertheless, companies do have control over their product design. The latter influences the raw materials used to make a product and therefore who supplies those materials. In other words, there’s a direct link between product design and Scope 3 carbon emissions.

Harnessing intelligent tools, firms can identify carbon hotspots and inefficiencies along their product value chain. This translates into lower emissions and costs. On top of that, gathering accurate product data allows firms to build powerful assets such as life cycle assessments (LCAs) and environmental product declarations (EPDs). Accordingly, organisations can support their climate-friendly claims without incurring any greenwashing risk, thus retaining their customer base and attracting new clients.

“As we looked at the levers that companies were pulling to drive down scope 3 emissions, I thought we were going to see the most predominant one being something like supplier collaboration. But it turns out the number one lever is product sustainability.” David Linich, Sustainability Principal at PwC US

Your Data Isn’t Broken – Your Org Is

Missing decarbonisation targets is not the only source of headache for sustainability leaders. Limiting margin compression from tariffs is probably the main focus of any organisation at the moment. This obviously can affect priorities in terms of supplier choice. Not to mention the series of conflicting regulations to comply with such as extended producer responsibility (EPR), REACH, RoHs, and so on. Being able to factor all these in is paramount to make sustainability profitable. As suggested by PwC, the only way to achieve this is to have a strong tech and data foundation.

A key issue raised by PwC is that a lot of companies are using a skunk approach to product sustainability. Specifically, product data lives in silos across engineering, procurement, compliance, and sustainability teams. This forces companies to walk a tightrope, with decisions made in the dark. Fixing this requires centralising product and supply chain data as well as enabling real-time collaboration between functions. To overcome these challenges, firms could harness a platform like Makersite that merge all data into one place. Additionally, this AI-enabled tool lets companies fully understand their data, thus ensuring an optimal decision-making process.

“A typical company that I talk to is telling me the majority of their top customers are reaching out to them and asking for sustainability-related data and are encouraging them to set targets and to make more progress.” David Linich, Sustainability Principal at PwC US

Why Manual LCA Will Kill Your Climate Strategy

As mentioned earlier, conducting an LCA can add business value to your decarbonisation strategy. Nonetheless, if it’s done manually, this exercise can be time-consuming as it involves the collection of an enormous amount of data. This is particularly true for large enterprises managing thousands of stock keeping units (SKUs). That’s where a digital twin can make a huge difference. Tapping into this technology, organisations can perform real-time analysis on multiple product versions in minutes vs months, thus overcoming the LCA’s scalability bottleneck.

Barco case study

Barco, a global tech, was spending lots of time and money reporting SKU-level environmental data as these were siloed and scattered across their supply chain. To address this challenge, Barco tapped into Makersite’s automated Life Cycle Analysis (LCA) and Product Environmental Footprints (PEFs). Thanks to these smart tools, Barco could consolidate their data as well as filling any information gaps. Besides complying with EU taxonomy reporting requirements, the company implemented more targeted eco-design principles across their product portfolio. This led to the achievement of a third-party validated carbon neutral label.

“To calculate products’ carbon footprint without full material declarations, you could create parametric models. But unfortunately there’s nobody else that’s doing this besides Makersite, so it’s a very hard thing to do and we build specific AI models to be able to do this.” Neil D’Souza, CEO of Makersite

What To Do On Monday: Your Action Plan

Here’s a roadmap you can refer to for reaping the benefits of decarbonisation.

1. Build your climate governance.
2. Change your capital allocation:
   1. embed an internal cost of carbon into your budgeting;
   2. ring-fence CAPEX for the initiatives needed to achieve your net-zero targets.
3. Engage your stakeholders more effectively.
4. Embrace product-level sustainability: as outlined above, this is the profitable frontier of decarbonisation. Fixing your product data isn’t just good practice. It’s an easy way to leverage new revenue streams, boost value chain resilience, and future-proof operations.

“You need to have the business case, you need to evangelize it, and then you need to repeat the process as you continue. If you don’t have your business case in place and you don’t have a strategy of how you’re going to implement it, nothing ever happens.” Neil D’Souza, CEO of Makersite.