When should logistics and supply chain leaders begin to take definitive steps to “green” their operations? Based on the results of a global survey of more than 250 C-suite executives, that time is now.

The survey, conducted by Ernst & Young LLP in collaboration with the Economist Intelligence Unit, was designed to show the increased level of awareness as well as the operational changes taking place as more companies go “green” on a global basis. For example, according to the survey, more than half of companies (52 percent) report that they are implementing some form of green-minded supplier qualification. An additional 39 percent say they have such plans in the works. By adding the two figures, this means in the very near future, 91 percent of firms will evaluate their suppliers based on environmental sustainability practices.

Now, consider the fact that all 257 of the executives in the survey represent companies with revenues of more than U.S. $1 billion. These are large companies, likely to be drivers within their supply chains. It is clear from these results that environmental sustainability is fast becoming a critical element in supplier selection and performance evaluation. In short, suppliers need to begin thinking “green,” and quickly, or they chance risking their relationships with prime customers.

Whether or not one believes that global warming is a threat to the planet, it’s clear that consumers, in tandem with governments and even investors, expect businesses to become more environmentally conscious.

Already, consumer electronics in North America feature labeling such as Energy Star. Developed jointly by the U.S. Department of Energy and the U.S. Environmental Protection Agency, Energy Star ratings provide consumers with an objective gauge of a product’s energy efficiency. Meanwhile in Europe, the industry-funded Green Dot program (originally, Der Grüne Punkt) provides certification to consumers that a product’s producer chooses optimal packaging and contributes to the cost of recovery and recycling.

On U.S. highways it’s becoming impossible to miss the growing number of higher-mileage cars, hybrids, hybrid SUVs, and flexible fuel pickup trucks—as well as the surging inventories of unsold traditional heavy vehicles seen on lots. It’s becoming more and more apparent that products that can demonstrate genuinely green attributes are beginning to enjoy commensurately higher consumer attention and significant market premiums.

So, the marketplace itself is already on a trend to green. However, regulators have also been busy on the green front. European Union-based businesses are already experiencing an ever-expanding range of environmental legislation. This includes carbon limits and emissions trading requirements, energy efficiency standards, hazardous materials limits and handling regulations, as well as recycling targets. Authorities in the U.S. have already signaled the end of the incandescent light bulb, and companies should be on the alert for even more potentially stringent legislation.

Similarly, look to investors who now view failure to address sustainability as a source of potential business risk. They, in turn, will be ratcheting-up the pressure on management teams to provide credible and tangible evidence of the pursuit of environmental responsibility. There are even investment funds that target and therefore reward sustainability-focused companies as well as a growing number of non-governmental organization (NGO) watchdogs seeking to uncover organizations that are not abiding by the new rules of green.

But if the aforementioned trends aren’t enough to stimulate action among supply-chain participants, then consider the highly-visible strides of a handful of industry leaders. It might be a good time to start thinking seriously about green initiatives when:

• A leading global retailer announces that this year it will begin using a green scorecard as a key element of supplier selection—and will begin providing consumers with green ratings for electronics.
• A major foods company begins using spent coffee grounds and biogas—gases produced by the biological breakdown of organic matter—from wastewater to fuel its boilers in the U.S. and Europe and then enlists its entire supply chain to help reduce energy consumption and cost within a global logistics initiative.
• Household name consumer and commercial electronics companies begin implementing supplier certification programs that include significant green standards for power consumption, waste products, hazardous materials, shipping characteristics, and packaging.

These are unmistakable signs of leading companies—all global brands—taking a keen interest across a range of environmental sustainability issues. Others are following. And what they’re recognizing is that end-consumers and other stakeholders assess a product’s environmental footprint based on the entire supply chain operation. This means newly environmentally-focused companies will in turn look to their suppliers as collaborators in the rush to minimize carbon, wastewater, packaging, hazardous substance, and related footprints.

There is no question that leading companies are poised to turn the greening of their supply chain into major initiatives. Respondents to the survey were asked to evaluate the degree of risk or opportunity across a range of attributes relating to their supply chain and procurement operations. While the survey demonstrates that executives see both significant risk and opportunity they seem more focused on the latter.

Two findings are particularly telling. Seventy-one percent of executives view sustainability, green, and carbon-related issues as a source of brand/reputation opportunity. Similarly, 63 percent see these areas presenting the opportunity for significant growth. In other words, companies believe that if they are able to achieve genuine standing in terms of green operations and products, they can reap significant marketplace benefits.

But now, turn these ideas around and recognize the implication for supply chain members. Consumers, regulators, shareholders, and other key stakeholders are growing increasingly sophisticated. Green washing—the practice of claiming a product or process is green when it really isn’t—won’t hold water for long in today’s environment.

This means that the heavy hitters within any product’s supply chain will most likely be turning the sustainability spotlight on the operations of their upstream suppliers. How green an end-product can be is governed by the greenness of the individual supply chain members needed to produce that product.

Therefore, the penultimate assemblers or name brands may be looking to pull green subcomponents from their suppliers. Unfortunately the individual suppliers who don’t fit the mold—those who don’t follow state-of-the-art green practices—will either need to shape up fast or be culled from the herd. So there the risk is real: the slowest to act or the furthest behind may find themselves at a significant disadvantage.

Another surprising finding is that, as opposed to being a source of added costs, exactly half (50 percent) of the responding executives see green initiatives as an opportunity for cost savings. This is a view that is undoubtedly built on a handful of realizations. For example, a huge element of greening operations is the pursuit of energy savings. Indeed, in an era of surging energy costs, any initiatives that can pare utility bills or cut transport costs are likely to have a direct impact on the bottom line.

Of course, as legislation such as the EU emissions trading scheme becomes more widespread, there will be even more incentives to cut energy usage and therefore carbon emissions costs. Undoubtedly, international corporations are already beginning to worry what the full extent of their supply chain’s total emissions might be—if only to better gauge the extent of their potential regulatory agency-enforced carbon trading compliance costs.

Similarly, when members of a supply chain begin collaboratively thinking green in the product design phase, significant cost efficiencies often arise. Consider the fact that makers of television sets, PC monitors, and even cell phones and MP3 players often enter into early discussions with component makers to optimize design and packaging for overseas container shipping. They collaborate in the design phase to minimize hazardous wastes—sometimes even pooling R&D resources relating to alternative materials—and address eventual recycling/recovery issues.

Also, a focus on total carbon footprint and total energy and related costs—particularly amid historic highs for energy costs—may begin to alter existing practices. What is the carbon footprint of a China-based supplier of heavy components using coal to generate electricity and then factoring in the emissions and costs of shipping? Or, which is less expensive: shipping produce from faraway Africa or relying on nearby greenhouse growers? The answers from a carbon footprint and energy cost perspective may no longer be so obvious.

The survey also looks at the broad range of green initiatives underway at major corporations. Today, 58 percent of companies are already pursuing waste/packaging minimization, with 33 percent planning to implement such programs. Broadly similar numbers are phasing out hazardous wastes from their products and related processes or implementing energy efficiency improvements to their facilities (also known as estates).

Of particular note to members of supply chains, over half of companies, 54 percent, are seeking to optimize their logistics operations—with an additional 38 percent planning to do so. Such changes will undoubtedly exact an impact on suppliers.

Perhaps most on point, as mentioned earlier, is that over half of companies, 52 percent, say they are implementing some form of green-minded supplier qualification. An additional 39 percent say they have such plans in the works. In other words, if your company is an intermediate member of a supply chain and you have not been approached regarding your performance versus green issues—most likely you will be soon.

So, can companies afford to play a game of “wait and see”? Might hesitation risk not only a damaged reputation but potentially the loss of customers to faster-moving competitors? Or alternatively, could genuinely green operations become a source of cost savings, product differentiation, and growth?

It doesn’t matter where you’re seated within a supply chain and it won’t matter whether you view the demands of sustainability as a source of risk and cost or as an opportunity. As a member of any supply chain, it is only a matter of time before you are called upon to demonstrate your progress relating to green initiatives. Suppliers that aren’t green, and that cannot demonstrate that commitment—or move too slowly—are placing future sales and customer relationships at risk.