Perhaps the most well-known examples of improving product provenance are Fairtrade coffee, conflict-free diamonds or sustainably sourced palm oil.
By cleaning up their operations, transforming their supply chains and enacting environmental, social and governance (ESG) initiatives, these industries managed to leverage the valuable intangible asset of honest and upfront product provenance.
Why does product provenance matter?
Product provenance describes each of the steps it takes to produce, say, one bag of rice. This pathway includes where and how the rice was grown, along with how it is dried, packaged and delivered to shop shelves.
Along with revealing to consumers how a product is made and distributed, the act of building a transparent supply chain can create valuable industry expertise for brands. Showing product provenance – and proving it – is also crucial for companies when applying for approvals and certifications (such as Fairtrade International). This, in turn, helps build more trust between the brand and the consumer, boosting sales and company value.
When the Fairtrade International certification initiative was founded in 2004, revenue from companies with the accreditation was about $1.05 billion. By 2018, the total market of Fairtrade-certified goods had ballooned to nearly $11.75 billion.
This certification is just one part of a larger trend of companies choosing to adopt sustainable business practices in response to demand from an increasingly aware public.
Even major brands such as Unilever, Starbucks and Dell are committing to building greater transparency in their supply chains. They are also proudly displaying their efforts to consumers in a bid to differentiate themselves in the market.
A cautionary tale
While there are many upsides to improving the sustainable provenance of products, keep in mind the effective management of intangible assets is just as important.
For example, Nike in the early 1990s came under heavy scrutiny for its sweatshop labour and poor working conditions across its vast supply chain. In short order, Nike’s stock dropped by nearly 15% and the multinational struggled to shake the media image that it was putting profits ahead of worker conditions.
After much soul-searching, and prompting by US lawmakers, Nike finally acted to improve the transparency of its supply chain. Although Nike chief executive Phil Knight told the New York Times that the human rights accusations didn’t have a material impact on the company’s sales, it took nearly a decade for the brand to recover from the whirlwind of reputational damage.
With the emergence of social networks, such a crisis would likely do much greater damage to Nike’s brand (and revenue) if it were to occur today. With a few clicks of a computer mouse, a single negative story about product provenance can speedily gain momentum and erode decades of brand value.
The bigger picture
The lesson is that by implementing solid ESG practices, cleaning up supply chains and being honest about product provenance, a brand can generate more shareholder value while also making the world a better place.
In other words, business success is no longer about being the cheapest or most convenient option. Reports from Morningstar, NYU Stern Centre for Sustainable Business and Barclays Research all found that companies scoring high on ESG factors outperform those that fall short. Companies cannot afford to be indifferent to environmental, social and governance practices.
Honest product provenance and transparent supply chains can contribute significantly to building a valuable constellation of intangible assets.
Such intangible assets can provide a company with a significant competitive advantage while having a material impact on a company’s bottom line – but only if the risks and opportunities relating to these assets are proactively managed.
As originally published in IAM
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