In the 2022 European Logistics & Supply Chain Sustainability Report, GXO’s Chief Strategy Officer Neil Shelton explains why Environmental, Social and Governance, or ESG, matters to his company and its customers and how ESG is inextricably linked to technology in the warehouse. The report, a joint production of HFW and Panattoni in conjunction with Analytiqa, assesses ESG strategies and activities in the logistics and supply chain industries across Europe.
The report is based on primary research undertaken with senior executives across the European manufacturing, retail and logistics sectors and examines current dynamics, expectations for the future, legal and contractual perspectives and developments in warehousing and transport.
Read the interview with Neil Shelton and download the full report below
How does GXO approach ESG?
Being a new, stand-alone business provides a great opportunity. It starts with first principles. ESG really matters to GXO and it is driven from the top, down. Environmental, social and governance are important measures of how we deliver results. It matters to our 100,000-plus employees. It matters to our customers. And it clearly matters for our many other stakeholders. We need to be the employer of choice in our sector, but also it is really important for our customers, because we are a long-term partner for them, helping them deliver on a number of their own ESG goals.
For instance, we are able to resell approximately 97% of returned products and we divert less than 1% to landfills. That is the sort of benefit that we’re able to deliver for our customers — reducing their environmental footprint and reusing valuable inventory.
Almost half of manufacturers and retailers suggest linking executive compensation to ESG would improve sustainability for the sector.
Absolutely. GXO’s leadership and the Board have expressed their intention to integrate ESG-related performance into compensation and develop an ESG scorecard that will play an important role in this alignment. We want to be an ESG leader and setting public targets and linking executive compensation to meeting targets is an important way for companies to demonstrate that they are serious about ESG.
Our inaugural ESG report [published in April] highlights that we are continuing to show improvement. We delivered a 24% reduction in greenhouse gas intensity over the past year and we will look to improve on that and indeed drive towards our published targets.
How do you manage the complex ESG regulatory environment?
We have an ESG team here at GXO led by our Chief ESG and Compliance Officer Meagan Fitzsimmons with oversight from our Executive ESG Committee and the Nominating, Corporate Governance and Sustainability Committee of the Board of Directors. We engage with a number of external parties to ensure that GXO continues to meet or exceed all regulatory reporting requirements.
Our teams around the world focus on the various regulatory and operational aspects of ESG, including evolving legal requirements and industry best practices.
Being a new standalone company has given us a great opportunity to set the agenda, and it was really important for us to actively engage with ratings agencies such as MSCI early. They rated us AA in terms of their ESG metrics. That makes us the highest ranked global large-cap company within our sector.
How easy is it to collect data and understand your impact on sustainability? If you can’t measure it, you can’t improve it?
Collecting and synthesizing huge amounts of ESG data is one of the more challenging aspects of ESG. Like most companies, we are always looking for new ways to leverage data. We use several data collection systems and technology solutions and, for many years, we have had segments of our ESG data audited by a third party firm.
Focusing on data allows for greater transparency and accountability around ESG and also allows us to show our customers the concrete benefit of our solutions. For example: at one site for a consumer packaged goods company, we have delivered a 60% reduction in wastage relative to the situation before we took over their contract, achieving enormous financial and environmental benefits.
Other examples include operating Italy’s first carbon negative warehouse for another customer. Capturing the environmental benefits from all of these different solutions helps GXO in contract negotiations with customers who are looking to accelerate their ESG strategies, be it through the use of alternative energy sources or, increasingly, dealing with returns and reverse logistics because that’s also a critical area.
If you look across some key industries, about 25% of all returns go to landfills.
Who leads the discussions on ESG, manufacturers and retailers or their 3PLs?
Customers come to us for advice to help them achieve their ESG goals. This is now typically a top three ask for the companies that we are partnering with. It really is a partnership, and we’re working together to help reach environmental, social and governance targets; it is not one side or the other forcing the agenda. We can work with our customers and highlight “this is what we have achieved with a customer, this would benefit your business.” This gives us the opportunity to deepen our customer relationships. They also come to us with their own ideas that we implement and execute for and with them.
We take GXO’s benefits of scale and best practices, operating over 900 warehouses, to be able to offer solutions to a wider group of customers. A lot of our customers are very consumer-facing and they are incredibly focused on the perception of how they are dealing with the environment.
As a multi-country, multi-sector company, with such a wide base of customers, you have experience of managing varied ESG requirements.
Yes, but certainly there are increasingly fewer differences than you might imagine. The ESG agenda is gaining traction globally. Absolutely, the starting point today might be somewhat different in certain countries or certain sectors, but their upward trajectory is very similar.
We work with global companies, with operations in many countries, and it’s important for them to be recognised as being leaders in ESG. The trend is incredibly clear: ESG is being driven by large consumer-focused brands and by capital moving into and out of sectors. It is very clear that ESG-focused capital has been one of the largest sources of growth globally, and that trend looks set to continue.
How is the way that ESG is positioned in contract negotiations changing?
ESG is now one of the top requirements for every customer. We sign long-duration contracts with our customers. Go back 10 years, and ESG was far less of a focus. This increasing focus on ESG is a good thing – for our customers, our employees and our planet.
Defining technology, solving customers’ ESG requirements and also helping them grow efficiently are what customers are really looking for their logistics providers to do, but a lot of this is intertwined. For example, automation helps drive precision, efficiency and predictability, as well as employee safety.
Companies today are much more inclined to focus on ESG benefits than they were a decade ago and that will continue.
What are the main future trends you see in terms of ESG and the role 3PLs will be playing?
Future ESG trends will be supported by increasing amounts of technology to enhance efficiency, increase predictability and improve warehouse environments for workers by using more collaborative technologies to perform repetitive tasks. These technologies will allow our customers to reduce inventory and wastage and better manage returns.
For example, we are now marrying vision technology with machine learning and artificial intelligence to reduce the cost of reverse logistics. The cost is so high in some cases that companies simply don’t bother, and this activity is half as much outsourced compared to the industry as a whole, so if we can use more technology or software to drive down the manual level of activity required in reverse logistics, we will encourage more companies to outsource that activity, reducing landfill and over-manufacture whilst helping customers’ growth, giving them access to previously underutilised stock.
Technology is going to be really important in helping achieve a number of environmental benefits. Thankfully, we are in the midst of a J curve in the number of technologies available — both of a collaborative and more fixed nature in hardware and also importantly on the software side — to drive improvement.
Download the full report: European Logistics & Supply Chain Sustainability 2022