Best-practice governance driving better business outcomes for UPS
Tamara Barker, Chief Sustainability Officer of UPS, outlines the tangible results in efficiency and customer service that the company has achieved from a sustainability strategy that combines strong governance and investment in innovation.
As a large organization with a longstanding commitment to sustainability, how does UPS ensure a joined-up approach across the enterprise — including the finance function?
We have support and financial backing from the CEO down for our sustainability initiatives. And we have a very strong governance structure: we have a sustainability steering committee, which is led by four members of our management committee, with senior leaders from every function at UPS, including the CFO.
Below this, we have a sustainability leadership council, with representatives from every business function. From the finance team, we tend to have F&A professionals and financial controllers represented at those meetings. Our UPS Sustainability Ambassador program serves to educate and engage employees at all levels.
How important is it to engage the finance function on sustainability? Does the governance structure help to enable this?
Finance has historically been a strong partner for sustainability at UPS. Our previous CFO, Kurt Kuehn, was a major advocate. Following Kurt’s retirement, we’ve worked with Richard Peretz and his team to educate them about the importance of sustainability and continue the same advocacy on the finance side.
The finance team’s insight is valuable across a range of areas. There are some important considerations around return on investment (ROI) for sustainability initiatives, for instance. There needs to be an ROI for all of our capital expenditure, but we take a different measurement approach for some sustainability-driven investments. For select investments, we'll broaden the terms of the ROI and lower the hurdle rate, accepting a longer payback horizon.
What does the business case for sustainability look like at UPS?
To understand UPS’s approach to sustainability, it’s helpful to appreciate the scale of our business. Every day we handle an average of 19 million pieces. That adds up to 4.9 billion packages annually. Scale usually drives efficiency, so as we find new efficiencies, we create sustainability benefits at the same time.
Of course, it goes beyond that too: we see advantages for driving cost savings, revenue growth, strategy and competitive advantage. We find we're able to draw on our sustainability initiatives and strategy to attract a younger generation of employees too, as they often have a deep interest in these issues.
How has the combination of sustainability- and efficiency-driven thinking created value for the business?
In 2013, we began the initial stages of implementation of ORION (On Road Integrated Optimization and Navigation). ORION is a proprietary software tool that combines package detail and data with customized map data and telematics data from our vehicles. Using advanced logarithms, ORION determines the most efficient delivery route for a driver’s day.
This enhances customer service, because our delivery windows are more concise. But it also increases our efficiency dramatically. Now that we have ORION fully deployed, we expect to see an annual reduction of 100 million miles, and consequently 100,000 metric tonnes in CO2 emissions. Another step with ORION, which will be deployed in 2019, will further reduce the number of miles driven and the CO2 emissions.
How do you expect sustainability initiatives to continue generating business value over the next few years?
Now more than ever, we're seeing some of our large customers really galvanising and reaffirming their goals on sustainability, and looking to their suppliers like UPS to help them meet their goals and operate more sustainably — there is huge demand for sustainability-driven suppliers in the marketplace.
This reinforces the commitments we’ve already made to drive sustainability outcomes throughout our operations. Last year, we announced a bold target to reduce absolute greenhouse gas emissions 12 percent across our global ground operations by 2025. This means that even as our business grows and delivery volume increases, our overall emissions must decrease.
For a company with trucks and planes, the use of renewable energy is critical to limiting emissions. Our goal is backed by three supporting targets to spur the use of renewable fuels and technologies throughout our operations:
- By 2025, 25 percent of total electricity will come from renewable sources
- By 2025, 40 percent of all ground fuel will come from sources other than conventional gasoline and diesel
- Expanding our rolling laboratory of more than 8,500 vehicles used to develop and test low-carbon fuels and technologies. By 2020, a quarter of annual vehicle purchases will be alternative fuel or advanced technology vehicles.