March 8, 2024Director of the MIT Global SCALE Network China Center, Dean of the Ningbo (China) Supply Chain Innovation Institute, Professor and Doctoral SupervisorGuo JiequnGuest on the 42nd episodeTsinghua Wudaokou Green Finance Lecture",around"Sustainable development, supply chain and corporate profitsThe lecture, themed "Sharing Insights," was hosted by Jiandong Ju, Chair Professor at Tsinghua University's PBC School of Finance and Director of the Center for Green Finance Research (CGFR), and was held online and streamed live across the entire network.
At the start of the lecture, Guo Jiequn pointed out that corporate investment in sustainable development and profit growth are not contradictory, as most people fear. From a supply chain perspective, companies that adhere to sustainable development are more likely to achieve long-term success in improving profits, reputation, customer and employee retention rates, and in a rapidly changing business environment.
Traditional cost-cutting methods for businesses include layoffs, using lower-quality materials, or relocating production to regions with lower labor costs. However, these methods fail to consider the sustainability of cost savings from the perspective of the business supply chain. These traditional cost-reduction measures often have drawbacks such as ignoring management decision-making errors, affecting business relationship maintenance, and leading to talent loss. Through case sharing, Guo Jiequn pointed out that supply chain management has become an increasingly important area for businesses to focus on in the post-pandemic era.Guo Jiequn stated that "sustainability," as the name suggests, is a company's ability to continue surviving without external assistance. Under the concept of sustainable development, companies should focus not only on economic vitality but also on social equity and the ecological environment—the 3Es. A survey of over 1,000 companies by the World Economic Forum and the Boston Consulting Group shows that sustainable development and corporate profits are not contradictory; rather, the pursuit of sustainability is a powerful way for all companies to reinvent themselves. Guo Jiequn then further demonstrated through a series of case studies that sustainable development and corporate profit growth are mutually reinforcing.Following this, Guo Jiequn shared how his company applies sustainability to its production processes. He stated that most companies currently operate on a one-way supply chain model, from material procurement, transportation, manufacturing, and distribution to sales to consumers. However, a sustainable supply chain must shift from a one-way model to a circular supply chain, where the final product is no longer discarded but recycled and reused. This initiative will help improve the availability of raw materials for businesses in the post-pandemic era and increase their resilience to supply chain disruptions, thus holding significant importance for enterprises.Guo Jiequn pointed out that Chinese companies with overseas operations especially need to pay attention to sustainable development and the application of ESG principles. The U.S. Securities and Exchange Commission (SEC) requires all listed companies to disclose information on their environmental impact assessments, and the U.S. has also strengthened its customs inspections of imported goods. As a result, more and more Chinese e-commerce companies with overseas operations are beginning to focus on the preparation and disclosure of ESG reports.He further pointed out that companies can enhance their competitiveness through the following three sustainability initiatives: First, extend sustainability methods to upstream and downstream trading partners, and ultimately design new, competitive business models. Second, take a long-term perspective and adopt expensive but sustainable operating methods to save significant costs. Third, adopt a gradual approach, starting with small-scale adjustments that can reduce costs and gradually expanding to large-scale adjustments. Guo Jiequn believes that with technological and social development, companies are shifting their focus from financial metrics (return on assets) to return on resources (3E). Furthermore, adopting sustainability initiatives can help companies avoid risks such as operational disruptions and limited competitiveness caused by pressure from government regulations and public opinion.Guo Jiequn stated that the supply chain plays a crucial role in enterprises' low-carbon transformation and sustainable development. Therefore, enterprises should integrate green concepts into the entire process of operation and management and vigorously develop green supply chains. A supply chain is a network system that links institutions and production activities to deliver final products to consumers. Supply chain management focuses on efficiency and effectiveness, aiming to deliver products to customers on time, in the correct quantity, and in the correct location. An effective supply chain helps enterprises improve production efficiency and reduce production costs.He further stated that the added value created by production activities is reflected on the "smile curve" of value. Manufacturing and assembly activities are essential links in the supply chain, but they are at the bottom of the "smile curve." Therefore, companies need to strengthen their investment in intangible assets to obtain higher added value. Looking at corporate investment directions, nearly one-third of the total value of global cross-border intangible assets comes from the United States. Over the past 20 years, US private companies have invested far more in intangible assets such as innovation, R&D, and design than in tangible assets such as machinery and equipment. Meanwhile, academic research has found that the revenue generated by intangible assets is twice that of tangible assets, and 90% of the market capitalization of S&P 500 companies comes from the value of their intangible assets. Therefore, while manufacturing is important, we should recognize that manufacturing service activities (such as design and R&D) contribute even more to the value of the economy.At the end of the lecture, Guo Jiequn shared examples from the book "The Green Balance: When Businesses Embrace Sustainability (and When to Say No)" about "companies enhancing corporate performance through sustainability initiatives." He further summarized how, from the perspective of the industrial chain and value chain, companies can achieve greater profits by adjusting their business models and improving product design in the three stages of design, procurement management, and transportation planning.
Guo Jiequn，Director of the MIT Global SCALE Network China Center, Dean of the Ningbo (China) Supply Chain Innovation Institute, Professor and Doctoral SupervisorSelected for the National Major Talent Introduction Project. Also serves as a researcher at the Green Finance Research Center of Tsinghua University's PBC School of Finance, a researcher at the MIT Transportation and Logistics Center, a member of the First Asset Securitization Committee of the Asset Management Association of China, and an advisor and academic committee member of the Dalian Commodity Exchange Research Center. Received the "Most Popular Teacher" award from the Tsinghua University PBC School of Finance EMBA & Executive Education Center. Went abroad to study in 1995, and before returning to China full-time in 2014, served as a member of the Global Investment Committee and General Manager for the Asia Pacific region at the US hedge fund Zais Group. Previously also worked at Credit Suisse Investment Bank and Fannie Mae. Holds a Ph.D. in Economics from Indiana University. Has published over 500 academic and industry papers and authored/translated 7 books.
