Climate change, ESG, and the circular economy have become major business priorities – and organisations’ global supply chains sit at the heart of the issue.
According to 2008 research published in the journal Environmental Science & Technology, supply chain emissions account for almost three quarters (74%) of a company’s total carbon footprint. What’s more, Scope 3 emissions – indirect sources such as purchased goods, transportation and business travel – are underreported by up to 43%.
Whether you are in the business of manufacturing products, or reviewing where products are purchased, a more sustainable supply chain requires a holistic approach and an overview of an entire business process.
The social responsibility – for employees and leaders
“You don’t build a business,” begins a famous quote attributed to Zig Ziglar, “you build people – and then people build your business.”
This aphorism can apply particularly to the supply chain. Looking at the ‘social’ element of ESG, such as human rights and diversity, this can be viewed in more practical terms as policy regarding industrial accidents, anti-discrimination, and product safety among others. A healthier supply chain can begin by looking into these types of policies.
It’s really important to look at both social and environmental sustainability together, because it is all-encompassing.
Sedex is an ethical trade membership organisation with more than 60,000 members, which works with businesses to improve working conditions in global supply chains. Jessica McGoverne, director of policy and corporate affairs at Sedex, explains that the tools the company provides – including a data platform – help organisations collect data, assess working conditions, and provide corrective actions.
“I think that it’s really important to look at both social and environmental sustainability together, because it is all-encompassing,” McGoverne tells Sustainable Future News. “Climate change, for example, can have a huge impact on working conditions at a site in terms of natural disasters [or] heatwaves.”
There is various legislation emerging which is enforcing action. The European Union’s Corporate Sustainability Reporting Directive (CSRD) requires all large and listed EU organisations to introduce mandatory sustainability reporting standards. McGoverne says that Sedex ‘really welcomes’ the initiative, with the added layer of due diligence in supply chains ‘really assessing, mitigating, and seeking to prevent any impacts [companies] have on people and the planet through their operations.’
Often a company’s direct supplier will not be where the most negative impact is felt, it is often likely to be someone up the value chain.
From an executive perspective, Mark Chadwick, managing director, sustainability solutions EMEAI at ENGIE Impact, an sustainability consulting company, talks of ‘catalysing action’ and cites the indirect emissions which can mount up. “Often, organisations have influence over their supply chain, but they don’t have control,” Chadwick tells Sustainable Future News. “So we have to think carefully about how we deliver our messages and the incentives we offer to catalyse action.
Chadwick cites Bayer, Microsoft, and Walmart as three large organisations who are tackling the ‘notorious’ challenge of Scope 3 emissions. Indeed, Walmart agrees that the majority of greenhouse gas emissions in the retail sector lie in product supply chains as Scope 3. “Often a company’s direct supplier will not be where the most negative impact is felt,” adds Chadwick. “It is often likely to be someone up the value chain.”
Rasheed Mohamad is EVP global operations and business technology at networking technology provider Alcatel-Lucent Enterprise (ALE). His interest in supply chain sustainability is long-standing, being the sponsor of ALE’s #GoGreen initiative. Mohamad’s belief is that process should not block business, but be an enabler, and he says the best leaders are taking the right steps.
“Leadership always has the bigger thinking – that’s why they are the leaders,” he tells Sustainable Future News. “But at the same time, what I have seen is that leadership is always receptive to these things, rather than opposing it. That’s where companies are having specific CSR [corporate social responsibility] programmes, resources that tie into it rather than a nice-to-have.”
Key steps to supply chain sustainability
So what areas can leaders look towards? At Davos 2022, the World Economic Forum (WEF) asked leaders on how to secure sustainable and resilient supply chains in the midst of global shocks. The replies touched upon areas such as visibility and data, as well as understanding how truly global systems can be under stress.
For globally connected systems, certain unexpected events can cause large parts of the global supply chain to judder to a halt. One notable example was the blocking of the Suez Canal by the Ever Given container ship, which reportedly froze almost $10 billion (£8.3bn) in global trade in one day.
“These events reveal that global supply chains are at times less global than we think,” Frank Appel, CEO of Deutsche Post DHL Group told the WEF, adding leaders need to ‘reshape’ supply chains to ward against ‘single source disruptions.’
From both the business and government standpoint, you can see how important supply chain resilience has become in a global environment.
Mohamad uses the term ‘regionalised globalisation’ and says leaders should look at ‘fine-tuning’ their processes. How detailed is it? How can you make the best out of it? “Getting [a product] out into a new ship always takes a structural change,” he adds. “How you adapt to it… will help a lot. Organisations who have not done it, I think they will struggle.”
The biggest disruptor has undoubtedly been the Covid-19 pandemic. McGoverne argues that while it hasn’t been a huge driver in making businesses operate more sustainably, it has drawn ‘huge attention’ to the state of supply chains. “I think really, from both the business and government standpoint, you can see how important supply chain resilience has become in a global environment,” says McGoverne. “Everybody’s struggling with a huge customer backlog in terms of order delivery,” adds Mohamad. “You’ve seen it with your typical consumer products, it is happening in the enterprise world – it is happening everywhere.”
“Visibility is crucial for resilient supply networks,” Kathleen O’Reilly, global lead, strategy at Accenture told the WEF. “Companies must be able to identify gaps and quickly address them to withstand disruption and enable sustainability and resiliency that delivers growth, not just survival.”
Chadwick argues that organisations cannot proceed further without measuring how sustainable their supply chains are – but notes a word of caution. “For example, [organisations] need to know their supplier’s greenhouse gas emissions or their potential for water pollution. However, more often than not, suppliers do not have the answers to these questions and would not even know how to get answers,” says Chadwick. “This means that achieving visibility is a fundamental challenge that organisations must tackle before achieving a more sustainable supply chain.”
Julia White, chief marketing and solutions officer at enterprise software provider SAP, told the WEF that data transparency was ‘essential.’ “Investing in technology and data transparency combined with collaborating across networks is key to enhancing business resilience, performance and sustainability,” said White.
McGoverne has a similar view. “Data is absolutely integral to making any informed business decisions about your business and supply chain, and helps you take an evidence-driven approach,” says McGoverne. “I also think investing in technology is key. I think people who operate within sustainability, responsible sourcing, procurement roles are often so under-resourced. Having technology and tools at your fingertips is really important for being able to reduce the administrative burden that it takes to do this.”
If sustainability is truly a team sport, then the interlocking relationships which comprise an organisation’s supply chain are the best example of it. It is a long-term mission, but businesses building the first pieces of the jigsaw can make a substantial difference.
