Environmental, social, and governance (ESG) considerations have become a vital component for modern businesses, with increasing scrutiny on companies to achieve goals related to sustainability and ethical business practices. Your organization’s supply chain can be the bedrock of a robust ESG strategy that will drive positive change and contribute to long-term sustainability.
We’re here to help guide you in developing a more ethical and sustainable supply chain using actionable insights from our years of expertise. Let’s dive right in.
The Crucial Role of Supply Chain in ESG Initiatives
ESG initiatives have never been under more scrutiny, with public and regulatory pressure meaning businesses need to have a clear plan in place that filters through their entire organization. In the U.S., the Securities and Exchanges Commission (SEC) has proposed rule changes that would require registrants to include disclosures in their registration statements and periodic reports regarding climate-related risks and the company’s greenhouse gas emissions.
For example, back in May 2022, the SEC charged BNY Mellon Investment Adviser, Inc. for misstatements and omissions about ESG considerations in making investment decisions for certain mutual funds that it managed. With more cases like this – which resulted in a $1.5 million fine – becoming commonplace, it’s vital that businesses protect themselves. Supply chain practices can have a transformative effect on ESG outcomes and, with appropriate planning, can have enormous potential for positive change.
As business becomes more global, companies need to consider the impact of their supply chain’s carbon emissions and even those of its suppliers. They must also address the relationships they have with their people and suppliers, ensuring a diverse and inclusive chain representative of the global environment we live in. Finally, when it comes to the governance aspect of ESG, proper governance must be enforced to ensure compliance with local, country-wide, and global regulations. Through intentional supply chain practices, businesses have the power to influence much broader ESG narratives.
Sustainable Procurement Practices
A sustainable procurement practice is one that appropriately integrates environmental, social, and governance factors into the core of the process. It aims to minimize the environmental impact of the process as much as possible while still meeting all stakeholder requirements.
There isn’t a one-size-fits-all approach, with each organization needing to analyze its procurement practices to see where the most impact can be made. However, some general principles can be used by any company seeking to make change, with a focus on transparency, accountability, and social responsibility as key areas of focus.
A notable company famed for its commitment to sustainable procurement is the Swedish furniture conglomerate Ikea. Ikea sources close to half of the wood used in its products from sustainable forests, regulates the use of pesticides and chemical fertilizers amongst its suppliers and opts for suppliers that minimize water pollution through more organic farming practices. These steps alone may not be enough, but together they begin to create a multifaceted approach that creates a positive impact on both the supply chain and the world at large.
Optimising Transportation Logistics for Sustainability
To create a more sustainable supply chain, every single link in the chain will need to be optimized. Much of the public and regulatory focus right now is based on the carbon footprint of organizations, so clear and active steps must be taken to reduce emissions. Creating full transparency around your supply chain will allow you to see where the biggest changes can be made, while also generating public trust in your process.
From here, you can look to optimize your transportation process through meticulous route planning and consider adopting more eco-friendly transportation modes. You can also ensure that you’re collaborating with sustainable suppliers at every step to further reduce emissions. Ideally, your organization would try to move to a circular approach where reusing and recycling waste from your various processes will drastically reduce your carbon footprint and make your supply chain more sustainable and efficient.
Promoting Ethical Supplier Partnerships
Your external relationships are also extremely important when it comes to creating a sustainable supply chain. While you can’t directly control the actions of your suppliers, you can do your due diligence to ensure that they’re operating in both an ethical and sustainable manner. As part of your social responsibility as a business, it’s up to you to vet these suppliers to ensure their ESG agenda matches your own.
One company that has dedicated itself to prioritizing ethical supplier relationships is the British supermarket chain Tesco. They’ve developed a clear set of responsible sourcing plans which get updated annually to ensure they continue to grow and develop. Recent projects falling under this plan include collecting the gender breakdown of primary suppliers’ workforces including at management and supervisory levels to ensure an appropriate balance, and the integration of a living wage into purchasing practices for banana suppliers.
These practices can promote positive change throughout the entire supply chain, having knock-on effects at every level and leading to overall more positive ESG outcomes.
Minimising Waste and Responsible Sourcing
Optimizing your processes to try and build a more sustainable supply chain will inevitably lead to your organization looking to minimize waste as much as possible. Adopting circular practices whereby waste products can be reused or recycled into your processes is one of the most beneficial strategies you can try to utilize, but you should also be looking for ways to minimize packaging.
It’s also important to have open communication with all of your suppliers to ensure that they share your ideals and goals when it comes to waste reduction and responsible sourcing. A shared code of conduct could be one way to remain aligned on what matters while also showing your commitment to ESG externally.
Ideally, you’ll select suppliers based on their commitment to ethical social and environmental practices to begin with, or, at the very least, make this a major evaluation element when selecting suppliers. However, this doesn’t mean there can’t be room for improvement. A joint commitment to upholding ESG-related values can be a powerful demonstration of your organization’s values and can lead to knock-on effects throughout your entire supply chain.
Measuring the Impact: Key Performance Indicators (KPIs)
Sustainable supply chains are built around effective measurement. First, make sure you take the time to identify what key performance indicators (KPIs) matter for your business, perhaps through conducting a full audit of your supply chain. From here, leverage the data available to you to identify opportunities for improvement. Accurate measurement is important for all business outcomes, but the insights it can provide through even simple data analysis can be transformative for your organization.
Consider tracking items such as:
- Overall carbon emissions
- Total greenhouse gas (GHG) emissions — particularly your Scope 2 emissions
- Percentage of spend with diverse or sustainable suppliers
- Supply chain waste
- Recycling rate
- Water consumption
Analyzing data on any of these metrics will allow you to track your progress in your ESG goals, while also identifying key areas for potential improvement.
Long-Term Benefits of Sustainable Supply Chains
Building a sustainable supply chain has a wide array of benefits, from the organizational boost to public perception to reducing your environmental footprint as a business. ESG agendas are increasingly in demand from stakeholders and the public alike, and by simply making small but measured changes to your supply chain you can begin to have a considerable impact on your firm’s ESG performance.
Sustainable supply chain management is a long-term investment that needs to be constantly tweaked and adapted over time to grow with the ever-changing nature of global business. By having a team skilled in best practice around supplier selection, contracting, quality management and continuous improvement, your organization can become a leader in driving positive ESG outcomes, and be responsible for contributing to a more resilient and responsive supply chain for the future.
To read more on sustainability and the agenda for change in supply chain, download a complimentary copy of our whitepaper.