As businesses strive to become more sustainable, supply chain sustainability is growing in importance as a board-level issue. What do we mean by sustainable supply chains? Why are they at the forefront of an organization’s efforts to improve their ESG credentials and what benefits can businesses achieve from their supply chain sustainability strategies?
Sustainability, in general, is of growing importance to businesses in all sectors. In the past, it may have been top-of-mind for only the biggest polluters or — conversely — the most ethically-focused organizations, but today, the majority of business owners want to be more environmentally sustainable.
And sustainability isn’t just about the environment. Canada’s McGill University notes that “Embedded in most definitions of sustainability we also find concerns for social equity and economic development.” Similarly, the Chartered Institute of Purchasing and Supply (CIPS) believes that to achieve a sustainable supply chain, a company has to address environmental, social, economic and legal concerns across its entire supply chain. A fully sustainable supply chain ensures socially responsible business practices.
Today’s organizations must take account of all aspects of sustainability when managing their operations. If sustainability — specifically supply chain sustainability — is something in your board’s crosshairs, what benefits can you expect to see? What tangible improvements will a more sustainable supply chain deliver for your organization?
Why Is Supply Chain Sustainability Important?
The importance of sustainability in the supply chain — sometimes referred to as a sustainable supply network or sustainable logistics network — shouldn’t be under-estimated.
The supply chain is a popular place to start for businesses with nascent ESG strategies. Not surprising, perhaps, when the benefits of supply chain sustainability can be so persuasive; a McKinsey report states that “consumer businesses are likely to find that their supply chains hold the biggest opportunities for breakthroughs in sustainability performance.”
These opportunities extend beyond the obvious environmental, social or governance advantages of a more ethical supply chain; they have the potential to create real value for your organization, your suppliers and your customers. As the CIPS observes, “These practices are not only good for the planet and people who live here, but they also support business growth.”
Because operationalizing ESG commitments can be a challenge for many organizations, the supply chain can be an excellent initial focus because it delivers tangible benefits and can provide a positive stimulus for action elsewhere in the business.
What Are the Benefits of Supply Chain Sustainability?
Quantifying the benefits of sustainable sourcing is essential if you want to build the business case for a more sustainable supply chain.
While there are many advantages of improving supply chain sustainability, it’s likely that you will need to get buy-in for such a project, as, like all ESG programs, it will require resources, time and commitment. Capturing all the benefits of a more sustainable approach can help you to build the case for investment.
- Reduced environmental impact. This is usually the primary objective of supply chain sustainability projects. Reducing the impact of your corporate footprint is high on the agenda for many companies; your supply chain can play an important role here.
- Greater business efficiency that can reduce operating costs. This is a welcome side effect of a smaller corporate footprint; greater efficiency not only improves your performance when it comes to the ‘E’ of ESG, but it can also significantly reduce your business costs. A business survey in 2016 found that initiatives by major US corporations to help their suppliers reduce emissions had led to combined savings of $12.4 billion.
- Better continuity of supply. Thanks to the coronavirus pandemic, no business is oblivious to the issues that can disrupt supply chains almost overnight. Vetting your suppliers on their business continuity strategies and working to build a more diverse and more robust supply chain can pay dividends when the unexpected happens. Sustainability and reliability are intrinsically linked when it comes to supply chains.
- Improved organizational reputation. Properly managed and overseen, your supply chain can help you avoid reputational damage, while companies that fail to confront supplier risks can invite negative publicity. Environmental factors aren’t the only concern here; issues such as modern slavery and ethical sourcing also fall under the umbrella of supply chain sustainability and have the potential to derail your ESG credentials — something no company wants to risk at a time when ESG ratings and scores become ever-more central to the buyer and investor decisions.
- Opportunities to expand corporate partnerships. Collaboration has been shown to deliver significant benefits for supply chain sustainability projects; Environmental Leader cites a partnership between leading clothing and footwear brands that are helping to work towards zero discharge of hazardous chemicals (ZDHC) in the sector.
- Helps you to win business. Provenance is growing in importance as a consumer consideration; a Euromonitor survey found that 64% of consumers believe they can make a difference in the world with their purchases. These consumers must know how their purchases are made and by whom, how they are transported, and the environmental impact. Once you are known for your supply chain sustainability, you can tap into this discerning market.
- Facilitates innovation. Improving the sustainability of your supply chain requires working closely with your suppliers, getting to know them, and explaining your corporate vision and purpose. As a result, your suppliers gain a clear view of your goals, becoming invaluable partners who are far better positioned to suggest improvements to products, services and processes.
- Improved talent attraction and retention, and increased employee satisfaction. People — especially the younger generation of job-seekers — want to work for companies with impeccable ESG records. Two-thirds of respondents to a PWC survey said they would intentionally avoid an employer with a negative image of environmentalism. Supply chain sustainability will help you attract and retain a more engaged workforce. You will save money via lower recruitment costs and reduced employee attrition and by avoiding the need to up compensation to make your sector more attractive to potential recruits.
- Better risk mitigation throughout your supply chain. No matter how thoroughly you vet your suppliers, and regardless of how diverse your supply chain, working with third-party suppliers will always expose you to a degree of risk. There will be vulnerabilities among your suppliers that you need to mitigate, whether these relate to cybersecurity, the potential for regulatory non-compliance, or financial or operational vulnerabilities.
Improving supply chain sustainability demands that you carry out regular risk assessments on your suppliers and put in place control measures to identify and monitor potential threats.
How Should Businesses Approach Supply Chain Sustainability?
The benefits of more sustainable supply chains are therefore compelling.
If this is a route you are keen to explore, you will need to follow a multi-step process:
1. Make the business case. Conveying the importance of supply chain sustainability to your fellow directors will enable you to secure buy-in for the project.
2. Identify your objectives. Your sustainability strategy should be closely aligned to your corporate purpose and vision and have clear, measurable goals.
3. Establish expectations. Managing the expectations of everyone involved in the program is crucial if you want your objectives to be realistic and achievable.
- Determine the scope of your project; any efforts to increase supply chain sustainability need to extend beyond your top-tier suppliers, as the most significant risks often come further down the chain.
- Evaluate current supplier performance and identify how you plan to monitor sustainability throughout your supply chain.
- Implement ongoing risk management, monitoring and remediation activities to ensure that your suppliers continue to meet your sustainability KPIs.
How Your Board Can Reap the Benefits of a More Sustainable Supply Chain
Boards are increasingly on the hook for governance, risk and compliance (GRC) issues, and your supply chain is central to many of the risks your organization faces relating to good governance, regulatory compliance and broader sustainability.
Improving the sustainability of your supply chain will therefore have positive benefits for the board specifically and the organization overall. The sticking point for many businesses here isn’t identifying objectives and setting goals but transforming these internal and externally-driven imperatives into action.
If you are keen to boost the sustainability of your supply chain, embedding ESG into your organizational DNA is the key, and Diligent’s ESG Solutions can help. They provide you with the tools you need to take ESG from aspiration to achievement. You can find out more about ESG Solutions here.