Why Sustainable Supply Chains Matter
Environmental managers and chief sustainability officers are increasingly looking to their supply chains to conserve natural resources and reduce carbon emissions.
Considering supply chains are responsible for up to four times the greenhouse gas emissions of a company’s direct operations and many suppliers operate in water-stressed areas of the globe, this makes sense from an environmental savings standpoint.
To this end, we’ve seen major corporations like Apple push for more rigorous environmental standards and renewable energy use across its supply chain — and publish regular supply chain audit reports detailing suppliers’ progress — and Nike creating an entirely new apparel supply chain company that will “embed sustainability and transparency into the business.”
It’s also a way to manage risk.
Climate-related regulations, the cost and availability of materials and human resources are all supply chain risks. Working with suppliers to improve sustainability can help mitigate these, as well as reputational risks.
As transparency and accountability become increasingly important to investors, consumers and other shareholders, sustainable supply chain shortcomings can also be a blow to a corporation’s sustainability cred. This is something Disney found out in recent weeks with environmental protection groups accusing Disney of using polluting suppliers in China and it’s actually what spurred Apple to monitor its suppliers’ environmental, health and safety performance in the first place.
“There is growing awareness in business and society about sustainability risks and opportunities related to supply chain,” Veli Ivanova, EY US partner, told Environmental Leader. “Workforce health and safety incidents, labor disputes, environmental incidents, auto industry product recalls and recent legislation such as the UK Modern Slavery Act are all contributors. As a result, companies are increasingly recognizing that they need to invest in sustainability beyond their direct operations and create resilient and responsible supply chains to be successful in a globalized, fast-changing world. Sustainability leaders also recognize that sustainable supply chains can offer competitive advantages such as improved efficiency, innovation and market differentiation.”
EY and the UN Global Compact have published a report, The State of Sustainable Supply Chains, which explores how companies are embedding sustainability into their supply chains. After conducting interviews with 70 companies, the report authors categorized companies’ approaches to building sustainable supply chain into five groups: basic, improving, established, mature and leading. Most of the companies interviewed are in the improving or established categories, the report says.
Leading companies, however are experiencing several benefits — product differentiation, increasing market share and growing consumer support, among them — from embedding sustainability in their supply chains.
“While operational, financial, regulatory and reputational risks continue to be the major drivers for supply chain sustainability, companies increasingly invest in resilient and responsible supply chains to conserve resources, cut costs, enhance reputations and create shared value with stakeholders.” Ivanova said. “Mature companies are aspiring to unlock strategic opportunities and business benefits beyond regulatory compliance and ‘policing’ of suppliers, as they recognize that products with sustainability attributes can result in increased sales, growth opportunities in new markets, and stronger long-term relationships with customers.”
A separate report from the UN Global Compact and BSR outlines practical steps companies can take to achieve supply chain sustainability. These include:
- Commit: Establish a vision and specific expectations for the supply chain.
- Assess: Determine the scope of efforts and focus on areas with the highest risk of adverse impacts on people and the environment.
- Define and Implement: Communication expectations to suppliers and partner with other organizations to achieve goals.
- Measure and Communicate: Track performance and transparently report on progress.
Jeremy Prepscius, BSR vice president, Asia-Pacific, says supply chain issues aren’t new, but they are reemerging in companies’ consciousness for a number of reasons.
“One such reason is the beginning of the shifting of supply chains out of China to locations where unions, civil society, and social pressures on issues such as wages and working conditions are more open and pronounced, labor pools are more constrained, and governance systems are varied,” Prepscius told Environmental Leader. “Another reason is the increased access to technology broadly around the world allowing issues and stories to be more easily communicated and globally engaged on. A third factor is the globalization of issues. A focus on climate change implies a focus on embedded carbon, which implies a focus on where/how/the energy mix of manufacturing.”
In addition to mitigating risk, sustainable supply chains also provide cost benefits from lower raw material costs, energy and water bills and compliance fees.
As Prepscius said: “The more efficient a supply chain is — both in terms of the efficiency of the factory, as well as the efficiency of the entire supply chain — the more the seller has pricing advantage.”
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