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Sustainability alone is a giant challenge to tackle, but add the element of supply chains and things get even more complicated. These sprawling, multi-layered networks involving flows of people and goods lack a great deal of transparency and accountability. In this article, we look at five things to focus on when developing a sustainability strategy for your green supply chain.
Sustainable supply chains are supply chains that meet environmental, social, and governance (ESG) criteria. Therefore, they are called green supply chains. The big challenge here is that sustainable supply chains cover multiple companies, processes, organisational structures, and locations that can span the globe.
Green supply chains are significant because most of a company’s environmental impact and social responsibility are buried within the supply chain. Scope 3 emissions, for example, accounts for 75% of a company’s total greenhouse gas emissions on average.
Many companies choose to simply ignore the supply chain in their sustainability strategies, given the level of complexity of such an undertaking. Precisely for this reason, sustainability in supply chains is essential if a company is well-intentioned to address the biggest part of its operational impact.
There is a more practical reason for sustainable supply chains. Regulators are increasingly turning their attention to monitoring impacts in the supply chains.
Here are some of the recent legislations that point towards regulations regarding traditional supply chains:
As the EU ramps up efforts to become a global leader in green and human rights standards, companies should brace themselves for further tightening of regulations relating to sustainable supply chain management.
Keep in mind these five tips that should guide your approach in managing the sustainability of your supply chain.
If you are in the market for a green supplier that respects labour and environmental standards, finding one will not be easy. You can include ESG criteria in a Request for Proposals from suppliers, but there’s no guarantee that suppliers will be able to meet all your internal criteria.
Focus on finding suppliers that are willing to grow with you on this sustainability journey. Green procurement practices and policies should be shared with potential suppliers, and a common practice is to include sustainability-related requirements or clauses in the supplier contract. This is frequently done with blanket policies on forced labour and child labour.
More often than not, though, companies already have relationships with existing suppliers that they would like to maintain. Procurement contracts may also be binding and ongoing with these suppliers, so sourcing for new green suppliers is not the first option. In this case, we recommend working with existing suppliers to adopt sustainable practices within a reasonable timeframe.
Working with suppliers to improve their sustainability performance is a progressive journey. Goals and targets should come from the purchasing company, while action plans to meet those KPIs can be left to the supplier to design according to their capacity. You should periodically monitor suppliers for progress updates and share resources where available.
The latter is especially important for capacity building, as often suppliers may lack the skills and knowledge on ESG matters. In this regard, a systematic sustainable supply chain programme can be implemented among your suppliers for a coordinated effort to meet your sustainable supply chain goals.
As with any programme, a sustainable supply chain should be formulated with SMART goals. Your objectives need to be grounded by measurable metrics and realistic targets over a time horizon. The programme will act as a reference for both your internal team, whether that’s the procurement team, sustainability team or both, and the supplier.
A core part of your programme should include strategies for communicating your intentions and plans to your suppliers, and how you plan to engage with suppliers on their sustainability performance. This is crucial to ensure all parties are on the same page and also helps with buy-in.
Document all the data related to the programme as you and your suppliers make progress. The data is relevant for investors and regulators. You can use it in your disclosures and sustainability reporting, which is mandatory for most companies in the EU and increasingly in other parts of the world as well.
To ensure transparency of the supply chain and your efforts, it is key that baseline data is established from the start of the programme, and that the right metrics are monitored consistently. This will involve working very closely with your suppliers on collecting data.
You will need to manage a large volume of data from third-party sources. Sustainability software makes this process easier and, crucially, ensures a level of transparency that is difficult to audit otherwise. Technology helps in two ways:
Software with the following features is advantageous:
Investing in software to help you with tracking sustainability data in your supply chain is a worthwhile investment in the long term. Data is after all the number one challenge for sustainability management, and when you’re dealing with supply chain data, traceability adds another layer to that complexity. If you are committed to maintaining a sustainable supply chain, leveraging technology to help in that process is more a matter of when than a matter of why.