Supply chains provide vast sustainability development opportunities from end to end. Organizations can identify, set goals, and gain efficiencies by cascading social, environmental, and economic initiatives through multi-tiered supplier networks. From material order to acquisition, through manufacturing, distribution, and reverse logistics, there are ample opportunities to reduce Greenhouse Gas (GHG) emissions. Additionally, converting linear supply chains to circular supply chains – including the return, reuse, or recycling of products – provides opportunities to reduce waste. As regulations come into effect, understanding and implementing key economic, social, and environmental measurements along with associated sustainability frameworks and standards is essential. In today’s business landscape, supply chain sustainability metrics are becoming a regulatory requirement due to the widely recognized impact on environmental, social, and economic aspects. Regulators understand the critical role supply chains play in global sustainability, addressing issues like carbon emissions, water usage, labor conditions, and responsible sourcing. As a response to consumer and investor demands for transparency and responsible business practices, regulators are setting standards to ensure that organizations assess, report, and mitigate their supply chain’s sustainability impact. This shift is shaping industries and fostering a more sustainable global economy.
Establishing Sustainability Standards
Sustainability standards encompass a wide range of supply chain key performance indicators (KPI)s derived from credible sources like the Global Reporting Initiative (GRI), The Sustainability Consortium (TSC), the Carbon Disclosure Project (CDP), Task Force on Climate-Related Financial Disclosures, (TCFD), UN Global Compact, and the World Business Council for Sustainable Development (WBCSD). These sources provide dependable frameworks and metrics for measuring and enhancing sustainability performance across the supply chain. The GRI, for instance, offers comprehensive sustainability indicators, including KPIs specific to supply chain sustainability. These KPIs cover various aspects, such as supplier assessments, engagement in sustainability initiatives, eco-efficiency in transportation, waste management and consumption, labor standards, responsible sourcing, product life cycle analysis, and supplier diversity.
Having standards for supply chain sustainability is crucial for several reasons:
- Firstly, they establish a consistent and universally accepted framework for measuring and reporting sustainability practices, facilitating performance assessments, and sharing best practices.
- Secondly, standards promote transparency, meeting the demands of stakeholders for accountability and trust.
- Thirdly, they help identify and mitigate risks associated with environmental, social, and governance factors within supply chains, safeguarding against disruptions and reputational damage.
Furthermore, organizations can utilize performance attributes and metrics like those in the ASCM Supply Chain Operations Reference (SCOR) model to evaluate and enhance supply chain performance, encompassing reliability and sustainability aspects.
Making an Impact Toward a More Sustainable Future
Several global organizations have positioned themselves as global sustainability leaders over the past decade. Unilever has reoriented its business models to create long-term shareholder value by innovating to drive growth, reducing costs through waste and energy use reductions, managing supply-chain risk by securing long-term sustainable materials sourcing, and commitment to. Their stated company purpose is to “Make Sustainable Living Commonplace” and is making considerable progress toward meeting sustainability goals along with financial stability during global economic volatility.
Weve also seen progress in the regulatory space. In September 2023, the California Legislature passed two bills requiring all companies doing business in California to publicly disclose greenhouse gas (GHG) emissions with independent third-party verification: SB 253 Climate Corporate Data Accountability Act, and the associated financial risks, SB 261 Green House Gases: Climate-Related Financial Risk. These are first-in-the-nation measures that will impact approximately 5,300 companies. The disclosures will include Scope 1 and 2 greenhouse gas emissions as well as corporate supply chains (Scope 3), which can include more than 90% of a corporation’s carbon emissions. Major corporations announced their support leading up to the passage of the bills, including Apple, Amalgamated Bank, Levi’s, Google, Salesforce, and Microsoft. California has one of the largest economies in the world, and the Legislature cited concerns such as 1) the effect of climate change on the state’s economy; 2) companies’ roles in contributing to and addressing climate-related risks to their own businesses and the state’s economy; and 3) the ability of the state to develop emissions reduction requirements, as well as the lack of transparency and consistency resulting from current voluntary emissions disclosure.
By the end of October 2023, and after having solicited public input, the Securities and Exchange Commission (SEC) is scheduled to publish clear, consistent, and data-driven rules for climate-risk disclosures for public companies. While the concept of materiality and forward-looking safe harbor projections of future risks or plans will govern, risk reporting “could include regulatory, technological, and market risks driven by a transition to a lower greenhouse gas emissions economy, with potential financial impacts on revenues, expenditures, and capital outlays.”
Implementing Sustainability Initiatives: Where to Start
If your company is interested in implementing sustainability initiatives, here are some tips to consider:
Start from where you are: Understand what sustainability measurements are and how you can leverage frameworks and standards to establish a baseline and measure progress to established goals. There are multiple reporting frameworks and standards available that can be selected based on the size of your organization and industry.
Innovate & Act: Assess your supply chain, identify where you can become more efficient, and set targets. Start with the “low-hanging fruit” to gain momentum and credibility. ERP systems are a treasure trove of data and can provide value in data gathering.
Collaborate, Integrate, Communicate: Identify your internal and external stakeholders. Define your operational, integration, training, and reporting strategy to ensure internal and external transparency. Incorporate sustainability risk into your overall corporate and/or brand strategic risk and resilience profile.
Clarkston leverages deep supply chain experience in the life sciences, consumer products, and retail industries. We partner with clients in their assessments of supply chain sustainability, identifying areas where efficiencies can be gained, developing organizational capabilities, selecting sustainability reporting frameworks and standards, change management, and reporting.
Reach out to us today to learn more about our supply chain sustainability consulting services.
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Contributions from Linda Plumley, Justin Smith, and Cathi Henriquez