Sustainable supply chains: the linchpins of ESG success

Published on January 30, 2024 by Paritosh Singha

In today's increasingly interconnected world, businesses are facing mounting pressure to operate in a sustainable and responsible manner. This goes beyond simply reducing their environmental footprint; it also encompasses ensuring that their entire supply chains are aligned with environmental, social and governance (ESG) principles.

Unpacking the essence of sustainable supply chains

A sustainable supply chain is a commitment to weaving ethical, environmental and social considerations into the very fabric of a company's operations. It is not a mere afterthought, but a conscious, strategic effort to mitigate the impact of every business decision on the planet, its people and the economic ecosystem.

The environmental symphony: Sustainability begins with environmental stewardship. Companies embracing sustainable supply chains meticulously assess their environmental footprint. From responsible sourcing of raw materials to energy-efficient production processes and a dedication to recycling, they navigate a delicate dance with nature to minimise their impact on the planet.

Nurturing social responsibility: Beyond environmental metrics, the heartbeat of a sustainable supply chain resonates with social responsibility. It is a commitment to fair labour practices, safe working conditions and the wellbeing of the people involved at every stage. Companies championing sustainability ensure that their suppliers adhere to ethical labour standards, fostering a culture of respect and dignity throughout the supply chain.

Economic resilience: Beyond its ethical and environmental merits, sustainability makes economic sense. A resilient and sustainable supply chain is less vulnerable to disruptions, be they environmental, geopolitical or unforeseen challenges such as the recent global crises. Diversifying suppliers enhances business agility, reducing risks and ensuring stability in an ever-changing economic landscape.

The domino effect on ESG performance

Why does a sustainable supply chain emerge as the linchpin of ESG success? Picture it as the butterfly effect within the ESG framework. An imbalance or failure in one area can send ripples across the entire spectrum. A company may excel in environmental practices, but if its supply chain lacks resilience or operates with ethical lapses, the entire ESG structure can unravel.

Benefits of a sustainable supply chain

A sustainable supply chain is not just a part of the ESG strategy; it IS the strategy. It embodies the “E” by reducing environmental impacts, the “S” by championing fair labour practices and the “G” through effective governance and oversight of the supply network. By integrating sustainability into their supply chain operations, businesses can reap a multitude of benefits, including the following:

Enhanced brand reputation: A 2022 study by Deloitte found that 83% of consumers believe that businesses should be responsible for the social and environmental impact of their supply chains. By demonstrating a commitment to sustainable practices, businesses can strengthen their brand reputation and attract more socially conscious consumers.

Reduced risk and improved resilience: A 2021 report by the World Economic Forum identified supply-chain disruptions as a top global risk. By adopting sustainable sourcing strategies and building resilient supply chains, businesses can mitigate risks associated with natural disasters, labour disruptions and geopolitical instability.

Innovation and cost savings: A 2020 study by McKinsey & Company found that companies with a strong focus on sustainability are more likely to be innovation leaders and achieve higher profitability. Sustainable supply-chain practices can drive innovation in product design, resource utilisation and waste reduction, leading to cost savings and improved efficiency.

Improved stakeholder engagement: A 2022 survey by PwC found that 76% of investors believe that companies with strong ESG practices are more attractive investment opportunities. By demonstrating their commitment to ESG principles, businesses can enhance relationships with investors, employees, communities and regulators.

Implementing sustainable supply chains

Implementing a sustainable supply chain requires a comprehensive approach that encompasses the entire value chain, from raw material sourcing to product delivery. Businesses should focus on the following key areas:

Supplier selection: Establishing clear ESG criteria for supplier selection, evaluating their environmental practices, labour standards and social responsibility initiatives.

For instance, Unilever, a global consumer goods company, has implemented a comprehensive supplier code of conduct that sets high standards for environmental protection, labour practices and human rights.

Supplier engagement: Collaborating with suppliers to improve their ESG performance, providing training, resources and incentives to help them adopt sustainable practices.

For instance, Patagonia, an outdoor apparel company, works closely with its suppliers to implement sustainable practices, such as using recycled material and reducing water consumption.

Transparency and traceability: Implementing robust systems to track and monitor ESG performance throughout the supply chain, ensuring transparency and accountability.

For instance, Coca-Cola, a global beverage company, has developed a comprehensive sustainability platform that tracks and discloses ESG performance data for its entire supply chain.

Performance measurement: Establishing clear ESG metrics and targets to measure progress and identify areas for improvement.

For instance, Nike, a global sportswear company, has set ambitious ESG goals, such as reducing greenhouse gas emissions by 50% by 2030 and using 100% recycled polyester in its products by 2025.

Continuous improvement: Regularly reviewing and updating supply-chain sustainability strategies to adapt to evolving ESG standards and stakeholder expectations.

For instance, IKEA, a global furniture retailer, has continuously improved its sustainability performance over the years, achieving significant reductions in its carbon footprint and waste generation.

The journey towards a sustainable supply chain is not without its challenges. Businesses may face barriers such as a lack of data, supplier resistance and the need for significant upfront investments. However, the long-term benefits of sustainable supply chains far outweigh these challenges.

How Acuity Knowledge Partners can help

We contribute significantly to building and managing a sustainable supply chain. We offer a five-step solution to cater to a client’s sustainability needs:

• Setting priorities – identifying the highest-priority issues for the company in terms of supply-chain sustainability and areas to consider

• Selecting indicators – identifying indicators to measure and manage according to these priorities

• Assessing performance – measuring and assessing the company’s performance based on selected KPIs

• Defining actions – analysing results and defining strategies and actions to ensure improvement

• Advanced steps – adopting reporting initiatives and scopes, and additional KPIs, and entering into a partnership

Sources:

• https://www2.deloitte.com/us/en/insights/industry/retail-distribution/consumer-behavior-trends-state-of-the-consumer-tracker.html

• https://www3.weforum.org/docs/WEF_The_Global_Risks_Report_2021.pdf

• https://www.mckinsey.com/about-us/environmental-sustainability

• https://www.pwc.com/gx/en/issues/esg/global-investor-survey-2022.html

• https://www.unilever.com/Images/responsible-sourcing-policy-interactive-final4736_en.pdf

• https://www.patagonia.com/our-responsibility-programs.html

• https://www.coca-colacompany.com/sustainability

• https://www.ikea.com/global/en/newsroom/sustainability/ikea-sustainability-and-climate-reports-fy22-reduced-climate-footprint-increase-of-renewable-energy-230215/

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