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As businesses advance in their sustainability journeys, supply chain issues and transformation continue to pose challenges due to limitations in oversight and control. On 25 November 2024, we had the pleasure of hosting the inaugural ‘Getting ahead in supply chain sustainability’ event. This first talk in our event series focused on sustainability in supply chains brought together industry practitioners and leaders to reframe the narrative, looking at supply chain sustainability as an opportunity to leverage rather than merely a risk or challenge to manage.
The event featured an introductory overview of developments in supply chain sustainability followed by an insightful keynote address and an engaging panel discussion. This blog provides insight into the key takeaways from the discussion, focusing on how businesses can navigate and thrive amidst changing market drivers for sustainability and regulatory advancements to create business value from sustainable supply chain transformation.
Expectations for integrating sustainability into supply chain management are evolving, as companies face increasing regulation regarding their environmental, social, and governance (ESG) factors. For example, carbon emissions are now being priced in under the European Union’s Carbon Border Adjustment Mechanism (CBAM) and due diligence requirements under the European Union’s Deforestation Regulation (EU) are becoming more stringent. These requirements affect companies’ global operations and will require changes for both buyers and suppliers in the value chain. A powerful way of enabling these changes is for companies to build collaborative ecosystems that involve partners at every stage of the value chain – particularly if they are looking to create value by integrating net-zero and circularity initiatives, are looking to prioritise the creation of renewable energy architecture or foucs on supply chain and workforce health and safety.
Supply chain challenges are multifaceted and require interconnected solutions. The discussion highlighted that conducting a holistic review of sustainability across the value chain enables targeted action. For example, double materiality assessments, required under the EU Corporate Sustainability Reporting Directive (CSRD), offer a framework for identifying key sustainability impacts, risks and opportunities. In an example that was shared, the outcome of a double materiality assessment unveiled that transitioning to renewable energy for telecommunications towers can reduce carbon emissions, and at the same time enhance safety of lorry drivers by minimising the need for diesel refills, thus reducing road safety risks and accidents.
To drive action, it is crucial to align incentives and messaging. Companies should ensure that sustainability goals are communicated effectively across all levels of the organisation and to suppliers. Aligning incentives, such as tying bonuses to sustainability linked performance targets, can motivate employees and supplier performance. Clear messaging sets expectations and fosters a culture of sustainability within an organisation as well as along the supply chain.
The event highlighted examples where aligning incentives drives sustainable actions. Some companies tie executive bonuses to the achievement of sustainability targets, ensuring sustainability performance is a C-suite agenda. In another example shared, sustainability-linked loans, where loan pricing is tied to performance on specific sustainability metrics, can incentivise companies to take action as the sustainable practices are connected to their bottom lines.
A data-driven approach is essential for effective action in supply chain sustainability. By measuring and monitoring risks, companies can make informed decisions. Advanced monitoring technologies enhance transparency, while reliable data strengthens trust, helping companies to meet increasing ESG regulatory requirements. This not only aids compliance but also helps in identifying and mitigating risks effectively, which in turn increases resilience.
Data transparency is crucial, especially in multilayered supply chains where traceability is key. For instance, remote sensing offers an innovative method for measuring and mapping greenhouse gas emissions (GHG) on local, regional, and global scales, while also identifying specific emission sources and providing real-time data on emissions, leakages, or hotspots.
In another example that was shared, monitoring minimum wage compliance across the supply chain was challenging due to regional differences in minimum wage levels. Against the backdrop of rising inflation, the company also realised that smaller suppliers faced additional difficulty keeping up with increasing wage expectations. These risks might be ever-present in supply chains, and high-quality data enables continuous monitoring and engagement with the highest risk suppliers and build solutions integrating the resilience of the supplier, their workforce and the product delivery necessary to the buyer.
Engaging suppliers through knowledge transfer and setting clear expectations is vital. Capacity building through webcasts and training on technical aspects, such as emissions accounting, improves supplier engagement and performance. Early communication with suppliers about new sustainability criteria, like requirements for electric vehicles in operations with the ultimate goal of GHG emissions reduction, gives them time to invest in these more sustainable solutions.
When suppliers understand sustainability expectations, they are given the opportunity to lead in creating better value propositions. In one shared example, life cycle assessments insights are able to demonstrate the lower carbon footprint of products and services offered. The company offered a carbon calculator which helped their customers evaluate the carbon footprint of procured products, giving the company (with lower carbon footprints) a clear competitive advantage.
Investment in resilient supply chains can be financed through sustainable financing instruments. Sustainability-linked financing, where loan pricing is tied to sustainability metrics, provides cost-saving incentives. The event highlighted how sustainable financing supports supply chain sustainability. Green bonds and sustainability-linked loans offer lower interest rates for meeting specific criteria, reducing capital costs and therefore incentivising sustainable practices. To incentivise sustainable supply chain practices, banks can explore financing options based on green procurement metrics, such as the proportion of suppliers with stronger sustainability performance as defined by ratings such as the CDP.
The journey towards a sustainable supply chain is essential in today’s business landscape. While it presents challenges, the potential for positive impact on people, the environment, and business performance is significant. By fostering transparent relationships with suppliers, adopting a data-driven approach, and utilising innovative financing, you can build resilient and sustainable supply chains. We encourage you to embrace sustainability in your supply chains as a core strategy. Start with comprehensive sustainability assessments, like double materiality evaluations, to identify key issues and target actions effectively as well as understanding and adapting to evolving ESG regulations. Build collaborative ecosystems with partners across the value chain and align incentives by tying rewards to sustainability targets, while ensuring clear communication of sustainability goals throughout the organisation and beyond.
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