How to Drive Sustainable Supply Chain Transformation

With today’s highly volatile environment and increasing calls to reduce carbon emissions, we find ourselves asking: How can we achieve sustainable supply chain transformation?

The dialogue for sustainable supply chain transformation has increased significantly, but what matters now is pushing on with the transition and making meaningful change. There is urgent impetus now for companies to reduce their environmental footprint and positively impact the communities in which they operate. Furthermore, recent studies have shown that sustainable business practices and models can have a decisively positive impact on the profitability of businesses.

In a recent roundtable, we examined the main drivers of sustainable supply chain transformation over the last two decades:

• Voluntary initiatives → brand enhancement/risk mitigation
• Perception management → Greenwashing
• Investor activism → Sustainability indexing, sustainability funds
• Responsible procurement → B2B goods & services
• Increasing action → uneven across sectors and geographies
• Changing dynamics → accelerating evolution of drivers

Sustainability guidelines and standards have been in place for some time. However, in the absence of concrete government regulations, the transformation has primarily fallen on individual corporations to take the initiative. Fortunately, a significant shift occurred when the investment community began to focus on Environmental, Social and Corporate Governance (ESG) KPIs, pushing more companies to look into sustainable procurement.

We asked the audience what they see as the primary driving forces behind sustainable supply chain transformation, and they came up with this list:

1. Risk management and mitigation
2. Attracting and retaining talent
3. Legislative and regulatory actions, e.g. accurate carbon accounting and total supply chain transparency and traceability

Participants shared their experiences dealing with consumers’ expectations toward operating more sustainably, and as producers, the need to rethink their supply chain operations. Regulations are a looming challenge for companies, but government incentives could prove vital to facilitating more substantive transformation actions. Companies that engage in meaningful sustainable transformation of their operations should be rewarded, while those that remain complacent should be penalized.

Governments and industries often base their actions on the investment bottom line. But a stand has to be taken on national and global levels, and the energy of the rousing speeches at COP26 needs to be acted upon. Companies must align to emerging sustainable regulations, and leaders must act on their promises. There is reason for hope: countries like Germany are introducing supply chain laws requiring full transparency and traceability on ESG KPIs to tackle everything from deforestation to human rights abuses.

Traceability

Implementing supply chain transparency requires investment in digital technologies capable of providing verifiable and auditable traceability. Overall, traceability is a new value proposition for customers as it provides a clear picture of how a product was produced including the chain of activities all the way back to raw material extraction.
An example of industries pooling their resources for this purpose can be found in the apparel sector. The Sustainable Apparel Coalition consortium created the Higg Index Platform to provide greater transparency. It gathers sustainability information on the supply chain and makes it available to industry participants, demonstrating that a real difference can be made when an industry works together. Thus, the burden of establishing the complete picture of the supply chain doesn’t fall on individual corporations. Rather, it enables collective action governed by a coalition in which all participants can contribute. A similar initiative is happening in the automotive industry in Europe, and hopefully, the momentum creates a domino effect.

A Global Logistics Manager at an agriculture company shared their thoughts:

“There’s a need to accept the concept that it’s not just all about revenues. I think in the world of business, it’s about GDP growth. If they continue to hang on to this mentality, sustainability is just going to be very tricky or very hard to come into the picture.”

And a Sustainability Director added

“You can’t expand infinitely into a finite world.”

There will be new economic models required to achieve both growth and sustainability. It goes back to consumer expectations and how to deal with our finite and fragile planet. The Sustainability Director continued:

“All these sustainability efforts need to operate in a kind of a new way of thinking.”

Climate change

Corporations must take action on climate change. The intensity and severity of climate events and disasters will only increase in frequency. Awareness is vital. There’s still a need to make the crisis visible by documenting the impact of our collective action–both negative and positive–as it’s not always top of mind. A Sustainability Director advised:
I feel that awareness is critical, so many activists are raising that concern.

During the pandemic, the global supply chain shut down for essential materials and component items, which impacted everyone. In the near future, similar disruptions will likely occur in material supply, productive capacity, and transport – all related to major climate events. In the past, companies have optimized their supply chains for efficiency and cost. They will have to factor in sustainability and climate to preserve stable and resilient production and logistics operations. A Sustainability Consultant noted:

“The pandemic made us take notice of the supply chain in a way that never happened before. These events will make us focus more intensely on sustainability and the radical reduction of carbon emissions. When we can go to the store, and we can’t get stuff where we go to order a car, we can’t get what we want, because the supply chain has not been able to provide. This happened in 2011, I believe in Taiwan and other areas where things got wiped out. Some production clusters got shut down for months.”