While more companies are prioritizing climate goals and other environmental, social and governance (ESG) objectives in their internal operations, they are also reaching outside their own four walls to ensure suppliers and business partners are aligned with their goals.
For enterprises of all sizes, supply chain sustainability is rapidly taking on new urgency, propelled by COVID-induced shipping bottlenecks and labor shortages that laid bare the fragility of global supply chains and pressure to “do the right thing” from internal and external stakeholders.
But companies know they can’t meet their sustainability objectives alone and are requesting—and in some cases demanding—that suppliers get on board. And they’re hunting for tools that give them visibility into the ESG performance of partners throughout their supply chains.
“ESG, in some shape or form, is now part of most of our customer and partner conversations,” said Michelle Eisenberg, chief of the ESG office for supply chain management software maker and MHI member Blue Yonder. “There is a genuine demand for product functionalities in this area and we predict that this will continue to increase.”
Pressure to deliver on ESG goals
The focus of procurement organizations has shifted dramatically and quickly. When surveyed in 2021, 63% of procurement executives ranked “delivering on corporate sustainability goals” a main priority, up from just 25% in 2019, according to the Sustainable Procurement Barometer produced by business sustainability ratings platform EcoVadis and Stanford Business School.
There are many reasons for this shift:
- Businesses face mounting pressure from stakeholders, including business partners, investors and consumers, to get serious about reducing their carbon footprint and adopting reforms in the areas of diversity, fair labor practices and other ESG goals.
- Government is mandating more rigorous oversight of suppliers. In Germany, for example, a supply chain law enacted in 2021 puts companies on the hook to identify and address human rights and environmental abuses in their direct supply chains.
- Business sustainability goes beyond ESG to encompass financial stability and health and safety, and events such as the pandemic and the microchip shortage that crippled U.S. automakers have underscored the need for greater visibility throughout supply chains.
But even as the holy grail of sustainability is being trumpeted as a goal, the consensus among supply chain management experts is that few except the largest multinational corporations know what’s happening in their supply chain beyond their Tier 1 suppliers.
That’s a visibility gap that needs to be redressed. Most supply chain experts, including Dave Ingram, chief procurement officer for global consumer products giant Unilever PLC, agree more than half of a company’s carbon footprint can be traced to its suppliers and business partners.
“We cannot achieve our sustainability commitments without partnering with our suppliers,” said Ingram, whose company has asked its 56,000 suppliers to halve greenhouse gas (GHG) emissions by 2030 to aid Unilever’s goal of net-zero emissions across its value chain by 2039.
For most, mapping efforts at ‘Stage Zero’
The reality is that few companies know their supplier base well enough to use the intelligence to avert risks or to be able to partner with their suppliers on ESG initiatives, said Robert Handfield, founder and executive director of the Supply Chain Resource Cooperative at North Carolina State University (NCSU).
“If you think of Stage 4 as complete transparency up and down the supply chain and you’re mapping your carbon footprint and you’re working to reduce emissions, we’re at Stage Zero,” Handfield said. “We don’t even know who’s in our supply base today.”
A Wall Street Journal analysis using NCSU data found that on a 1-to-5 scale, only 39 of 886 companies rated 4 or 5— putting them in an elite group with deep insights into their supplier base and the ability to communicate with suppliers to plan, resolve problems and collaborate on process improvements. The analysis also found that companies that excelled at supply chain management also were the best performers overall.