Covid-19 has instigated significant changes in global procurement and supply chain operations. The global lockdowns exposed supply chain weaknesses, which were pervasive even before the pandemic, especially sub-par labour practices. Yet it has also opened up opportunities for a sustainability transformation.
As KMPG research from 2017 warned, supply chain fraud and corruption is a widespread problem. What has been underlined since is that, driven by their complexity and scale, supply chains are a significant source of corporate risk – hiding impacts that can negatively affect sustainability performance and reputation.
It should come as no surprise that measuring and monitoring key impacts is necessary for effective and well functioning supply chains – with transparency throughout all practices. This is a central premise in the GRI Standards, the world’s most widely used sustainability reporting framework, which includes a dedicated Procurement Practices Standard.
To drive focus on how companies can respond to growing demands to do more to ensure transparent supply chains, GRI’s sixth installment of the Expert Series on Sustainable Business Leadership took place in May, under the theme sustainable procurement in supply chain operations. Bringing together expert speakers, it addressed why and how procurement managers could be the vital missing link to corporate sustainability. Key takeaways from the session are shared below.
Understanding supply chain complexity
Supply chains are complex due their sheer magnitude, expanse and constant state of flux – driven by numerous factors, such as expanded line of products and markets, faster lead times, multi-party inventories, and a manifold of data sources from hundreds and thousands of suppliers of different tiers. As such, supply chains can be a major pain-point for companies.
Multiple research sources have indicated that supply chains often account for a majority of a companies’ environmental impact, including those on air, land, water and biodiversity. In addition, WEF analysis in 2021 found more than 50% of global CO2 emissions concentrated in the supply chains of just eight industries.
While many large corporations are committed to entrenching fair economic, environmental and social practices throughout their supply networks, too often these commitments fail to be effectively translated and cascaded. From Nike to Apple to H&M, there have been many damaging revelations at multinationals in recent decades that were rooted in failings in the supply chain. If our largest corporations struggle with the issue, it stands to reasons that ‘regular’ businesses may not be faring better.
Sustainalytics’ future-proofing supply chains study, meanwhile, estimated that up to 90% of a company’s sustainability impacts occur in a firm’s supply chain. As Francesca Placa, Commercialisation and Product Manager of Sustainalytics, explained, “whether directly or indirectly regulated, sustainability in supply chain operations is going to cascade down. That means the risk of inaction will be detrimental – not only on the reputation of firms but also on shareholder value.”
Push and pull – regulatory changes are coming
With the myriad possibilities of persistent and pervasive abuses and misconduct that occur in supply networks, it is imperative for any organisation to identify and address vulnerabilities in the supply chain, as inaction can have catastrophic effects. The pandemic has forced companies to finally up the ante on their supply chain resiliency as a key factor to sustaining business operations.
With the proliferation of the jargon on ‘green recovery’, ‘net zero’ and ‘decarbonisation’, supply chain sustainability-related regulations around the world are also on the rise, including:
- The upcoming EU Corporate Sustainability Reporting Directive will raise the bar for how far ESG data should be collected beyond a company’s own operation;
- The US SEC’s proposed climate disclosures are expected to require public companies to disclose climate-related risks from their upstream and downstream suppliers;
- Germany’s new Supply Chain Due Diligence Act will require large companies to ensure social and environmental standards are observed in their supply chain.
Call for sustainable solutions
With the likelihood of increased legal compliance requirements, companies need to monitor their own operations and direct suppliers worldwide, and act if they find violations. As Nick Heine, Co-Founder and Head of Sustainability & Compliance with IntegrityNext, identified, there are digital solutions to help buyers and suppliers alike.
“While the issue is complex, it is solvable,” Heine said.
“With digitalisation, there are tools to help companies set up their database and track suppliers. With technology, buyers can extend their focus beyond the top spenders or strategic suppliers,” he said.
“For companies with an extensive supplier network, leveraging digital solutions will help procurement professionals to identify and track the most sustainable suppliers in their network.”
Olivier Tichit, Sustainability Director of Musim Mas Group, shared his perspective based on more than 20 years in coffee and palm oil supply chain management.
“Buyers increasingly want to know not only about your suppliers but also the suppliers of your suppliers – and how you verify the information they provide,” Tichit said.
He further explained that these demands have made buyers responsible for educating their suppliers on sustainability.
“Business is very personal in Asia and there is a fear that data sharing will negatively affect the business – but gaining trust from suppliers is also key in driving a sustainability transformation in the supply chain,” he said.
Supply chain accountability is a leadership imperative
By building a complete picture of impacts throughout the supply chain, companies can identify and adjust procurement practices that cause or contribute to negative impacts in the supply chain. Embracing globally-applicable reporting standards, such as those from GRI, helps organisations to collaborate with the suppliers, setting clear KPIs for sustainability, which in turn is a driver for accountability.
In case you missed it: Embracing Sustainability in Supply Chain
Purposeful and responsible leadership from the very top of the organisation is essential for a truly sustainable company, supply chain included, particularly in Southeast Asia where family-owned businesses are still prevalent. As Walter Buczynski, Senior Seminar Leader with the Procurement and Supply Institute of Asia (PASIA) shared, there are reasons for optimism, with a new generation of leaders taking sustainability and climate change more seriously: “we have not inherited the environment from our parents, we have the environment on loan for our children. Let’s make sustainability personal, it gives us motivation to act.”
The seventh – and final – installment of the GRI Expert Series on Sustainable Business Leadership takes place on 14 July: Role of investor relations in integrating sustainability in investment strategies.