90% of your company's emissions come from its supply chain. Here are five steps to make it environmentally, socially, and financially sustainable.
A study by McKinsey illustrates that 90% of a company's emissions originate from its supply chain. This fact alone suggests that a sustainable supply chain should be priority #1 for most businesses. However, it leaves out the unsustainable social and financial practices plaguing the world economy. To make a positive change and improve the lives of millions, companies need to ensure their supply chain moves toward sustainability. Here are the five steps they must take to get there.
Supply Chain Sustainability Begins with a Map
Most companies have never taken the initiative to map out their supply chain's effects on sustainability. The first step is to inventory their suppliers, looking at the most prominent environmental, social, and financial challenges each one faces. From there, it is easy to rank-order them and determine which ones need special attention.
Expectations Should Be Clear and Apply to the Whole Supply Chain
It is sad that not every company values sustainability – particularly at lower tiers on the chain. Developing a sustainability "code of conduct" for your suppliers is an excellent way to propagate your values. Moreover, publishing the code is an effective tool for building social proof among existing and potential customers.
Many industries have trade organizations that offer a standardized code of conduct for member companies, some even requiring adherents to demand that next-tier suppliers acknowledge and adhere to the code. For example, the Responsible Business Alliance (RBA) demands that members "at a minimum" enforce compliance to the next tier.
The complexities of a sustainable supply chain require a map - once companies understand the nature of their suppliers' challenges, they can seize the opportunities for progress.
Benchmark Data Come from Assessments and Surveys
After communicating the standards you want suppliers to meet, you must collect data from them to determine where they stand. Early on, simple surveys and questionnaires will suffice for benchmarking. Some organizations in larger industries have even developed standardized questionnaires to reduce the burden on suppliers. Instead, they can fill out the information once and present it to all the companies they supply.
The RBA cited above offers one such assessment – appropriate both for members and their suppliers. The Electric Utility Industry Sustainable Supply Chain Alliance (EUISSCA) provides similar benchmarking support. Pacific Gas and Electric (PG&E) has used the EUISSCA survey to monitor its suppliers' greenhouse gas emissions, water use, and waste production, allowing PG&E to meet California's goal of 33% renewable electricity nearly three years ahead of schedule. Notwithstanding PG&E's various controversies, its supply chain success illustrates the importance of diligent interaction between companies and their suppliers.
Successful Suppliers Make Great Examples and Teachers
Many companies further down the supply chain do not have the knowledge base to address sustainability initiatives adequately. This difficulty is particularly acute for firms in developing nations, where local customs and traditions do not align with social or environmental sustainability goals. However, multinational corporations can take responsibility for supporting their transition to sustainable practices.
One of the best ways to impart the knowledge required to meet sustainability guidelines is to highlight the best practices of successful suppliers through online or in-person training. This method brings two benefits. First, it gives recognition and validation to the suppliers who work hard to meet compliance metrics. Second, it offers developing firms access to real-world examples, allowing them to learn from compliant suppliers in their industry.
HP offers an illuminating case study. Its successful capability-building program is an integral part of its sustainability initiative. In 2021, it provided support for over 37,000 workers down the length of the supply chain. The program offered RBA Code of Conduct training and presented webinars on Forced Labor, Foreign Migrant Worker Training, Grievance Mechanisms, and Worker Well-Being.
Audits and Incentives Can Drive Progress
Once you have systems to get supplier compliance baselines (and potentially help them develop their workforce), a thorough auditing program can track their progress over time. Unlike survey questionnaires, on-site audits can highlight local challenges and the opportunities to meet them.
While communication and transparency with suppliers are great ways to encourage sustainability, incentives can be a substantial motivating factor. Awarding suppliers more business is a straightforward way to reward them. Incentive structures naturally vary from industry to industry, but giving sustainable suppliers greater access to your value chain (customers, clients, etc.) is a practical general tip.
Of course, if a supplier spent all its time reviewing audits for all its customers, it wouldn't have time to supply anything. Therefore, some industries have developed tools that operate on standard auditing protocols. For example, Higg has developed the Sustainability Insights Platform as an all-in-one auditing tool for the clothing industry. Likewise, the RBA has instituted its Validated Assessment Program (VAP) for the electronics industry, while the Together for Sustainability (TfS) initiative connects chemical companies with uniform assessments and audits.
Businesses Must Exhibit Constant Attention and Encouragement to Suppliers
The complexities of a sustainable supply chain require a map - once companies understand the nature of their suppliers' challenges, they can seize the opportunities for progress. Businesses must share clear expectations with their suppliers, getting benchmark data from self-assessments and surveys. Furthermore, they should perform regular audits within an incentive structure that rewards compliance. Once every member of the chain has the proper tools (training, education, social equity, etc.), it can become environmentally, socially, and financially sustainable.
Leverage – Regular audits are excellent. However, new technology can track/monitor supplier performance in real time, allowing you to support them more quickly.
Assess – What other aspects of your business can you assess for sustainability? People often overlook logistics, an area with many opportunities for improvement. Assess elements of your chain that do not involve just the suppliers.
Expand - If your supply chain is sustainable, move your focus beyond your direct operations. Get more involved in promoting sustainability in the communities of your suppliers.