Supply Chain Sustainability and its Role in a Company's ESG Program
Supply chain sustainability is increasingly becoming recognized as a critical component of corporate responsibility. Managing a company’s environmental and social impacts of their supply chains makes good business sense and can positively impact communities.
Looking at a company’s Environmental, Social, and Governance (ESG) considerations have become central to business and investment decision-making and is an important discussion amongst stakeholders.
Awareness on ESG issues has steadily grown over the decade, and consumers are holding companies accountable for their social and environmental responsibilities.
Social media has put companies involved in ESG controversies in the spotlight and made them heavily prone to consumer backlash that could cost millions. In fact, Bank of America found US companies in 2019 lost more than $500 billion in market value over the prior five years from controversies related to corruption, data privacy, sexual harassment, and more.
Issues like climate change are also forcing corporations to take a look at their ESG and sustainability practices. Businesses across industries—from transportation to gas to retail—have heavy environmental footprints, which have been pushed into their supply chains.
Because of this, we’re seeing an ever-growing interest in ESG supply chain management and companies committing to finding innovative ways to reduce their carbon footprints.
What is sustainability in supply chain management?
Supply chain sustainability should be integrated in your supply chain management and include managing environmental, social, and economic impacts—and the encouragement of good governance practices—throughout the lifecycles of goods and services.
The goal of supply chain sustainability is to create, protect, and grow long-term environmental, social, and economic value for all stakeholders and suppliers involved producing and selling a product.
What are the challenges for incorporating sustainability in your ESG Program and supply chain?
According to the UN Global Compact, supply chain practices are the biggest roadblock to achieving sustainability, and hence require utmost executive and board commitment. There are many reasons why companies start a supply chain sustainability journey:
ensure compliance with laws and regulations
expectations from society and consumers
beneficial for reputation and therefore business
Although there are benefits to a sustainability / ESG Program, companies sometimes struggle with getting on board. Some may still view sustainability as a nice-to-have, not a must-have.
Others may struggle knowing where to start. Rolling out an effective sustainability / ESG Program takes time, development of measurable goals and objectives, research, and commitment, especially from managers and senior leadership.
Best practices for starting a program:
Set clear supply chain sustainability targets to report quantifiable progress
Impose ESG supply chain requirements through formal contracts
Establish adequate governance structures
Create incentives to improve ESG supply chain performance
Assess, manage, and monitor ESG supply chain risks
Enhance supply chain traceability and transparency
Engage with suppliers
Avetta serves as a leading supply chain risk management provider working with major organizations across industries to provide real, cost-effective solutions. Through our Avetta ConnectTM platform, we’ve helped businesses with their sustainability management and reaching their ESG goals.
Our approach allows the client to utilize data that has been produced by suppliers to uncover ESG insights and protect their global supply chains.