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Ensuring your supply chain is sustainable and ethical

Supplier climate actionSus­tain­abil­i­ty has become increas­ing­ly impor­tant to the busi­ness com­mu­ni­ty and com­pa­nies look­ing to become more sus­tain­able soon turn their atten­tion to sup­ply chains.

Issues com­pa­nies need to tack­le include cli­mate change, resource scarci­ty, water avail­abil­i­ty, labour con­di­tions and mod­ern slav­ery.

“The imper­a­tive to man­age sup­ply chain risk has nev­er been high­er,” says Geoff Lane, a sup­ply chain sus­tain­abil­i­ty expert at con­sul­tan­cy PwC. “We are see­ing a step change in inter­est for two rea­sons. It is becom­ing ever­more impor­tant for any com­pa­ny with a brand to pro­tect – if some­thing goes wrong in the sup­ply chain, it is going to come back and bite you. And the oper­a­tional risk is increas­ing too, in rela­tion to access or avail­abil­i­ty of raw mate­ri­als.

“In the past, com­pa­nies would talk to their sup­pli­ers and then leave them to get on with it. But there has been a real­i­sa­tion that this is not good enough. Now there is a much more hands-on approach.”

 

Engaging with suppliers

One exam­ple of this is the work done by the sup­ply chain pro­gramme of CDP. The glob­al dis­clo­sure not-for-prof­it envi­ron­men­tal organ­i­sa­tion wrote to 4,300 sup­pli­ers on behalf of 89 of the world’s biggest pur­chasers, who spend $2.7 tril­lion between them with sup­pli­ers, ask­ing for data on their car­bon emis­sions.

“For the aver­age com­pa­ny, the vast major­i­ty of its green­house gas emis­sions are in its sup­ply chain – four times its direct emis­sions,” says Dex­ter Galvin, head of the sup­ply chain pro­gramme at CDP. “Far too lit­tle is being done to engage sup­ply chains, but there is a huge oppor­tu­ni­ty from doing so.”

The sup­pli­ers who respond­ed to the CDP request report­ed that they cut 434 mil­lion tonnes of CO2 emis­sions, equiv­a­lent to the amount pro­duced by the French econ­o­my, and saved $12.4 bil­lion in the process.

But it is not just emis­sions that sup­pli­ers need to tack­le. There is a grow­ing demand from con­sumers to know the source of the prod­ucts they buy, in part so they can be assured work­ers or ani­mals are not being exploit­ed. “Cus­tomers want prove­nance like nev­er before,” says Mur­ray Sayce, a sus­tain­abil­i­ty expert at Ram­boll Env­i­ron.

There are also a grow­ing num­ber of reg­u­la­tions that require busi­ness­es to deal with their sup­ply chains, from the high-lev­el aspi­ra­tions of the Paris Agree­ment on cli­mate change and the sus­tain­able devel­op­ment goals of the Euro­pean Commission’s Direc­tive on Non-Finan­cial Report­ing, the UK’s Mod­ern Slav­ery Act and list­ing require­ments from stock exchanges.

For the aver­age com­pa­ny, the vast major­i­ty of its green­house gas emis­sions are in its sup­ply chain

But sup­ply chains are increas­ing­ly com­plex and opaque. “Some com­pa­nies will have 10,000 sup­pli­ers, for exam­ple cocoa farm­ers in Ivory Coast or in the tex­tiles indus­try in Bangladesh. Get­ting vis­i­bil­i­ty to the end of the sup­ply chain is vir­tu­al­ly impos­si­ble,” says Mr Sayce. To improve this sit­u­a­tion, com­pa­nies need to map their sup­ply chains, iden­ti­fy­ing hotspots for issues such as human rights, gen­der diver­si­ty and polit­i­cal sta­bil­i­ty, he says.

While this has been dif­fi­cult in the past, com­pa­nies now have much more tech­nol­o­gy and data avail­able to them, and the capac­i­ty to analyse it prop­er­ly. “There is an emerg­ing use of data and ana­lyt­ics that is help­ing com­pa­nies to pre­dict where risks are going to occur,” says PwC’s Mr Lane.

Com­pa­nies are impos­ing stricter require­ments on their sup­pli­ers, with some drop­ping those that fail to imple­ment more sus­tain­able prac­tices, adds Mr Galvin.

There is also a grow­ing recog­ni­tion that many issues are too big for sin­gle com­pa­nies to tack­le on their own, accord­ing to Dominic Regan, senior direc­tor, Europe, Mid­dle East and Africa logis­tics appli­ca­tions, at Ora­cle. “The next lev­el of sav­ings will come from col­lab­o­ra­tion across sup­ply chains,” he says.

Ini­tia­tives range from shar­ing logis­tics oper­a­tions to indus­try co-oper­a­tion through schemes such as the Cement Sus­tain­abil­i­ty Ini­tia­tive, Bet­ter Cot­ton and the Round Table for Sus­tain­able Palm Oil. Mr Sayce con­cludes: “The more com­pa­nies that share this infor­ma­tion, the eas­i­er it becomes.”