Procurement teams today face tough CSR issues to address with the potential to cause huge organizational damage. Does an organization support poor working conditions, forced labour or other human rights violations anywhere in its global supply chain? How do climate risks affect a supply network, and what carbon footprint do individual products leave behind? Is a business consistent in its social and ecological practices? Questions such as these have now found their way onto every CPO’s agenda.
The UN Sustainable Development Goals (SDG) have gained prominence for more leadership teams around the world. In a range of sectors including manufacturing, oil & gas, chemicals and pharma, sustainability is not only the right thing to do, but a mix of various factors make clear and fast action now a fiduciary requirement too.
In past times of crisis, be that political or environmental, sustainability matters have often been put aside. Today, sustainability in supply chains is a long term demand. Some of the key drivers that increase pressure on companies include:
- Consumer pressure – customers identify with brands on different levels, and environmental interest groups have successfully raised a new level of awareness in consumer consciousness.
- Greater scientific understanding – science has provided a great many new facts about the environmental consequences of global production and supply chains which legislators are committed to addressing.
- Importance of ESG to employees – there is a strong sense of shared responsibility in today’s workforce. Teams today want to identify strongly with the values and mission of a business.
- Need for innovation – new greener technologies can help protect revenues and market share as an opportunity for differentiation and future proofing in fierce markets.
- Risk reduction – pivoting to new partners to diversify a supplier portfolio can improve resilience.
Sustainable supply chains for competitive edge
As a result, businesses should recognize the new opportunities that sustainable sourcing opens up. In recent years, investors have rewarded companies that perform strongly on environmental, social and governance (ESG) issues while punishing laggards.
By improving their environmental performance, companies can not only improve the planet’s prospects but also improve their results – through related cost reduction, revenue enhancement, greater innovation, access to new markets, brand enhancement (potentially supporting premium pricing), greater ease in attracting and retaining talent, and other benefits.
For example, according to BCG, in the steel and chemicals sectors, companies that outperform their competitors in carbon emissions per dollar of revenue receive valuation premiums of up to 14%. CPG firms leading in ESG metrics enjoy an 11% valuation premium.
In order for companies to publish and report on Sustainable Development Goals, they must not only look at their own operations, but also those of their suppliers. Key stakeholder groups such as customers, employees, investors and business partners now expect companies to be able to provide information on how they ensure that minimum social and ecological standards are met along the entire value chain. Transparency is key to a sustainable supply chain.
The concept is to proactively select those SDGs that require improvement internally. Truly purpose-driven organizations will go beyond cherry picking SDGs they already perform well under (or “greenwashing”) and challenge themselves to fundamental transformation from the ground up.
Which goals will you pick? Check out the full list of UN Sustainable Development Goals here.
Supplier competition key to progress
Whilst this may appear to be a substantial undertaking, AI-driven technology today can actively transform such supply challenges into opportunities. scoutbee’s mission is to establish and strengthen your supply-demand partnerships by organizing the world’s supply chain information and making it easily accessible and useful – and this includes sustainability metrics.
Supplier insights platforms like scoutbee provide a holistic view of a suppliers’ sustainability performance, including certifications, historical reporting and news on past environmental events. Prequalification of top-performing vendors, facilitated by digital solutions, can streamline data collection and expectation-setting later on.
By benchmarking for sustainability we can encourage more supplier entrants and more green offers – as a sustainability focus will lead to supplier innovation and competitive advantage. Only when we have sufficient sustainable opportunities at hand (for example, 10 suppliers identified instead of only two) can sustainability become a real competitive factor.
The German government is leading the way on a legislative basis, by soon introducing its ‘Lieferkettengesetz’ — meaning “supply chain law” — which obliges companies to track and adhere to workers’ rights and environmental standards, not just in their own structures but also those of their suppliers at home and overseas. From 2023, the law will first apply to companies with over 3,000 employees, before being rolled out to include those with 1,000 employees from 2024.
As laws like Germany’s ‘Lieferkettengesetz’ and Sustainable Development Goals will be increasingly adopted into regional and domestic laws, supplier insights have become more crucial than ever. Having supplier profiles with relevant verified ESG information at your fingertips and the ability to use such insights to pivot towards optimal supply options is now vital.
Reach out to us today and discover how we can support your procurement sustainability goals at firstname.lastname@example.org.