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The supply shock from the pandemic has “thrown sand in the gears of the economy”, according to George Magnus, an economist at Oxford University.
It’s an appropriate image to illustrate stop-start production lines and imbalanced shipping routes. Businesses around the world have been distracted by Covid for the past two years, but now they need to refocus. Recovering economies and building more resilient supply chains will be an ongoing process as we learn to live with the threat of the virus, but our attention must also be directed to another pressing issue facing humanity: climate change.
When the pandemic first hit, we found in our procurement community that 15 per cent of businesses had abandoned their plans to improve on their sustainability credentials as resources were redirected to manage the virus threat. However, the COP26 Summit last year reminded us that climate change hasn’t gone away but has been amplified: among the initiatives the conference committed to were phasing out the use of fossil fuels and a rapid transition to zero-emission vehicles. As the world watched, supply chain managers were also looking for clear direction on how they could become major contributors to the fight against environmental degradation, by implementing sustainable practices in sourcing and management of supply.
Ultimately, it is CEOs who must take full responsibility for the sustainability strategy of their organisations and how much of an environmental impact that organisation has – in good ways and bad. A global study by Bearing Point called CEOs “Chief Environmental Officers”, and said they should set the sustainability goals. I would also add that procurement and supply chain managers have a vital role to play in guiding that sustainability strategy, and should not only be a core part of these discussions but also lead and advise.
The Bearing Point study was particularly interesting because it highlighted some differences in perception around sustainability success. CEOs believed their organisations were more advanced in sustainability practices, whereas their operations teams were more downbeat. Supply chain managers understand the messy reality of the environmental impact of supply chains, and what can be done to make improvements. However, our research found that one in five supply chain managers were not involved at all in setting sustainability targets, and 43 per cent were “lightly involved”. As much of the UK’s environmental impact is generated in other countries, several tiers down in the supply chain – for example, in the extraction of raw materials or transportation – this is a serious omission when environmental concerns are being discussed.
So, if supply chain managers can add real value to sustainability strategies for businesses, why is there a reluctance to involve them at the beginning, and why do some organisations lack transparency about green claims in their supply chains?
Our research found that nearly half of UK businesses admitted to not being transparent about sustainability in their supply chains, perhaps because the checks and balances did not exist to scrutinise how true the claims were. Our study was conducted at a time when the UK’s Competition and Markets Authority said it was getting tough on businesses making ambiguous sustainability claims, or “greenwashing” their customers, and that they would introduce regulations. The CMA’s own analysis discovered around 40 per cent of green credentials claims made online could be misleading. So, with more scrutiny from regulators, more pressure from investors wanting to make greener investments, and consumers making more ethical purchases, businesses must simply get on with it.
So what can be done? Measuring and reducing carbon emissions? Carbon reduction is extremely important. However, for me there is the risk of too much focus on carbon reduction statistics in supply chains which are difficult to measure and verify – and carbon is not the only key indicator when reporting on sustainability impacts. Supply chain managers can build sustainable practices throughout all stages of the supply chain from beginning to end, tracking a product’s impact through its life cycle.
For example, sourcing products and raw materials that have good sustainability credentials to begin with offers an immediate positive impact. Also, collecting appropriate data from suppliers and matching that data to environmental and regulatory benchmarks means you’ll get a much better idea of the validity of those claims. Don’t immediately discard suppliers who lag behind in best practice, though – the focus must be on improvement. We are all in this together. So, whether competitors share transportation to cut emissions or businesses support their own suppliers to do better, we can work collectively on an issue affecting us all.
The skilful use of data and digitalisation in supply chains is also an important step in the fight against climate change and improving sustainability practices. Some procurement departments are now hiring data analysts on their teams and recognising the value that making sourcing decisions based on up-to-date information contributes to business operations. Data providers IHS Markit think more investment in digital systems is needed because more than 60 per cent of the businesses they spoke to believed they lacked the necessary data and platforms to make those informed sourcing decisions.
Further down the supply chain, some companies are using logistics providers with electric vehicles such as the London Fire Brigade and Microsoft UK – two of the 11 organisations commended by the Go Ultra Low Company initiative aimed at encouraging UK businesses to go electric. And there is the cosmetics firm L’Oréal, creating its own carbon-neutral warehouse, which is both more sustainable and its largest in Germany. Not every business has its own warehouse facilities, but storage providers are also becoming more aware of how companies want to enhance their reputation through their suppliers and are upping their efforts.
These are just a few examples of how creative supply chain management can make impactful contributions to achieving sustainability goals. Though we still have a long way to go, the good news is that 53 per cent of the businesses we spoke to were focusing more on sustainability, and 36 per cent said they were redesigning products to reduce waste, increasing the use of recycled materials and introducing more sustainably sourced materials into their supply chain. As consumers, investors and regulators add more pressure, businesses with strong and transparent sustainability records also attract the next generation of talent as more individuals look for organisations where they can feel part of addressing climate change.
So, I say to businesses and this profession: don’t wait for regulators or your board to tell you when the time is right. Make those changes now and the dividends, kudos and protection of our planet will follow.
Originally published on Business Reporter