Supply chain sustainability… are you ready for more scrutiny and regulations?

This is part two in a series of posts about sustainability and supply chain. In part 1, I defined sustainability and discussed its intersection with both climate change and supply chain. Today I‘ll discuss the various trends that have supply chains facing more scrutiny and regulations. “Sustainability” will only grow in importance, so it’s better to be proactive.

Although still highly controversial, the topics of sustainability, and more specifically, climate change, are steadily becoming more visible and important to much of the American public, moving higher up their list of “top priorities” every year (Source: Center for Climate and Energy Solutions). So what does this mean for you? Well, regardless of your political persuasion, the rise in prominence of these issues means that it would be prudent for businesses to begin preparing themselves for an increasing amount of scrutiny and regulations.

The past two years have witnessed an extraordinary accumulation of severe natural catastrophes that many link to climate change, with earthquakes, tsunamis, floods, hurricanes, and tornadoes being the primary cause of losses. 2011 holds the record for most economic losses globally, with 14 major weather events occurred costing at least $1 billion each.

2012 brought more destruction; the tab for Hurricane Sandy alone has been estimated as being as much as $60 billion. NYC Mayor Michael Bloomberg surprised many observers by taking a public stance on climate change, saying “Our climate is changing, and while the increase in extreme weather in New York City and around the world may or may not be the risk that it may be—given this week’s devastation—should compel all elected leaders to take immediate action.” Mayor Bloomberg’s call to action notwithstanding, the narrow majorities in the US House and Senate means that major legislation at the national level is probably still years away. Internationally, although there are many promises, binding agreements are few and far in between.

However, don’t let the lack of major legislation or treaties fool you; there are still some developments that you should know about. First, there is Executive Order 13514, which requires all federal agencies to report and disclose energy use and emissions, as well as set targets for energy reduction. And more than just reporting, a follow-up report from the GSA concluded that the federal government should use supplier reporting as an evaluation factor in contract awards—and eventually use this to de-select companies who do not report. So private companies are being affected by this as well.

There has also been significant action on the state level, the most notable being California Assembly Bill 32, which sets significant targets for carbon reductions by 2020, and Pennsylvania Act 29, which requires Pennsylvania’s seven major electric utilities to reduce the consumption and demand levels of their customers for energy. In the coming years, expect to see more states adopt similar legislation.

Looking ahead, there are new rules on the horizon that are designed to drive customer behavior changes with more reporting requirements for those who provide energy products. Also, expect more executive orders like EO 13514 and more EPA regulations. At the state level, more governors are getting involved with energy mandates and plans, putting more pressure on state regulatory commission. The only catch here is that commissions are reluctant to add costs to consumers, especially given the current economic climate. Finally, at the local level, some cities are requiring energy performance ratings (e.g. NYC, which will require public disclosure of energy usage in commercial building).

As I mentioned in my first post of this series, reducing the carbon footprint through the supply chain is an obtainable objective. Traditional supply chain goals such as reducing inventory, increasing flow-through, reducing packaging and material costs—are all consistent with a lower carbon footprint. The question is, do you have the tools that can accomplish these goals as well as capture the kinds of information necessary to meet any reporting requirements?

So what are your next steps? In my next post, I want to get more specific by providing sustainability checklist.

Bruce Tompkins

As the Executive Director of the Supply Chain Consortium, Bruce serves as a subject matter expert on topics spanning the supply chain, and he is the conference chairman and facilitator for the Consortium’s annual event – the Supply Chain Leadership Forum.
He has been quoted in numerous industry publications including Supply Chain Quarterly, IndustryWeek, SupplyChainBrain, and Appliance Magazine.