Sustainable Supply Chain

Sustainability: Part 1 – The Drivers for Global Supply Chain Managers

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How companies can achieve more sustainable supply chains.

Enterprises are under enormous pressure from stakeholders to become more green – reduce emissions, eliminate waste, and increase sustainability. Beyond reducing waste, water, and C02, companies are looking at renewable sources of energy, agricultural practices, and new forms of product packaging as well. With shareholders, customers, employees and community leaders saying, “Prove to me exactly what you’re doing to reduce your impact,” the issue of sustainability is having a real effect on buying decisions, brand perception, and shareholder value.

Pam Fitzpatrick of Gartner says that supply chains are ideally suited to help the business balance growth, profitability and social purpose. Reiner Musier Ph.D explains how supply chains can be optimized for sustainability... Click To Tweet

In recent research on sustainable business, Gartner’s Pam Fitzpatrick notes that supply chain organizations are “perfectly positioned to help the company strike the right balance of growth, profitability and social purpose as it makes its sustainable business shift. To get there, Chief Supply Chain Officers CSCOs must lead end-to-end value networks on a reorientation to corporate social responsibility (CSR). With this approach, decisions account not only for profitability, but also for the environmental and social impacts that result from a company’s choices.”  Success here will rely on several factors, according to Fitzpatrick:

  • The capacity to collaborate within the supply chain and the end-to-end ecosystem, including other business functions, suppliers, and trading partners. CSCOs must align supply chain’s balanced profitability and sustainability goals with these stakeholders.
  • A “systems-thinking” approach that trains the organization to make decisions in the context of ecosystems, not silos. CSCOs must cultivate an ecosystem mindset.
  • The capacity for innovation. CSCOs should invest in innovation management capabilities to create lasting value within the supply chain organization and for the world around us.

Disclosure Trends in Corporate Social Responsibility (CSR)

Further, several CSR trends are driving the demand for supply chain organizations to publicly disclose more about sustainability in the end-to-end supply chain:

Regulations:  Since 2010, various jurisdictions have passed laws requiring large companies to disclose information about how they address human rights in their supply chains. For example, Dodd-Frank includes “conflict minerals” requirements for companies to disclose assurances about sourcing practices. In the EU, a conflict minerals reporting law takes effect in 2021 and the EU has also issued regulations for non-financial reporting which require companies to disclose information on the way they operate and manage social and environmental challenges.

Expanding voluntary standards, such as the Carbon Disclosure Project, now collects disclosures on supply chain, forest impacts and water use as well. Additionally, the Global Reporting Initiative has introduced new reporting standards with increasing numbers of sector-specific disclosure standards emerging. Regrettably for businesses, these standards often define performance indicators differently, which means that companies must measure and collect data about similar topics (such as water consumption, emissions, or waste volumes) in different ways.

Stock exchange and investor priorities are also causing companies to take action. Twelve stock exchanges now have mandatory disclosure requirements for their listed companies, and institutional investors are increasingly vocal about their interest in environmental, social, and governance (ESG) issues, even using such data in trading decisions. What do these trends have in common? All require a response by businesses that includes new processes, platforms, metrics, reporting, speed, and accuracy. And let’s not forget efficiency is also required, so that the burden of these new obligations remains manageable and cost effective.

Transportation’s Role in Greenhouse Gas (GHG) Emissions

A key part of the sustainability discussion, and maybe the most talked about, is greenhouse gas emissions. Transportation contributes more than any other sector to anthropogenic U.S. greenhouse gas emissions. Within the transportation sector, light duty vehicles and medium to heavy trucks contribute 82 percent of emissions.

Transportation plays a major role in contributing to greenhouse gas emissions, with light duty vehicles and trucks generating 82%. Here is what companies can do to mitigate the effects... Click To Tweet

Enterprises have only two possible responses when it comes to GHG emissions from transportation fuel consumption. The first is to operate in ways that minimize the overall carbon emissions. Once emissions are reduced to the greatest extent possible, the second response is to offset all or part of their carbon emissions in some fashion so that firms can make the net impact of their operations more carbon neutral and sustainable.

Offsetting Greenhouse Gas Emissions. An offset is a reduction in emissions of carbon dioxide or other greenhouse gases made in order to compensate for emissions made elsewhere, as in your transportation network. These offsets are typically measured in tons of carbon dioxide-equivalent (CO2e), with factors for reductions of other greenhouse gases, such as methane, nitrous oxide, or fluorinated gases.

Through governmental and voluntary programs, offsets have become tradeable commodities. They have a cost, a value, are serialized and are created through regulated and certified programs for various types of green projects including:

  • Renewable energy, such as wind or solar farms
  • Biomass energy projects
  • Hydroelectric dams
  • Energy efficiency projects
  • Destruction of industrial pollutants or agricultural byproducts
  • Destruction of landfill methane, a greenhouse gas
  • Forestry projects – the permanent planting of trees to sequester carbon

Global enterprises are increasingly moving to offset some or all of their carbon emissions footprint over time. This applies not only to direct fossil fuel consumption in operations or transportation, but also to electricity consumption from the grid. However, since most public power companies now offer green power programs to their customers – where the power company has already purchased renewable energy credits (RECs) on behalf of its consumers – the complexity of managing such programs becomes easier for businesses.

As we’ve said, the first step is to reduce emissions to the greatest extent possible, and that means effective supply chain management, which will be discussed further in the forthcoming, Sustainability: Part 2 – The Important Role of Global Supply Chain Managers.

Reiner Musier