The Role of Supply Chain in Meeting your Environmental, Social and Governance Goals

When asked, most executives will identify their manufacturing operations as the most polluted function in their business, however recent research has identified that supply chains operations are responsible for 90%[1] of an organisation’s ecological footprint.

When further assessing this statistic, it makes perfect sense. Supply Chains Operations encompasses so many components of a business, from the procurement of supplies to pack and shipping, to last-mile delivery. The bulk of an organisation’s supply chain activities are likely conducted in warehousing, distribution, and logistics.

10 years ago, only a few businesses were interested in tackling their ecological footprint, however, since the introducing of the Paris Climate Agreement in 2015, and recently COP26[1], not only governments but also the investment community are putting pressure on businesses to introduce initiatives towards a more sustainable, low carbon future. The Paris Agreement and the United Nations Climate Change Conference(s) have created an international standard for business action. As countries work to implement their national climate plans and policies, more and more businesses are reducing emissions and building climate resilience.

As of the Global Climate Action Summit in September 2018[2], 492 companies – 17% of Fortune Global 500 companies – had committed to Paris-aligned emission reduction targets, an increase of 40% over the past year. New research from independent analyst firm, Verdantix, shows that 92% of firms have been changing their overall business strategy. Now, 3 years later (2021) an 8% increase, 25% of Fortune Global 500 companies have made a public commitment to become carbon neutral by 2030 or meet a science-based emission reduction target.

Combining this global business ambition with the largest “culprit” in an organisation, the supply chain operations, we know that many organisations are introducing sustainable and ethical practices. Although the focus of many businesses is on reducing their carbon footprint, numerous organisations have started to address the broader Environmental, Social and Governance (ESG) goals, incl. Modern Slavery & Human Trafficking, Biodiversity, Gender equality, etc.

“Although the Fortune Global 500 companies have started on their ESG journey, COP26 has identified that two-thirds of small businesses have no plan to tackle climate change”

Are you playing your part?

Even though a number of Small & Medium Enterprises (SME’s) have started to introduce supply chain and/ or operational sustainability initiatives, incl.; cutting production emissions, lowering their energy and water usage, sourcing products from ethical suppliers, and ensuring their physical waste is properly disposed of, and with as-small-a-carbon-footprint-as-possible.

However, many of these initiatives are ad hoc, executed in silos or without clear supply chain, operational and/ or financial goals. We have seen with our clients that the coordination between the different Environmental, Social and Governance (ESG) initiatives, and furthermore the ability to monitor, manage and report on the various initiatives is a challenge. It’s one thing to have an ESG vision and create ESG goals and targets (KPI’s), but it’s more important to ensure that the progress of these initiatives can be tracked, actioned, and reviewed.

In the last few years, we have seen how consumer’s perception has a direct impact on an organisations’ reputation, as consumers are demanding better visibility in an organisation’s sustainability ambitions. This is now resulting in businesses not only providing these ambitious goals with targets and percentages, but there is an expectation that external, independent ESG auditors assess if these goals are realistic and can be achieved. This has also introduced the Triple Bottom Line[3] (TBL), which is an accounting method – Planet, People, Profit – that ensures an equal focus on ESG (Planet & People) as on their Financials (Profit).

In April 2021, E&Y, the auditor for Shell, provided “question marks” around meeting its 2050 climate goals, as their current, short-term, and medium-term actions would not meet their “ambitious climate targets”. Shell responded that their action plans were dependent on “society”. Shell claimed that only when the public is ready for adopting “their” climate initiatives, they would be able to meet their climate goals, therefore highlighted that these findings by E&Y’s were unsupported claims. However, this and other similar incidents have started discussions around how these organisations can be held responsible and accountable for actively contributing to the Paris Climate Agreement, and voices in the investor community are looking for solutions that provide an independent assessment of an organisation’s ESG metrics, ensuring that businesses are not playing lip-service to support public opinion, but are actively introducing measurable ESG initiatives that contribute to meeting their ESG goals and targets.

When and how do I start?

It’s important to know that any initiative, incl. ESG initiatives, should create an operational and/ or financial benefit for your business. There has been much pre-pandemic research that shows that businesses that adopt ESG substantially outperform their peers. A recent article in the WSJ, highlighted those organisations with better ESG scores tend to generate better earnings over a five- to seven-year period than those with lower ESG scores.

So, it doesn’t matter how small you start or with which ESG initiative, it’s important to start this ESG journey, not only to create a better future for your business, but also for your customers, your employees, and your community.

 

Unique Excellence[4], in partnership with Mondo Ventures[5], have developed a leading ESG SaaS solution that is able to combine external ESG metrics, indexes and benchmarks with an organisation’s internal data sources. We support your business in establishing SMART ESG goals and targets, connected with the Triple Bottom Line, which allows you to ensure that any ESG initiative has an operational and/ or financial benefit. Our solution is able to actively support businesses in monitoring, tracking, and managing their ESG initiatives, progress, and outcomes, creating comfort that the organisation is creating a better future…

[1] https://ukcop26.org/

[2] https://www.wemeanbusinesscoalition.org/policy/paris-rulebook/

[3] https://www.investopedia.com/terms/t/triple-bottom-line.asp

[4] https://www.unique-excellence.com/data-analytics-and-visualisation

[5] https://mondo.ventures

[1] https://youmatter.world/en/sustainability-supply-chain-27935/

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