No longer just a “nice-to-have,” supply chain sustainability comes to the forefront for companies that want to comply with regulations, meet their customers’ and employees’ requirements, and compete more effectively in the marketplace.
As customers, employees and business partners become increasingly focused on supply chain sustainability, organizations are embracing environmental, sustainability and governmental (ESG) strategies not only to eradicate harmful practices, but to also create value and accelerate business transformation.
“This transformation focuses on long-term value creation both for the company and its stakeholders and the wider context, both environmental and human, in which it operates,” EY states in How sustainability strategies can create competitive advantage.
“By focusing on benefits — sustainable and circular product cycles, innovative and equitable employment models, sourcing transparency, investment in innovation — and embedding sustainability in different functions of the business and across the value chain,” it continues, “companies in the vanguard are discovering new sources of competitive advantage.”
This is a significant shift for organizations that viewed sustainability as a cost center or “necessary evil,” versus something that could help set them apart in the competitive business world. As ESG topics rise on the corporate agenda, some companies do remain mired in old ways of thinking, treating ESG as compliance, altruism, or corporate responsibility, Fortune reports.
“They have hired a chief sustainability officer but haven’t yet mobilized the organization to adopt a sustainability lens. They have equity and inclusion on their scorecard but haven’t yet built equity and inclusion into their culture and business every day. They publish disclosures but haven’t crafted a distinctive story to share,” the publication explains. “They use their ESG agenda to guide donations when they could be using ESG to guide their biggest strategic decisions.”
The truth is, studies show that purpose and ESG can be key to long-term performance. “We have found that high-purpose companies are more than twice as likely to rank in the top two quartiles of 10-year total shareholder return performance as their low-purpose peers,” Fortune reports. “And top performers on ESG topics are rewarded with valuation multiples 3% to 19% higher than median performers.”
People, Planet & Profit
According to Gartner, Inc., supply chain sustainability delivers business value by reducing costs, spurring productivity and in some cases, driving returns. There are also regulatory and compliance reasons to focus on supply chain sustainability. It says 30% of supply chain leaders today have no or low-maturity supply chain sustainability initiatives in place, with common obstacles including limited resources, conflicting priorities, lack of understanding of sustainability concepts and low visibility on early wins.
Fairmarkit says effective supply chain sustainability encompasses three responsibilities: social, environmental and financial. It can be measured using three different elements: people—the social equity bottom line; planet—the environmental bottom line; and profit—the economic bottom line. Here’s a closer look at how each of these elements contributes to a company’s supply chain sustainability and helps create competitive advantage:
- People: A focus on people helps you understand your impact on your staff and the communities in which you operate. “Understanding your supply chain’s impact on the environment leads to improvements in energy efficiency and a host of logistics optimizations,” Fairmarkit points out. “And of course, improving profits means adding financial value and cost savings to your organization.”
- Planet: Environmental concerns in the supply chain include considerations like: How much waste are your suppliers and your delivery logistics generating? Are your vendors’ manufacturing operations polluting the environment or helping to clean it up? And, what are your supply chain’s water and energy usage rates, and what’s your overall carbon footprint?
- Profit: Supply chain sustainability is about helping the people your organization touches and the planet on which we all live. But it is also about positioning your company to be sustainably profitable. “Towards this goal, digitization and process automation are great tools for lowering costs and maximizing profitability,” Fairmarkit adds. “Supply chain sustainability helps your business diversify sourcing partners, become more efficient and save money.”
Using Tech to Drive Sustainability
According to EY, the best sustainability initiatives require adjustments to existing business practices. They also require technology platforms that can streamline, track and help companies continuously improve upon their existing sustainability initiatives.
“Sustainability and ESG strategies start with a bold goal — achieve net zero carbon emissions by 2030 for example — and from there grow to inform every organizational function and business decision,” EY points out.
“A strong sustainability strategy can transform how a company operates,” it adds, “how it manages its relationships with its workforce, suppliers and customers; how it manages resources; and how it creates long-term value for all its stakeholders.”