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There was a time when organizations considered their sustainability efforts to be cost centers. They were the moves that companies had to make in order to stay compliant, adhere to regulations and keep their customers and business partners happy. Sustainability was a necessary evil of doing business, if you will, but not necessarily something that companies could use to differentiate themselves in a competitive marketplace.
Formally defined as the “avoidance of the depletion of natural resources in order to maintain an ecological balance,” sustainability has come to mean a lot of things. As consumers increasingly look to the companies that they buy from to serve as good environmental stewards, some of those organizations are leveraging sustainability as a competitive differentiator.
What is Supply Chain Sustainability?
Supply chain sustainability—the holistic view of processes, logistics and technologies that affect the environmental, social, economic and legal aspects of that network’s components—has come into the spotlight as an area of concern for many organizations. The massive disruption created by the global pandemic accelerated this trend, pushing more companies to reimagine their supply chains and make them more resilient and sustainable.
Those efforts are already paying off for some companies, according to Spend Matters. In a new “ESG leadership: How to be a facilitator of sustainability transformation report,” the company discusses the opportunity for growth that exists specifically within the ESG (environment, social and governance) space. Companies are under pressure from investors, shareholders and regulators to act sustainably and responsibly, it points out, while customers and employees are asking questions like: What is your impact on our planet? What do you contribute to the communities within which you operate? How do you conduct yourself?
“The benefits of a robust ESG operation don’t exist solely to help create some vague image of being ‘green,’” Spend Matters points out. “The real-world impacts are far-reaching and quick to be realized. Using fewer resources means spending less money overall. Fostering better relationships with suppliers means having a more resilient supply chain. Finally, gaining people’s respect with your policies means better brand awareness and better performance in the marketplace.”
Procurement’s Role
Procurement departments can make a substantial contribution on the ESG front, where KPMG’s Toby Yu is in favor of aligning procurement and sustainability strategies; enlisting the help of cross-functional leadership and team members; and getting a good handle on the organization’s ESG priorities.
More specifically, Yu says some good strategies include segmenting suppliers across spend categories and mapping them to relevant ESG initiatives (e.g., Scope 3 GHG categories); leveraging spend data for initial calculations and then assessing your baseline impact; and identifying the technology capabilities needed to enable efficient data transfer across the supply chain and to capture, report and monitor ESG performance.
In “Five key steps to create and execute a sustainability and ESG strategy,” EY says companies should also align their boards, management and employees, partners and suppliers in service of a common goal and ambition. This will help them embed sustainability as a way to generate significant environmental, social and financial value for all. “Shared goals are critical to a sustainability strategy, but so is shared accountability,” EY says.
Creating a Sustainability Roadmap
When bringing sustainability and ESG programs to life, EY says every function within the business has a part to play—from upstream and downstream operations across an organization’s value chain to product and service development, talent management, customer experience and supplier relations.
“Embedding sustainability into a whole-organization integrated strategy should inform the decisions, investments and actions the company undertakes,” it says. “Leaders need to demonstrate their commitment through accountable and transparent processes, policies, controls and reporting mechanisms. Every function has a role: strategy and operations, talent, communications, supply chain management, tax and finance, sales and marketing.”
The global consultancy also warns that sustainability ambitions can rarely be achieved by minor improvements to existing business practices, and that it takes “radical innovation” that leverages both advanced technologies and human ingenuity to rethink how products and services are designed and delivered. “Innovation that transforms whole ecosystems can deliver exponential growth,” EY concludes, “fueled by data analytics and future-proofed by a commitment to constant improvement cycles that propel the organization along its sustainability transformation roadmap.”
