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Socially conscious investors use environmental, social and corporate governance (ESG) criteria to screen investments. Consumers are making more purchase decisions based on the seller’s ESG practices. And corporate partners are eyeing each other up through an ESG lens before aligning themselves with new organizations and opportunities.
These are just some of the trends that are pushing ESG to the forefront of the supply chain manager’s mind in the current business environment. It’s no wonder, really, seeing that supply chains serve as the very nerve centers for companies as they deliver goods and services from raw materials to producers to consumers.
“The supply chain is made up of a variety of players ranging from locally based raw material suppliers to large, transnational corporations,” TheStreet explains. “Each plays a role in the creation and distribution of the products that fuel everyday life, from the clothing we wear to the roofs above our heads to the food we consume and the chips that power our electronics—to name just a few.”
ESG Takes Center Stage
No longer the domain of publicly-held or large organizations, ESG is increasingly reaching into value and supply chains of companies of all sizes. As a result, all businesses along those chains are also being asked to embark on their own ESG journeys, regardless of those companies’ size or scope.
In “ESG Continues to Extend its Reach into Global Supply Chains,” JD Supra outlines some of the main drivers of the current ESG-supply chain focus:
· Supply chain scrutiny. “Businesses that fail to address ESG factors in their supply chains expose themselves to regulatory, litigation, and reputational risk based on claims that their ESG representations do not accurately reflect what the business is doing and how it is doing it,” JD Supra says.
· Consumer market demands. Market demands are creating ESG pressure for supply chains. McKinsey & Co., reported on a five-year survey of U.S. sales data across 44,000 brands in 32 different categories. The results indicated higher consumer loyalty to brands with more ESG claims. “To the extent the expectations of consumer markets may be shifting, so may be how businesses are meeting consumer demands, which could very well include adjustments at the supply chain level,” JD Supra adds.
· Scope 3 emissions reporting. The pressure is on for businesses in supply chains to level up as ESG frameworks coming online elsewhere already include Scope 3 emissions—or, all indirect emissions occurring in a company’s value chain, including both upstream and downstream emissions. States like California recently laid out new rules for emissions, and many European countries have been leading the way with new rules and regulations.
· “Amazonian” upstream demands. Amazon plans to update its supply chain standards to require regular reporting and emissions goal setting on behalf of its suppliers. “The move by Amazon is particularly notable given Amazon's sheer size and breadth,” JD Supra points out. “Given how far, and varied Amazon’s supply chain extends, one might ask whether Amazon has effectively stepped in to fill any void that might be left by regulators anywhere as to supply chains.”
Measuring the Rewards
When companies integrate ESG efforts into their supply chains, it’s not just the environment that benefits thanks to the reduced greenhouse gas emissions, improved resource efficiency and reduced pollution. Companies that implement ESG policies and practices can also build trust with stakeholders, enhance their brand reputations, reduce risk and attract more top talent (and particularly, individuals who want to work for sustainability-focused organizations).
“Effective supply chain ESG management empowers [companies] to make a positive impact on society and the world around them,” Claire Bunce writes in “Supply Chain ESG: What is it and Why Does it Matter?” “while also effectively mitigating risks and maintaining efficiency for the good of their company, partners and stakeholders.”
