How to Build a Sustainable Supply Chain
By Hugo Britt | September 9, 2021
Environmentally-conscious companies all over the world are cleaning up their operations in a drive to improve sustainability. But real change will only occur when large companies mandate sustainability targets throughout their entire supply chains.
Why is this important? Because consumers – and investors – are increasingly savvy when it comes to looking at an organization’s environmental footprint holistically. A well-known example is electric vehicles (EVs). They’re a game-changer for the environment and will do wonders for emission reduction, but some (contested) studies have claimed that manufacturing an EV generates more carbon emissions than building a traditional car.
Reporting on supply chain emissions is not yet mandatory, but investors have warned that it is coming soon. In the EU for example, the Sustainable Finance Disclosure Regulation (SFDR) will require companies to report on their supply chain footprint. In the U.S., the EPA recommends companies refer to the Greenhouse Gas (GFG) Protocol for guidance and resources for reducing supply chain emissions.
The reality is that even companies with a great reputation for climate leadership have a huge task ahead of them when tackling supply chain sustainability. An IKEA sustainability report found that 98% of its greenhouse gas emissions lie in its supply chain, with only 2% of emissions occurring within its operations (offices and stores).
Scope 1, 2 and 3 emissions
- Scope 1: Direct emissions a company generates while performing its business activities, such as the emissions generated by a company vehicle fleet.
- Scope 2: Indirect emissions generated by the production of purchased power (electricity, heating, cooling), that are not generated by the company directly. A company that purchases its electricity from a coal generator will have much higher scope 2 emissions than one that sources electricity from wind and solar providers.
- Scope 3: Otherwise known as supply chain emissions. All emissions generated by resources not owned or controlled by the company that impacts the value chain.
Visibility all the way down the supply chain
Your suppliers may appear to run a sustainable operation, but what about your suppliers’ suppliers? And their suppliers, and so on? Visibility, transparency, and traceability are improving with the help of technology such as blockchain, but for now, many businesses have to rely on audits and certification programs.
How to build a sustainable supply chain
Here are 5 steps to take when starting to build a sustainable supply chain:
Map out your supply chain
This involves tracing every product from raw material to finished product. This will help you identify potentially hundreds of suppliers you didn’t know you had.
Identify risks and opportunities
Supply chain mapping will immediately help you identify risks in terms of sustainability. For example, you may discover your suppliers are sourcing from an area with a high risk of human rights abuses or poor environmental standards.
Create a set of emissions reduction goals and targets, and ways of measuring progress. Keep an eye out for future regulations in this area.
Set supplier standards
Create a set of environmental standards for your tier-one suppliers, and ask them to ensure compliance from their suppliers in turn. Use compliance monitoring software to avoid this becoming an unmanageable task.
Review and improve
Monitor supplier progress in complying with your sustainability standards. If suppliers are not able to comply within your timeframe, switch to more sustainable suppliers.
Need help finding and working with suppliers who implement sustainable supply chain practices? Contact Una for more information.