In an era of increasing global environmental concerns, the significance of sustainable supply chains cannot be overstated in the pursuit of global decarbonization. As businesses and industries strive to reduce their carbon footprint, adopting sustainable practices throughout the supply chain becomes a vital step towards achieving long-term environmental goals.
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We live in a world where the adoption of a sustainable lifestyle is not just a trend but an integral part of modern society. However, consumers often face barriers where sustainable choices are either not affordable or widely accessible. Many organizations across every industry are now facing increasing calls from their consumers, investors and employees to play a greater role in accelerating the transition to more sustainable business practices.
This collective drive underscores an increasing awareness and shared responsibility to contribute to the universal purpose of reaching a world without emissions. Connecting this to the concept of a sustainable supply chain is crucial. It involves integrating ethical and environmentally responsible practices at every stage, from sourcing materials to production, logistics, and recycling.
This article emphasizes the urgency for businesses to move beyond compliance and embark on a journey towards sustainable supply chain practices.
What Is a Sustainable Supply Chain?
A report by Iowa State University defines supply chain as the material, information, and services, typically crossing several different organizations, involved in producing and delivering a product or service to an end user. Integrating a sustainability aspect into the supply chain means fully integrating ethical and environmentally responsible practices into a competitive and successful model. Ensuring end-to-end supply chain transparency is critical; sustainability initiatives must extend from raw materials sourcing to last-mile logistics, and even to product returns and recycling processes.
Why Is Sustainability Important in the Supply Chain?
According to the Greenhouse Gas Protocol, the supply chain falls under the Scope 3 upstream category and in numerous countries, it continues to be part of the voluntary emissions category. This is the main reason why Scope 3 has been neglected as most of the organizations have rather concentrated on reducing emissions in their own manufacturing plants and offices or resulting from their purchase of third-party electricity and heat (Scope 1 and 2). However, Scope 3 often represents the largest source of emissions for companies, usually between 60-90%, depending on the industry. This automatically opens probably the most significant opportunities to influence greenhouse gas (GHG) reductions and achieve a variety of GHG-related business objectives.
A typical company’s supply chain accounts for 80% of its GHG emissions and more than 90% of its contribution to air pollution generated in the production and distribution of a consumer product. Moreover, 50-70% of operating costs are attributable to supply chains. It is because of their very nature as supply chains often involve energy-intensive production and transportation as goods are made and moved around the globe. This is also the reason why organizations can often make the biggest difference by making changes to their supply chain rather than other business operations.
Eight supply chains account for more than 50% of global emissions. Food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services and freight account for more than half of all global GHG emissions. According to the World Economic Forum (WEF), one billion metric tonnes of emissions could be saved if key suppliers to 125 of the world’s biggest purchasers increased their renewable energy input by 20%.
But decarbonizing supply chains can be challenging. One of the most significant challenges, even for many large companies, is obtaining crucial data and establishing clear sustainability targets. This challenge is even tougher for smaller businesses, creating a double struggle.
Additional obstacles are associated with increased financial costs for reducing environmental impact and accurately assessing sustainability expenses. Operationally, complexities arise in identifying and measuring sustainability aspects. Lots of uncertainties also persist in governmental regulations, long-term development, and consumer behavior, which might also bring some conflicts among stakeholders.
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7 Steps to Sustainably Manage Supply Chains
1. Build a comprehensive emissions baseline, gradually filled with actual supplier data
This should be a first step that represents a proactive and strategic approach to tackle the complexity of the supply chain. This data-driven approach enables businesses to identify key contributors to carbon emissions within their supply network. Continuous updating and refining the emissions baseline with real-time supplier data helps companies take proactive steps to cut emissions, improve transparency, and encourage eco-friendly practices in the supply chain.
2. Set ambitious and holistic reduction targets, reducing emissions by revisiting product design choices and reconsidering (geographic) sourcing strategy
By simply incorporating environmental aspects into product design, companies can create products which are eco-friendlier and more energy efficient. Additionally, considering geographic sourcing in relation to the reduction of the carbon footprint associated with transportation and production fosters a more sustainable and resilient supply chain, further enhancing environmental stewardship and minimizing ecological impact.
3. Set ambitious procurement standards
This is integral to managing the supply chain sustainability as it establishes clear expectations for suppliers. This is the step where, by setting high sustainability standards, organizations can drive positive changes throughout the supply chain. Moreover, ambitious procurement standards act as a catalyst for new products and technologies.
4. Work jointly with suppliers to co-fund emission reduction strategies
This represents a strategic move that fosters shared responsibility in reducing emissions across the supply chain. By closely cooperating, both parties can gradually identify and invest in sustainable initiatives or technologies that would contribute to lower emissions. On top of that, this collaborative approach strengthens the partnership between the organization and its suppliers, creating a win-win scenario for sustainability and business resilience.
5. Work together with peers to align sector targets that maximize impact and level the playing field
A “combined” strength of the sector peers can represent a key driver in advocating for more supportive policies and innovations that can make the entire industry more sustainable through maximizing the urge to achieve a more sustainable supply chain.
6. Use scale by driving up demand to lower the cost of green solutions
With higher demand for greener products and services, economies of scale come into play; this almost always leads to higher production volumes, and automatically reduces costs for green technologies and products. This, in turn, makes sustainable options more accessible and affordable for businesses throughout the supply chain.
7. Develop internal governance mechanisms that introduce emissions as a steering mechanism and align the incentives of decision-makers with emission targets
Often, when decision-makers are motivated by emission targets, they are more likely to choose eco-friendly options, making the organization’s supply chain stronger and more sustainable.
Global Efforts for Supply Chain Decarbonization
Decarbonization of the supply chain presents a giant and as yet untapped opportunity for international climate action. It can enable companies with relatively small direct emission footprints to have a significant impact on a global scale. Upstream decarbonization, however, is hard and takes time.
Nevertheless, rather than sitting back, we must look at the companies who are proactive and are trying to find a way to make it work. For instance, Walmart, the largest retail company in the world, launched the Project Gigaton program, which aims to reduce or avoid one billion metric tons (one gigaton) of GHG emissions from product supply chains by 2030. The project was launched in 2017, and over 4,500 of Walmart’s suppliers already reported a cumulative total of more than 574 million metric tons of emissions reduced or avoided. In collaboration with HSBC, a leading international bank, sustainable suppliers of Walmart are rewarded with faster payment on invoices and access to capital. This is a great demonstration of how major companies working together can make significant strides towards environmental responsibility.
To address global challenges associated with climate change, it is imperative to start looking beyond the basic requirements and start a journey that builds a sustainable supply chain. The world needs to build a robust supply chain that is founded on sustainability, collaboration, trust, transparency, visibility and diversification of supply.
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