Can sustainable supply chains help firms rise above the greenwash noise and deliver real value to customers and the environment? Greta Thunberg has a point. We’ve heard it all before. Speaking at the Youth4Climate summit in Milan last year, the climate activist mocked world leaders ahead of the COP26 conference in Glasgow by saying: “Build back better. Blah, blah, blah. Green economy. Blah blah blah. Net zero by 2050. Blah, blah, blah.”
The problem, of course, is that governments are pretty good at setting long term targets knowing they cannot be held immediately accountable. Promise the earth. Literally. We’ve had the Kyoto Protocol, the Paris Climate Change Accord and now the Glasgow Climate Pact. The world is not short on plans and the latest one is not exactly winning over the sceptics. As Greenpeace director John Sauven told the BBC in December, “The government is moving far too slowly – what are we going to tell future generations about how we wrecked the climate?” Not a lot. We won’t be here. Someone else’s problem.
Ultimately, as Thunberg says, it comes down to action. For some businesses, this has meant addressing carbon emissions in transport or manufacturing processes. For others it has meant very little. According to one recent YouGov poll for Veolia, 70 percent of UK firms have no net zero strategy. This won’t please Andrew Griffith MP, tasked with spearheading the government’s drive for net zero by 2050, who said after COP26 that “when the flags are folded and the tents collapsed, this is a job for business.”
He is of course right. Business has a massive role to play in reducing carbon, not just within its own operations but also within supply chains. There are some positive signs. A recent PwC and Make UK Executive Survey Report, for example, revealed that almost two-thirds (64 percent) of manufacturers at least agree that 2022 will see their business focus more on net zero. How much of this will involve the supply chain is uncertain but the understanding that there are resiliency and continuity benefits in net zero will help drive change.
Money talks, as does reputation management, employee engagement and meeting the changing needs of a more globally conscious consumer. Recent research from information management firm OpenText found that nine in 10 global consumers prioritise buying from companies with ethical sourcing strategies in place, with 85 percent of UK consumers demanding that online retailers ‘clearly mark whether or not products are ethically sourced’.
According to McKinsey, “For most products, 80 to 90 percent of greenhouse gas emissions are ‘Scope 3’: indirect emissions that occur across the company’s value chain, such as embedded emissions in purchased goods and services, employee travel and commuting, and the use and end-of-life treatment of sold products.”
It’s therefore clear that a responsible business striving for net zero status and a happy customer base has to measure and manage the impact of its suppliers on its products and services.
For Damien Smith, CEO at environmental, social and governance (ESG) measurement and data company Ecodesk, the fact that no business has to sign up for net zero or measure anything in its supply chain is a problem. While some are being pressured by consumers to take responsibility, progress is slow. In short, there is a lack of urgency and capability.
“Organisations in the supply chain will want to take charge of their own ESG destiny”, Damien Smith, Ecodesk
“We still encounter lots of businesses who acknowledge their supply chains are a source of sustainability improvement but do not prioritise it as an action area,” says Smith. “This is because they are not formally obliged to and it is still expensive to do it well.”
In recent years, pioneers in measuring supply chain sustainability data have tended to use their influence as customers, to get suppliers to measure and report carbon. This peer-pressure approach has some merits but will only get you so far. Smith reckons that this ‘do as I say’ approach has perhaps reached its peak and we will start to see a shift in tactics as organisations become more educated on the financial and continuity value of having responsible suppliers.
“Organisations in the supply chain will want to take charge of their own ESG destiny and drive their own risk reduction/performance improvement,” adds Smith. “That seems to have far more potential to create positive impact at scale and close the value-action gap – where customers continually impose their values on the procurement relationship and expect suppliers to respond with actions they may or may not identify with. That’s why we’ve built ESG Lead to drive performance improvement from within the supply chain.”
It’s a good example of a tool dedicated to helping businesses investigate ESG data through their value chains and tackling the inevitable risk of survey fatigue. Technology needs to be the answer here but it also demands cultural change, something which Johnathon Marshall, partner at PwC UK for health industries, procurement and supply chain management, believes is already happening, thanks in some part to Brexit.
PwC has worked with most clients on building visibility of supply chains, not necessarily for measuring carbon but for reducing risk by understanding where potential issues may arise in terms of supply continuity. Marshall argues that this puts the UK in a good position when it comes to measuring provenance and impact of products.
“Know your suppliers. Know the products,” says Marshall. “Then you can understand product flows, costs and risks…that means that when we start to look at provenance of products, what sort of mileage there is, in terms of getting raw materials and other components into the UK, we’ve got a lot more insight around the data sets.”
“Look at provenance of products, what sort of mileage there is, in terms of getting raw materials”, Johnathon Marshall, PwC UK
Marshall adds that all companies will “have to get better” especially given new legislation coming in, such as the Plastic Packaging Tax but that there is a growing awareness of the value of supply chain transparency and having insight into which suppliers are responsible and which are not.
Demystify the process
The challenge many businesses face is where to start. Marc Naidoo, partner at law firm McGuireWoods says that while Scope 3 offers organisations downstream control over their carbon footprint, “the true value in Scope 3 lies in the methodology used to calculate the amount of hydrocarbons produced in the supply chain.”
“Scope 3 calculations could be seen as just paying lip service to sustainability”, Marc Naidoo, McGuireWoods
He adds that “without a sound methodology, uniformly applied to each step of the supply chain, Scope 3 calculations could be seen as just paying lip service to sustainability. Large emphasis would need to be placed on reporting requirements through each step of the supply chain, which could prove difficult.”
Knowing where and how to start with Scope 3 is key but it is not without its complications. Assheton Carter, CEO at advisory firm TDi Sustainability says that clients are also currently facing ‘a tsunami’ of regulation on responsible sourcing, human rights due diligence, and conflict minerals.
He cites an example of clients in the electronics sector, OEMs such as Fairphone, where one manager is given the responsibility to ‘clean, green and rid their supply chain of human rights allegations’. That manager has 40 to 60 different materials to consider, from tin, to cobalt, to copper, manganese, rare earth elements and plastics and glass. By the time they reach the factory, says Carter, these minerals and metals might have passed through 10 to 20 tiers, and transformed from a mineral, to a metal, to a compound and a battery or a magnet.
“By the time they reach the factory these minerals and metals might have passed through 10 to 20 tiers”, Assheton Carter, TDi Sustainability
Carter adds that his job is to “demystify what is in the supply chain, sift through the perceived risk and find the actual impacts, prioritise action and demonstrate how companies not only comply to emergent legislation, but are one step ahead in contributing to a more sustainable world.”
It can be a complex challenge. For Chris Moss, senior manager at independent management and technology consultancy, BearingPoint, this is where organisations need to prioritise key partners, to get the data and build on it, rather than trying to engage everyone on day one.
“It is vital to build and agree your internal policies and targets before engaging your wider value chain”, Chris Moss , BearingPoint
“The first step is to identify your Scope 1, 2 and 3 activities,” says Moss. “You then need to engage across the whole business to design policies for data capture and agree science based targets. At the same time, you need to decide how you will report your performance, so you can track progress and share with stakeholders. Once this has been completed you can start to engage your external partners to capture their contributions to your overall sustainability performance. It is vital to build and agree your internal policies and targets before engaging your wider value chain.”
This is where technology has to come in, to enable the capture and analysis of data. As Marshall at PwC points out, ERP providers such as SAP, Oracle and Microsoft already have a bill of materials, which he describes as “a recipe” adding that this recipe “needs enhancing to help capture consumables and energy provisions.”
We are not quite there yet. The market does seem very fragmented and therefore confusing for any business looking for a tool to capture and report supply chain data. In July last year we saw the launch of Microsoft’s Sustainability Platform, which included a scorecard provision for Scope 3 measurement and reporting. In December, Morrisons teamed up with the Manufacture 2030 platform to provide 400 of its own label suppliers with Scope 3 reporting capabilities. It’s still a slow burn; supporting Smith’s idea that more urgency is needed in Scope 3 to really get to grips with net zero targets.
While the drivers for Scope 3 are getting stronger, the waters are also being muddied by COVID-19 and a shortage in skills. As Ben Combes, director in Deloitte’s net zero transformation practice, suggests, demand for both supply chain and sustainability capabilities has meant a lack of skilled workers, hindering plans and progress to improve supply chain sustainability.
“There is a clear ambition across industries to improve supply chain sustainability,” says Combes. “But organisations are currently lacking the capabilities and scale needed to meet their targets.”
“Organisations are currently lacking the capabilities and scale needed to meet their targets”, Ben Combes, Deloitte
Marshall and Cara Haffey, head of manufacturing and automotive sectors at PwC agree that there is increasing pressure on skills threatening to bring any well-meaning Scope 3 project to a standstill. Haffey adds that boardrooms will no doubt look at the economics and threats to business – at the moment that means energy costs – and realise the need for greater supplier transparency to reduce risks and costs. Scope 3 data, in this sense, is increasingly relevant given the ongoing energy crisis.
“Boardrooms will look at the economics and threats to business… and realise the need for greater supplier transparency”, Cara Haffey, PWC
As Efrat Nakibly, CMO, at Priority Software suggests, automation will be key. AI has a big role to play in helping manage the vast amounts of complex data required for Scope 3 but that too has a few caveats. So much is dependent on the industry, whether or not it is heavily regulated – Marshall at PwC cites pharma as being a good example of how material provenance is already built into the culture, for example.
Nakibly adds that only through the adoption of more digital technologies and smart, connected devices will we be able to reduce supply chain impacts. He has a point. The increased use of robots, 5G and IoT will, in theory, help to reduce waste and improve sustainability at scale but perhaps it’s even more simple than that, at least for now. As Gartner outlines in its ‘Supply Chain Top 25 for 2021’, there are lessons to be learned from those that are doing it well, such as Cisco, Colgate-Palmolive and Johnson & Johnson, and one of those lessons is going ‘digital first’.
It goes back to Moss at BearingPoint’s comment that Scope 3 can be a huge, seemingly insurmountable task. It has to be boiled down, into achievable targets. Prioritisation is essential, as is education. While there is clearly an increase in awareness and willingness to measure Scope, is this being matched by investment?
“There is a serious lack of professional training on the subject,” says Smith at Ecodesk. “That needs to change, so that responsible procurement becomes the fourth pillar (i.e. price, quality, delivery and sustainability), making it central to what gets bought and from whom.”
The outlook for 2022 however, is promising, at least according to Gartner, which claimed that 84 percent of supply chain leaders plan to invest in climate adaptation and mitigation measures in the next 18 months. That’s all well and good. Action, as the saying and Greta Thunberg goes, speaks louder than words.