Sustainable Sourcing: Modest Actions, Huge Impact

by Rex Aguado

How To Nurture a Sustainable Business Culture

At the opening of the “Sustain 2021” virtual conference organized by Ecovadis in March, former US vice-president Al Gore – also the founder-chairman of The Climate Reality Project, a nonprofit devoted to solving the climate crisis – boldly declared: “The sustainability revolution is now well underway.”

Gore cited sustainability shifts that are transforming relations between and among people, governments, businesses and the environment. For example, electric vehicles are overhauling transportation and humanity’s historic dependence on fossil fuels, regenerative farming approaches are shaking up agriculture, while renewables are rewiring energy consumption. Similar revolutionary shifts are happening in innovation, corporate governance, investment decisions, consumer behavior and legislation, all reshaped by – and in return reshaping – Sustainable Sourcing.

On The Environment

The environmental roots and seeds of ESG have been explored in this blog series, but it’s worth reiterating that the supply chain accounts for as much as 90% of a company’s environmental impact. Hence, a weak ESG program can hurt people, communities and brand reputation.

On Innovation

In an April 2021 online article, Ecovadis noted that the business case for sustainability has moved beyond business-as-usual factors such as cost saving, reputation and risk management, and has now included innovation “as a core engine for long-term growth, differentiation and competitive advantage”. To support its claim, Ecovadis cites the 2018 Global 100 Most Sustainable Corporations in the World index, which found that “the most successful companies see sustainability innovation as a key strategic and tactical advantage.”

On Accountability

In a March 2021 piece, Ecovadis.com blogger Pia Pinkawa wrote: “As sustainability becomes an increasingly core issue for companies, stakeholders are demanding greater accountability from companies in terms of their social and environmental actions and the impact of their products and business activities.” Pinkawa noted a record increase both in number and scope of corporations committing to ambitious sustainability and climate neutrality targets in 2020.

On Investment Decisions

In an Ecovadis.com report on 10 December 2020, Matteo Berger noted that investors managing climate-related risks and their financial impacts have been scrutinizing the carbon reduction strategies of target companies before making any investment commitments. He added that investors, lenders, insurance underwriters and other stakeholders want to know how businesses tackle climate-related issues, as well as management’s role in assessing them.

On Consumer Behavior

In an August 2020 report on its survey, the Boston Consulting Group (BGC) found that 90% of consumer respondents said they were equally or more concerned about environmental issues after the Covid19 outbreak, while about 95% believed their actions could help reduce waste, tackle climate change, and protect wildlife and biodiversity – with nearly 30% noting that the pandemic had strengthened this belief. “Responsible manufacturing will be a new and potent loyalty driver as consumers become more determined to take control of their impact on climate change,” said the authors of the BGC report.

Meanwhile, in a January 2021 article for Ecovadis, Divya Demato – CEO and co-founder of GoodOps, a US-based supply chain sustainability consultancy – stressed that: “Companies who have truly incorporated sustainable procurement practices into their product lines will be far ahead of the curve, not only in terms of risk mitigation, but in building consumer confidence.”

On Legislation

In a March 2021 piece, Ecovadis.com blogger Pinkawa said: “Financial markets and investors are already driving issues such as sustainability, human rights and de-carbonization at an ever-increasing pace around the world, demanding proven performance from companies. However, pressure on companies is also increasing from the legislative side.”

Actually, ESG-related legislation also covers the executive actions of governments. As cited by Al Gore at the “Sustain 2021” online conference by Ecovadis, the US has already rejoined the Paris Agreement while US President Joe Biden has vowed to budget US$2 trillion to help shift the US to a clean-energy future. Gore pointed out that China, Japan and South Korea have also made commitments to go carbon neutral within the next few decades.

Sustainability Tools and Tracking

To ensure effective management buy-in, Ecovadis suggests that Sustainable Procurement programs should be actively supported by the Chief Purchasing Officer and Chief Sustainability Officer, backed by at least one other C-Level officer, such as the CEO or the CFO. For efficiency, there should be a fully staffed sustainable procurement office, led by the Procurement Manager, with the authority to override decisions involving risky suppliers.

For oversight, a cross-functional Steering Committee should meet regularly to review program goals and build strategy. There should also be involvement by the Board of Directors and even the stockholders for effective governance.

Once engaged, supply aggregators and contractors should be monitored using a tracking system that covers even the smallest of suppliers down the chain, Ecovadis added. This tracking system can also be used to help reform or reduce the number of suppliers identified as medium and high-risk.

In the final installment of our six-part blog, we look at the evolution of supply chains and the high-impact trends in Sustainable Sourcing in Asia.

Previous posts in this series:

Part 1: Sustainable Sourcing Goes Viral

Part 2: How Good and Green is Your Buying?

Part 3: Good Practice, Better Returns

Part 4: Reputation, Responsibility and Resilience