Jon Hughes, Director – Sustainable Supply Chain, KPMG LLP
In today’s ever-evolving business landscape, environmental, social and governance (ESG) considerations have gained prominence across supply chains. This article delves into some of the most critical environmental issues in global supply chains such as scope 3 emissions, loss of biodiversity, resource efficiency and waste, and outlines the practical steps that companies can take to address these issues.
Understanding the Significance of Environmental Issues in Supply Chains
Supply chain management is a critical part of tackling carbon emissions and hitting net zero targets, and for good reason. A total of eight supply chains collectively contribute to over 50%[1] of global emissions. These include food, construction, fashion, fast-moving consumer goods (FMCG), electronics, automotive, professional services, and freight. In the case of a standard fashion or FMCG company, just approximately 5%[2] of its emissions stem from direct manufacturing, whereas emissions originating within the supply chain can be 5-10 times greater.
The global economy is currently only 7.2%[3] circular, which is a term that describes the re-use of materials that are cycled back into the global economy after the end of their useful life. Such a low figure means that supply chains for most products almost exclusively depend on new materials. Relying on linear ‘take-make-waste’ supply chains increases business vulnerability to resource scarcity, price fluctuations and regulatory changes.
Recent scientific findings indicate that roughly 25%[4] of all plants and animals are at risk due to human activities, with around one million species facing potential extinction in the coming decades, and that’s a huge issue for businesses that are increasingly reliant on nature.
Businesses with agricultural supply chains, like those in the food and beverage sector, are not the only ones dependent on nature. Many other businesses that rely on the extraction of resources from forests and oceans or depend on healthy soils, clean water, pollination and a stable climate also have critical dependences on nature. This includes such industries as construction, chemicals, travel and tourism, real estate, mining and metals, transportation and retail.
All of these issues are interlinked, and companies need to take a holistic approach to dealing with decarbonisation, human rights, biodiversity and waste across global supply chains.
The Power of Collaboration in Driving Sustainability in Supply Chains
Traditional approaches to supply chain management include adding expectations around environmental performance in suppliers’ codes of conduct, contracts and supplier award criteria. Companies can also set ambitious goals, like transitioning all suppliers to renewable energy by 2025 or aligning with Science-Based Targets (SBTi) to achieve net-zero emissions.
However, traditional top-down approaches to supplier management are increasingly being replaced with collaborative strategies, recognising the fundamental changes required from suppliers. No one company can solve the issues of climate change, resource overexploitation or biodiversity loss on its own. Companies should work closely with their suppliers and more broadly across the entire value chain. The complexity and scale of sustainability challenges necessitate industry-wide or cross-sector cooperation involving governments, non-governmental organisations (NGOs) and other stakeholders.
Successful integration of environmental requirements can be achieved by incentivising and encouraging suppliers to embark on the sustainability journey. This may involve awarding additional business and contracts to top-performing ESG suppliers or providing supplier awards that they can leverage in their marketing efforts with other customers. To initiate this process, companies can begin by engaging with their immediate suppliers and encouraging them to involve their own suppliers, creating a cascade effect throughout the tiers of the supply chain.
Using Technology for Creating Sustainable Supply Chains
Technology plays a pivotal role in identifying opportunities for ESG improvements within supply chains. With large, complex supply chains that can involve tens of thousands of suppliers at multiple tiers, manual data collection and intervention tracking are simply impractical. A range of technology solutions, from start-ups to established providers like SAP, Coupa, ServiceNow, Microsoft and Salesforce, can assist in collecting, reporting and driving improvements in carbon, waste and biodiversity management across a vast supplier network.
Traceability is also key. Lack of visibility of supply chains beyond Tier 1 is a major barrier in understanding business impacts on the environment and addressing them. Specialised software providers such as ChainPoint offer solutions for tracing supply chains all the way to raw materials. With greater visibility comes a greater power to find collaborative solutions to sustainability issues in partnership with suppliers further upstream.
Practical Advice on Where to Start There’s no time to waste in the decade of action[5] so the key is to get started. It’s better to initiate sustainable supply chain transformation than lose time waiting for perfect solutions. Imperfect action is better than inaction. Collaboration is the linchpin for achieving sustainability objectives. This begins with Tier 1 suppliers but should expand to other tiers and involve various stakeholders, including governments, industry bodies and NGOs. As supply chains become more sustainable, they can provide a competitive edge for
[1] Source: Net-Zero Challenge: The supply chain opportunity | World Economic Forum (weforum.org)
[2] Source: Supply chains can be a climate game-changer. Here’s why | World Economic Forum (weforum.org)
[3] Source: CGR 2023 (circularity-gap.world)
[4] Source: https://www.weforum.org/press/2020/01/half-of-world-s-gdp-moderately-or-highly-dependent-on-nature-says-new-report
[5] Source: Decade of Action – United Nations Sustainable Development
