What is supply chain sustainability?

Every product or service involves a “behind the scenes” supply chain of companies that furnish raw materials, manufacture equipment, and provide energy, transport, and logistics. These interlocking supply chain networks are increasingly global and complex, and in recent decades have largely been taken for granted because of their seamless and cost-effective functioning. But global warming, the Covid-19 pandemic, and now geopolitical shifts are bringing these cross-border supply chains into sharper focus as their implications and hidden costs for businesses become clearer. A sustainable supply chain is part of a sustainable business and takes into account the human and environmental cost of a product’s end-to-end journey through the network, from the extraction of raw materials to manufacturing, storage and production, right up to the moment when it appears on the shelf. 

According to the UN Global Compact, there are three main business drivers for a sustainable supply chain.

1. A reduction of sustainability-related risks, like supply chain interruptions or delays, which might be associated with suppliers’ practices with regards to human rights, labour standards, environment and anti-corruption, while protecting the company’s brand value and meeting investors’ expectations.
2. A focus on sustainability-driven productivity in the supply chain creates efficiency and can save money by reducing waste in raw materials, transport, and energy. 
3. A sustainable supply chain can lead to sustainability-advantaged growth, helping companies to foster innovation and meet changing customer demands.

 

Therefore, while sustainability in the supply chain can be difficult to achieve, a more sustainable supply chain helps improve productivity while saving money: when a business achieves visibility for the workings of its supply chain – a necessary prerequisite to improving its sustainability -- it can accomplish the optimization of practices and processes that improve the bottom line.

 

Here is a look at re some of the concrete, measurable benefits:

 

• Lower costs: as energy prices soar, squeezing the waste from facilities and logistics makes sense not only for the environment but also for the bottom line.
• Attracting investors: According to financial services firm Morningstar, Inc., investors poured nearly $600 billion into sustainability-linked equity funds in 2021, an increase of 53%. A sustainable supply chain is one of the things investors and bank lenders look for when assessing a company’s long-term viability.
• Reduced regulatory risk: The extraction of raw materials, unfair labor practices, and corruption are often targeted by government regulations. A supply chain that is vulnerable to these kinds of risks is a potential hazard for a competitive business. 
• Consumer appeal: Several studies show that consumers are increasingly aware of supply chain issues, and some are willing to pay more for responsibly-sourced products.
• Compliance: Governments are taking a closer look at supply chain imports because of concerns about unfair labor practices and environmental pollution. The European Union has adopted a proposal for a Directive on Corporate Sustainability Due Diligence that would require sustainable supply chains, driven by its goal of achieving the United Nations' Sustainable Development Goals by 2030.

The first step in improving sustainability in the supply chain is to take a deep dive. Most businesses work directly only with their “Tier 1” largest suppliers or manufacturers. Top suppliers, in turn, rely on a myriad of smaller subcontractors. These smaller players may source raw materials from mines or farms halfway around the globe, in places where working conditions are not visible to the final buyer. This is why sustainability in the supply chain is so difficult. So can sustainability in the supply chain be improved? Gaining visibility is key. Mapping your supply chain is the first step.