Is your supply chain keeping you up at night?

About two decades ago, sustainability elbowed its way into the awareness of businesses. It was then that we started to translate the notion of sustainability into practical action in the work place. It started with recycling bins, ‘turn off the light’ stickers, and for the trail blazers perhaps, carbon footprint assessments.

Then we started to build up momentum. CSR (corporate social responsibility) teams started forming, energy efficiency initiatives were being rolled out, and environmental performance indicators and targets are in use to monitor progress. However, in our minds, sustainability remained within the walls of businesses’ operations. The idea that sustainability, and with that, also the responsibility of the business’s impact, extends beyond the physical buildings and employee travel was largely ignored.

Now this is changing. We are witnessing another pivotal shift in the world of sustainability, namely, that businesses are being held accountable for the impact of their supply chain. This is evident by the growing number of high-profile supply chain scandals reported in the main stream media such as Apple’s supplier Foxconn who are repeatedly in the news for their poor working conditions but also the pushback from the public. Last year we even saw students occupying the Georgetown University President’s office demanding the university does not renew its contract with Nike, which failed to comply with the university’s code of conduct.

And the response is coming. Legislation concerning sustainability and supply chain is coming into force, such as the Modern Slavery Act in the UK (lobbied by businesses) and the EU Non-Financial Reporting Directive (NFRD), which aims to create an even playing field. Last year, we also saw a positive increase of 20% of CDP supply chain members in 2016 who are measuring and managing the emissions of their supply chain.

But making sure a supply chain is responsible isn’t easy. Firstly, implementing a sustainable supply chain does not fit neatly under the remit of one department, and especially not just procurement. When reviewing your product or service and what you buy to create and deliver it, a cross-section of the business, including management, CSR, design, research & development, risk and procurement is needed. Secondly, you do not have direct control over your supply chain. If someone leaves the lights on at the office, you can turn them off, but you can’t do the same with your suppliers. As such, methods must be developed to collaborate and work with your supply chain. And thirdly, the nature of a typical supply chain is global, complex and multi-tiered – creating real challenges for businesses trying to figure out where to start.

All of this is enough to cause any CSR manager sleepless nights. However, despite the challenges, we are seeing businesses bite the bullet and that they are making progress to monitor, measure and manage the environmental and social impact of their supply chains. Just like two decades ago we could see the first steps in sustainability starting to emerge, we are now seeing a change in how we address the impact of our supply chains, and as we start to get better as a business community, it will become a well-trodden path that only a minority would try and avoid. 

What should you focus on?

The issues which a business should review and address should be relevant to the business and its supply chain. When looking at these issues, it is important to remember that sustainable development has three aspects to it: environmental, social and economic. All three play a crucial role, and if one fails, the others will be impacted too. When thinking about the issues, we provide our clients with the UN Compact principles, which are also the key issues the EU NFRD requires businesses to include in their reporting. These 10 principles are summarised in the following four pillars:

1) Human rights – protection of internationally human rights
2) Fair labour – elimination of forced, compulsory and child labour; elimination of discrimination in respect of employment
3) Environmental protection and progress – promotion of greater environmental responsibility and the development of green technologies
4) Anti-corruption – avoidance of corruption, extortion and bribery. 

Where should you start?

Each approach to addressing sustainability in supply chains should be bespoke for the business. However, there are a few basic steps that all businesses should adopt when starting to assess their supply chain:

1) Risk assessment – an environmental and social risk assessment is key in order learn what are the issues that are relevant to your business, and where are the corresponding hotspots. There is a variety of risk assessment tools available, some allow you to assess the direct and indirect risks of your supply chain and look beyond your tier one suppliers

2) Set the standard – with an understanding of the types of risk you face, you can then set the standard that you expect from your supply chain. Principles can be rolled up into a code of conduct, contracts can be updated and data collect methods can be introduced to track performance

3) Introduce controls – for sectors, geographies and suppliers with a greater exposure to risk, additional controls can be designed and implemented. Risks manifest themselves in different ways, as such the most effective approach to managing supply chain risks is developing bespoke controls for their mitigation

4) Bring your team with you – raising awareness of key issues and training staff how to detect and address them is key to a business’s success. You should consider a series of awareness training sessions, highlighting to your staff what the issues are, what they need to do and provide them with the right tools to use

The new ‘version’ of sustainability is now here. Businesses can no longer focus on just their own operation and ignore the environmental, social and economic impacts of their supply chain. Public awareness is growing, legislative changes are coming into force, and a growing community of businesses is measuring and reporting on its supply chain impact. Although this shift is by no means easy due to the complex, dynamic nature of global supply chains, there are some manageable steps that a business can take to address the sustainability challenges within its supply chain.

Starting with a risk assessment will allow you to understand which elements of your supply chain require your immediate attention. Based on this understanding, you can then start to develop standards with suppliers and controls to mitigate risk.

Jessica Cresswell is a senior consultant at Carbon Smart

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