This article is the first in a two-part series on Sustainable Supply Chain, delving into how sustainable supply chains are reshaping industries and why they are critical for staying competitive in today’s world.
At a Glance:
- Companies face significantly higher potential costs from inaction on climate risks in their supply chains compared to the cost of taking preventive measures.
- A 2023 CDP study of over 23,000 companies found that climate-related supply chain risks could cost US$162 billion, while mitigation would cost US$56 billion – a ratio of 2.9 to 1.
- Businesses must cooperate to implement sustainable practices that benefit all stakeholders, including sharing best practices, supporting suppliers, and promoting transparency in the supply chain.
A 2023 CDP report analysing over 23,000 companies revealed that companies estimate a potential US$162 billion in costs tied to supply chain climate-related risks. This is 2.9 times greater than the US$56 billion estimated cost of mitigating these risks. The situation becomes even more critical when considering upstream emissions – the manufacturing, retail, and materials sectors alone face a carbon liability of over US$335 billion from greenhouse gas emissions in their supply chains.
“Carbon liability” refers to the potential financial burden companies could incur due to their carbon emissions. The same report This mounting financial exposure highlights the urgent need for proactive supply chain sustainability efforts. Failing to address these risks could result in substantial financial consequences, including regulatory penalties, disrupted operations, and reputational damage.
So, how can businesses address these challenges and ensure sustainability within their supply chain? The answer lies in adopting sustainable supply chain practices.
What is supply chain sustainability?
Supply chain sustainability is the integration of social, environmental, and economic considerations into the entire supply chain process to minimise negative impacts and maximise positive outcomes for all stakeholders. It is not just about reducing carbon emissions or recycling; it encompasses a broader range of issues, including:Â
Environmental sustainability: Protecting biodiversity, managing ecosystem services, and minimising pollution to levels that the environment can assimilate without harm. This includes reducing emissions, waste, and contaminants released into air, water, and soil.
Social sustainability: Ensuring fair labour practices, respecting human rights, and promoting safe and healthy working conditions.
Economic sustainability: Supporting local suppliers and SMEs is a strategic imperative for achieving economic sustainability in supply chains. It promotes resilience, reduces risks, stimulates innovation, creates jobs, strengthens communities, and aligns with evolving consumer expectations and regulatory trends.
Governance: Establishing clear policies, standards, and reporting mechanisms to ensure transparency and accountability.
Continuous improvement: Regularly monitoring, evaluating, and adapting sustainability initiatives to address evolving challenges and opportunities.
Why is sustainability important in the supply chain?
8% of global surplus stock goes to waste, costing businesses $163 billion in discarded inventory due to damage or overproduction. A sustainable supply chain aims to minimise waste and optimise resource utilisation. This significant amount of waste not only represents a substantial financial loss for businesses but also contributes to environmental degradation.
Sustainable supply chain can boost companies’ bottom line.
Prioritising sustainability is not just ethically sound; it’s financially prudent. Optimisation of resource use, minimisation of waste and improvement of energy efficiency throughout the supply chain can significantly reduce operating costs. When a company adopts ESG practices into their operations, it often reveals inefficiencies, ensures streamlined processes and reduces costs. Government incentives or tax breaks for sustainable initiatives can also add to your financial benefits. Furthermore, investors are increasingly considering ESG factors, and companies with strong sustainability performance are more likely to secure funding and favourable financing terms.
The cost of sustainability neglect.
Neglecting sustainability exposes businesses to significant financial and reputational risks. Unethical practices within the supply chain, such as human rights violations or environmental damage, can severely damage a company’s reputation, leading to consumer boycotts and loss of trust.
Mitigating regulatory risk through sustainability.
Failure to integrate sustainability principles into core business strategies can result in substantial financial penalties, reputational damage, and even legal repercussions. Sustainability initiatives can help companies mitigate compliance risks from carbon pricing mechanisms and border adjustment policies. For example, the implementation of the European Union’s Carbon Border Adjustment Mechanism (CBAM) requires companies to demonstrate supply chain emissions reductions and maintain greater visibility across their operations.
Leaders, let’s dive deeper into the strategic question:
How do you determine the right time to implement sustainability into your supply chain?
From assessing operational readiness to identifying key triggers for action, RenoirESG provides a roadmap to help you make informed decisions that align with your business goals.
In Part 2, we’ll explore when and how to implement sustainability in your supply chain. Whether you’re just starting or looking to optimise, you won’t want to miss our actionable insights and strategies.
