Companies are under growing pressure from consumers, regulators, and advocacy groups to be more forthcoming about their ESG practices – and that includes supply chain transparency.
Many organizations have already taken steps to address carbon emissions and incorporate other Environmental, Social, and Governance initiatives into their business. A step in the right direction, to be sure. To be fully transparent, however, your ESG standards must extend beyond your own four walls to include your entire supplier network.
Shortages, delays, and other pandemic-related fallout are already prompting companies to rethink their supply chains with an eye toward resilience, making this is the perfect opportunity to align your suppliers with your broader goals – including ESG.
What is Supply Chain Transparency?
Supply chain transparency is more than simply knowing who your suppliers are, where they are located, and having an occasional snapshot assessment. True end-to-end transparency breaks down silos and opens up all parts of the supply chain so you can see performance from every angle, communicate freely at every level, and share data seamlessly among your trading partners.
Achieving supply chain transparency definitely can be a challenge, given the expansive global nature of today’s supply chains. But that complexity is also what makes transparency all the more critical. Transparency exposes suppliers’ hidden risks so they can be addressed before they become problems.
And the benefits don’t end there. Transparency can decrease operational costs, increase productivity, improve your reputation, and make your business more resilient. In short, you have a lot to gain by improving supply chain transparency. Here’s where to start.
Map out your entire supply network.
Integrating ESG into your supply chain starts with mapping out all of your suppliers and business partners, including your direct suppliers, their suppliers, and their suppliers’ suppliers, all the way down the line to your raw materials.
This is no easy task – especially for large companies that can have tens of thousands of suppliers located around the globe. But with this information, you can identify weak points – like overreliance on some suppliers and/or geographic locations – and take mitigating actions, which will help you become more resilient to unforeseen events.
Identify ESG metrics.
If you are going to make any claims of having eco-friendly or responsibly sourced products, you need to ensure that your suppliers are meeting your ESG standards, whatever they may be. ESG metrics fall under three categories:
- Environmental – e.g., greenhouse-gas emissions, as well as water and air pollution, deforestation, and recycling
- Social – e.g., corporate social responsibility, fair labor practices, and working conditions
- Governance – e.g., management diversity and executive compensation, as well as the structure to report on ESG metrics
Deciding exactly what to measure and how to measure it, however, takes some thought and effort. There currently are no universally accepted ESG reporting standards, although regulators around the world have introduced a variety of rules to formalize what companies disclose about their impact on society and the environment. In the U.S., the Securities and Exchange Commission just unveiled stringent mandatory climate disclosures for U.S. public companies, the largest of which will have to report Scope 3 emissions – which includes suppliers – starting with 2024.
Break down silos.
One of biggest barriers to transparency is walled-off information. When every link in the supply chain – manufacturers, suppliers, distributors, etc. – uses its own system, data is isolated and often incomplete. These silos make it extremely difficult to get an accurate picture of what’s happening in real time or get in front of an issue before it turns into a crippling problem.
Technology can bridge these divides. ESG software connects systems and stakeholders by gathering data in one place with real-time capabilities to make useful information easily available to all. You can set clear expectations and track metrics and milestones consistently and efficiently. You’ll be able to anticipate hiccups and make smart decisions to maximize the end-to-end performance of your supply chain.
Some 86% of global consumers now expect CEOs to lead on societal issues. Supply chain transparency allows you to provide credible evidence on your commitment to ESG – while also creating a supply chain that is agile, predictive, responsive, and resilient enough to thrive in a rapidly changing global economy.