By: Karen Lutz, Senior Program Manager, EHS Compliance and Sustainability
Companies today are reaching beyond their operational footprint into their supply chains for additional opportunities to manage risk, find efficiencies and protect reputation. Sustainable supply chain issues now extend well beyond the original focus on human rights and labor issues of the last decade, spanning topics as diverse as business continuity, ecosystem preservation, anti-corruption, materials traceability and product stewardship.
The UN Global Compact defines supply chain sustainability as “the management of environmental, social and economic impacts, and the encouragement of good governance practices throughout the life-cycles of goods and services.” The objective of supply chain sustainability, therefore, is to create, protect and grow long-term environmental, social and economic value for all stakeholders involved in bringing products and services to market.
Standards bodies and ratings systems are evolving to further drive this momentum and provide tools for consistent and transparent reporting of data. As we look at some of the activities that occurred in 2012 that will have impacts in 2013 and beyond, it becomes clear that supply chain aspects are not in the borders and fringes of the sustainability perspective.
In 2012 the Dow Jones Sustainability Index (DJSI) revamped its Standards for Suppliers and incorporated Supply Chain Management criteria. The rationale for the new criteria is that companies are not only outsourcing production, services and business process, but also corporate responsibilities and reputational risks. The new framework consists of four major parts:
- Supply chain awareness and risk exposure,
- Risk management,
- Sustainability strategy and opportunities in the supply chain, and
- Transparency with regard to supply chain risks and performance.
The Global Reporting Initiative (GRI) initiated revisions to the current sustainability reporting framework in 2012, with the final framework due in May 2013. The “G4” version, as the new draft standard is referenced, has an increased focus on supply chain sustainability, with a dedicated Supply Chain Disclosure Working Group focused on developing recommendations on how to improve supply chain disclosure in the Reporting Guidelines. The Working Group was established in recognition of the fact that despite the relatively widespread activity related to supply chains, approaches to measuring and communicating the effectiveness of such efforts remain much less advanced.
The Carbon Disclosure Project (CDP), representing $78 trillion in investments, initiated the Supplier Disclosure Project back in 2009. A primary aim of this program is to drive action on climate change among 50 of the largest purchasing companies in the world (e.g., Walmart, PepsiCo, Dell) and their suppliers. This year the CDP also announced the incorporation of the Forest Disclosure Project (FDP), another strong and growing supply chain focused reporting venue. The FDP encourages companies to source commodities that could put forests at-risk (e.g, timber, biofuels, palm oil) from sustainable and traceable sources and will be phased into the CDP framework over the next two years.
The International Standards Organization initiated a revision process in 2012 for ISO 14001, the Environmental Management Systems standard, with the first draft expected in early 2013 and the final revised standard to be released by January 2015. While speculation on specific details of the revision is premature, the topics on the agenda center on broader integration into business processes, including supply chain management.
Not all recent initiatives were voluntary. The UK Bribery Act, the California Transparency in Supply Chains Act, and the Conflict Minerals rules under the Dodd-Frank Act are just some examples of recently promulgated supply chain legislation with impacts in 2012 and beyond.
Two threads tie all of these initiatives together: due diligence and disclosure. This dual focus requires increased knowledge about the origin of products and services, and transparent communication to stakeholders. Companies’ procurement strategies need to fully embed these new expectations and requirements by integrating due diligence measures at the core of the procurement process and capitalizing on opportunities to communicate effectiveness.
A number of tools are available to assist, including two significant publications from late 2011:
- The World Resources Institute and World Business Council on Sustainable Development released standards to help companies measure, report, and manage carbon emissions along their supply chains and throughout their products’ life cycle through the Greenhouse Gas Protocol.
- The UN Global Compact published a self-assessment tool intended to help companies take stock of their approach to supply chain sustainability, to identify areas for improvement by comparing their practices against peers and other companies, and to provide links to resources to help them make specific improvements.
While many companies are accustomed to monitoring their supply chains, moving from monitoring supply chain aspects to improving supply chain impacts continues to challenge even the most effective procurement strategists. As 2012 has shown us, however, business pressures to identify and quantify sustainable benefits throughout the company’s sphere of influence will only increase. Aligning risk strategies across the value chain can identify a multitude of possibilities for efficiency and innovation and offer opportunities to drive business value.
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