How to Prepare for Supply Chain Sustainability Data Demands
With the escalation of climate and various environmental, social, and governance (ESG)-related risks, organizations are now actively setting bold sustainability objectives, and in recognition of the related concerns in their supply chains over which they lack control, companies are also asking for cooperation from their vendors in addressing their emissions to further minimize their environmental impact.
In this, global corporations such as Ford, Unilever, and Amazon are leading the way—Amazon, in a recent announcement, disclosed its plan to require its more than 200,000 suppliers to report emissions and set emission reduction objectives commencing in 2024.
But what will it take for suppliers to respond and truly serve sustainability? Why should you begin laying the foundation for ESG now?
This blog will explore the new urgency of supply chain sustainability, the reasons behind the mounting requests, what exactly is being asked for, and the challenges in delivering, as well as the potential benefits of considering these ESG data demands as not just a regulatory speed bump but a valuable chance to better your operations.
Why Are Companies Requesting Supply Chain Sustainability Data Now?
As climate change continues to progress, corporations today face an increased need to identify and evaluate sustainability risks—this need, together with consumer appetite for more environmentally friendly products and services and emerging laws that require sustainability reporting in supply chains, has led companies to call on their suppliers to cooperate in better measurement and impact minimization.
But thus far, not everyone is taking the same approach to making certain their suppliers are contributing to the overall sustainability plan:
- Ikea: To ensure Ikea suppliers are living by their ethical and environmental standards, they have mandated their suppliers implement IWAY—as the guidelines Ikea uses to ensure ethical product and materials procurement, IWAY requires suppliers to have sustainable use of water, waste, and working conditions, all of which are verified by Ikea.
- Unilever: Through the Unilever Climate Promise, Unilever mandates supplier signatories to set SBTi-validated goals and report their emissions in yearly public reports. For those suppliers that do, Unilever gives support through expertise and access to tools and resources.
- Royal Phillips: The healthcare technology company has made the bold target of generating 25% of sales from circular products, services, and solutions—therefore, it prefers suppliers that have circularity embedded into their products and services.
To become a preferred supplier to one of these or other companies with ambitious sustainable supply chain goals, you will have to be prepared to not only share ESG and sustainability data but to be ready to contribute to improving the sustainability of their company to make the supply chains of their customers more sustainable.
The Urgency of Sustainable Supply Chains
Yet even as more and more major corporations progress towards a sustainable future and work to incorporate their suppliers into similar ESG objectives, the importance of sustainability in supply chains is likely to emerge as an even greater business necessity for several reasons, such as:
Government ESG Mandates:
Local, national, and international authorities are enforcing regulations mandating companies to disclose comprehensive environmental, social, and governance data, and this trend will undeniably intensify the quantity of compliance-centered inquiries that suppliers encounter.
Growing ESG Risk Exposure:
As the need to recognize and counteract ESG risks intensifies, those who anticipate these potential threats, manage them proficiently, and transform these challenges into springboards for innovation and expansion will forge more enduring sustainable ventures.
As of June 2023, the ISSB standards become the international benchmark for ESG and sustainability disclosure, as most ESG disclosure rules are either compatible with or rooted in these new standards, and every optional reporting standard is either integrated with the ISSB or aligned to work cooperatively.
How to Achieve Supply Chain Sustainability
While that global unification of standards and regulations through the ISSB should facilitate more streamlined and valuable reporting, what information exactly will suppliers be called upon to report?
To achieve sustainability requires consideration of environmental, social, and financial footprint, and for the vast majority of firms, the substantial part of their ESG and sustainability potential comes from their supply chains—particularly when it comes to reducing emissions, as addressing those originating from your supply chain can wield a substantial influence on the climate.
Hence, the most effective approach to lessening ESG and sustainability impacts involves collaboration and communication with suppliers.
And while sustainability and mitigation of the related risk are worthy pursuits on their own, they’re also becoming required now due to this new era of fresh sustainability regulations emerging in the EU and U.S., along with the unification of ESG reporting guidelines under ISSB standards, and the increased focus on ESG issues.
Such dynamics are working to transform the way all businesses function, innovate, and compete in a market that's increasingly impact-driven—as such, ESG data inquiries are intensifying as clients are now looking more and more to their suppliers to join forces in enhancing the sustainability of supply chains.
The Need to Reduce Scope 3 Emissions
In joining forces, the most urgent matter is tracing and reducing Scope 3 emissions, which refer to the carbon footprint created by external stakeholders in a business's ecosystem, such as suppliers, transport services, and end consumers—it may come as a surprise, but these emissions are 11.4 times more prevalent than those originating from your own operation.
That being said, measuring and battling Scope 3 emissions is notoriously difficult due to factors like:
- Indirect influence;
- Limited data access; and
- The barriers in steering other companies' decarbonization tactics.
So then, to grasp and minimize Scope 3 within your supply chain, you can choose to only engage with new suppliers that already comply with your sustainability objectives, or—as may be simpler—implement these three common strategies with your existing suppliers:
- Sustainable Procurement: Replacement of traditional products with those that produce fewer emissions, consume less raw material, and utilize fair labor practices.
- Supplier Collaboration: Extension of expertise and resources to suppliers that enable them to minimize their environmental impacts.
- Supplier Mandates: Imposition of contractual obligations on suppliers to measure, report, and set ambitious sustainability targets.
Other Areas of Concern in Supply Chain Sustainability
And while emissions reduction remains a critical issue, the diversity of ESG data being requested from suppliers is growing to include that which can spur improvement across a product’s full life cycle—that’s particularly true for potential clients of multinational corporations that put a premium on sustainable products.
Consequently, ESG data requests may also concern:
- Supplier resource efficiency
- Recyclable design
- Ethical practices
- Loss of biodiversity
- Labor abuse
Moreover, data requests regarding waste management, end-of-life strategies, Diversity, Equity, and Inclusion (DEI) figures, and water management are also becoming more routine.
The Challenges of Supplier Response to Supply Chain Sustainability Efforts
When endeavoring to deliver on such varied ESG data requests, many organizations just initiating their journey towards ESG compliance may encounter several obstacles, including:
1. Deficiency of Knowledge and Expertise in Managing Sustainability Data Requests: Gathering, calculating, and strategizing around emissions and other sustainability indicators demands specialized skills that smaller firms might lack in-house, so recruiting additional staff or seeking guidance from outside experts may become necessary.
2. Resource Constraints in Addressing Sustainability Data Requests: Procuring the necessary tools, training, and specialized knowledge to fulfill these requests can be both time-consuming and financially taxing, and so it might do to start small and create progressive iterations of your sustainability program.
3.Conflict of Sustainability and Business Goals: Efforts to measure emissions, enhance DEI, or reduce deforestation and other environmental effects might divert resources that could otherwise be allocated to achieving financial objectives or funding R&D projects.
4. The Sheer Multiplicity of Sustainability Data Requests: Diverse ESG data requests from various clients, each adhering to different reporting standards, can complicate the task of responding.
The Benefits of Responding to Sustainability Data Requests
Despite the substantial challenges that sustainability data requests may present—particularly for small and medium-sized enterprises—there are also potential benefits to reap in preparing to respond to sustainability data requests:
1. Expansion and Protection of Client Base: A proactive stance towards sustainability data inquiries not only retains existing large clients who prioritize ESG factors but also appeals to new clients who seek partners sharing their sustainability vision—what’s more, open dialogue on ESG metrics fosters trust, aligned values, and shared objectives, creating more robust customer relationships.
2. Establishment of a Competitive Edge: Comprehensive and transparent ESG reporting distinguishes a company from rivals that might be less agile or open, as it demonstrates adaptability to market changes and leadership in sustainability—a vital asset, especially in sectors where sustainable practices are sought after.
3. Insight into ESG Risks: The process of reacting to sustainability data inquiries offers an opportunity to scrutinize a firm's sustainability protocols. Assessing compliance with ESG standards and stakeholder anticipation uncovers potential risks. These insights can steer strategic alignment, risk reduction, and ongoing advancement in ESG proficiency.
4. Easier Compliance with Emerging Regulations: Taking a forward-thinking approach to sustainability now for the sake of answering ESG data inquiries will also position you well should your organization fall into applicability categories for any upcoming required standards/regulations.
Strategies for Effectively Responding to ESG Data Requests
To harness those benefits of ESG and sustainability data gathering while minimizing those potential obstacles, firms must first unravel the sustainability priorities of their key customers by asking:
- What objectives have been defined?
- Where do they concentrate their sustainability reporting and reduction?
- Is it oriented towards climate, waste management, biodiversity, DEI, or something different?
Understanding the answers to those questions can help your enterprise get started in deciding what ESG information to measure and when to do so—as can the following general strategies for suppliers responding to data requests:
Identify Priority Areas in Sustainability Data Requests
Rank your supply chain sustainability data requests based on importance, schedules, and how they align with your corporate objectives. Recognizing the most urgent, strategically vital, or complex stakeholder needs can pinpoint where the impact will be most significant.
Develop a Strong Data Gathering System for Supply Chain Sustainability
Dependable and prompt answers to ESG data inquiries rest on an established and resilient data collection architecture.
Clearly and Openly Share Sustainability Data
Open disclosure regarding your ESG data acquisition process, advancements toward targets, and any deficiencies fortify brand image and showcase true dedication to ESG values, as transparency is fundamental to establishing any kind of trust and reliability—internally and externally.
Synchronize with Recognized ESG and Sustainability Reporting Protocols
Coordinating data collection and reporting with standard ESG reporting frameworks like the CDP (accounting for most ESG data inquiries), the Global Reporting Initiative (GRI), and the International Sustainability Standards Board (ISSB) guarantees uniformity, relatability, and trustworthiness, further simplifying your reporting process.
Bracing for a Wave of Sustainability Data Requests in Supply Chains
As most organizations have become fully aware that their largest opportunity regarding the environment is found within their supply chains, it's now a question of when, not if, a customer or stakeholder will call upon your organization to share ESG and sustainability metrics. And while these requests might initially focus on emissions analysis and cutbacks, they may eventually widen to include other sustainability and ESG factors.
By embracing the ESG journey now and viewing these client data demands as an opportunity rather than a constraint, you can both prepare for the incoming data requests and preemptively secure a competitive edge within your market.
If your company needs assistance in setting off and converting ESG data requirements from a risk to a commercial opportunity, our team of ESG experts is here to help, from the initial stages of data collection to constructing effective mitigation approaches—contact us today.
About Tom Andresen Gosselin
Tom Andresen Gosselin is Schellman’s ESG & Sustainability Practice Director and is responsible for ESG Assessment, Assurance, and Certification Services in all regions. Tom is an experienced assurance practitioner, having acted as Lead Verifier of sustainability reports across five continents for some of the world’s most recognizable brands. He has also developed innovative assurance protocols addressing global environmental challenges such as ocean-harvested plastics and circularity, cattle ranching and deforestation in the Amazon, and human rights in coltan mining. Tom has worked continuously in ESG for over 25 years and in 4 countries but has settled down in Atlanta with his 2 sons and a dog.