Risk managers have known for years that climate change and other sustainability issues are cause for great concern. The staff at SupplyChainBrain notes, “A [2022] report from DispatchTrack, a specialist in last-mile delivery software, reveals that the majority of supply chain organizations surveyed in October and November — 77% — claim to be prioritizing sustainability or to have plans to prioritize it in the coming year.”[1] While that is all well and good, if enterprises are going to succeed in the years ahead, sustainability efforts must be combined with climate change adaption strategies. Why? The simple answer is: The world is running out of time to address climate change. Journalist Eric Niiler reports:
“A United Nations panel of scientists said there is a ‘feasible, but narrow pathway’ to avoid the worst effects of climate change, however to do so, the world’s nations must together cut greenhouse-gas emissions 60% by 2035 to limit warming to 1.5 degrees Celsius over preindustrial levels. That level of cuts would require a massive and rapid shift in the world’s energy supply that is under way in some countries, but has been stifled by the war in Ukraine, the global energy crisis and thirst for economic growth in countries like China and India. Global greenhouse-gas emissions reached record levels in 2022 and are projected to continue their upward trajectory, according to scientists.”[2]
Even though I’m generally an optimist, I see little chance that the world will reduce greenhouse-gas emissions in time to prevent serious climate change. Journalist Brad Plumer notes, “Delays of even a few years would most likely make that goal unattainable, guaranteeing a hotter, more perilous future.”[3] Supply chain professionals must be prepared to respond to how climate change could affect their company’s operations.
The Supply Chain and Sustainability
Tammy Whitehouse, a senior writer at Deloitte, reports that a Deloitte survey of 2,016 C-suite leaders conducted in the fall of 2022 found, “Almost all respondents indicate the impacts of climate change have affected their organization in some way over the past year. Many CxOs rate climate change as one of their company’s three most important issues, ahead of competition for talent and several others, including innovation and supply chain challenges. In fact, only the economic outlook ranked slightly higher as a pressing issue for their organizations.”[4]
Stephan Liozu, founder of Value Innoruption Advisors, insists, “Companies have no choice. They have to comply, and they have to respond to consumer needs. … We are finally getting there. Sustainability is going mainstream. After years of spotlight and trillions of dollars of investment in digital transformation, we see a major shift in priorities for medium and large companies.”[5] Blythe Chorn, a Managing Director at KPMG US, adds, “It’s time to embed climate considerations into supply chain strategies. … The first step toward driving decarbonization into the supply chain is to identify where the most carbon emissions are occurring, and where climate change will most materially impact the business.”[6]
When Liozu asserts that companies have no choice, one reason is that many countries are going to dictate what companies must do. He writes, “Regulation is becoming a reality in some parts of the world. That is the top-down pressure coming from governments, regulators, and other global institutions. Regulations can impact every aspect of a company’s business model.” Kirsten Loegering, General Manager and Vice President of Product Management, ERP solutions, at ServiceNow, adds, “Around the world, we’re seeing ESG [environmental, social, and governance] legislation turn to regulation, like Germany’s Supply Chain Due Diligence Act, meaning supply chain operators must ready their reporting operations now to avoid scrambling to stay compliant later. The truth is, many organizations are still figuring out what their most material issues are, which goals they want and need to pursue, how they track against those goals, and how best to communicate progress to stakeholders.”[7]
Take Action Now
Even if governments don’t regulate how businesses pursue sustainability efforts, companies need to understand how climate change and other sustainability issues are going to affect operations and act to mitigate negative effects. So, what can be done?
• Operationalize ESG Strategies. Whitehouse notes, “A comprehensive view of sustainability goals integrated into the organization’s purpose and strategy can reduce stakeholder dissonance and help leaders focus on strategically aligned climate actions.” Chorn writes, “[Operationalize] the ESG strategy by aligning the objectives of each function within the business, including finance, HR, IT, operations and procurement, to track GHG emissions.” Loegering adds, “Without benchmarking your current state, it’s impossible to accurately track your progress and plan ahead. … This starts with setting and incorporating ESG goals into the entire business function and implementing modern processes as a foundation to ensure future data extraction is easy and simple for all users. When implemented across the supply chain, technology like digital workflows can help organizations identify ESG objectives, ensuring they were achieved, and then measuring the effects for desired impact. Once these goals and processes are established, companies can then set realistic benchmarks and expectations across their organization.”
• Capture Pertinent Data. According to Loegering, “Sharing spreadsheets to track ESG data at each stop in the supply chain process is too slow. For this reason, I suggest companies take a data-first approach to their ESG efforts not just across the supply chain, but the entire organization itself. … To understand the ESG performance of suppliers, organizations must first maintain rigorous collection, management, and analysis of data. Then, organizations must identify the KPIs needed to succeed and embed these objectives across their supply chain.” Chorn adds, “Capturing real-time operational data along the supply chain [is essential] for measurement and reporting of GHG [greenhouse gas] emissions.”
• Strive for End-to-End Supply Chain Visibility. Loegering notes, “If executives responsible for making ESG and supplier decisions don’t have visibility into supply chains, it will be impossible for them to assess their progress toward ESG goals.” Chorn adds, “Building end-to-end visibility into the supply chain [is required] to see where goods move, the supply chain partners that are moving them, and their sustainability credentials.”
• Modernize. Loegering writes, “Modernization is especially critical as companies contend with louder calls for more holistic ESG management and reporting. The ability to track and report carbon reduction, talent attraction, and data security efforts across supply chains and operations on a single platform is quickly becoming a requirement. Ultimately, to execute ESG goals, organizations that invest in supply chain maturity will gain greater visibility into and transparency across their supply chain partners and stakeholders, while embedding ESG activities into daily work across the enterprise.” Whitehouse adds, “Business leaders can scan, assess, and connect to innovators and emerging and existing climate technologies globally in an effort to formulate effective strategies to apply cutting-edge solutions.”
Concluding Thoughts
In the area of sustainability, companies always risk being accused of greenwashing if actions don’t match words. Whitehouse explains, “Organizations can build trust in commitments with relevant, reliable data and transparent disclosures that are governed by widely recognized guidance and frameworks to set and measure credible climate action.” She adds, “Individual organizations can only accomplish so much on their own when the necessary infrastructure is in low or uneven supply. Coordination across sectors, industries, supply chains, and regions is critical. Government, business, and society can work together to achieve shared sustainability objectives.” Don’t kid yourself; climate change probably has and will continue affect your company’s operations. Being proactive is the only way to meet future challenges and adapt to the changes that are occurring.
Footnotes
[1] Staff, “Majority of Supply Chain Organizations Prioritizing Sustainability,” SupplyChainBrain, 2 December 2022.
[2] Eric Niiler, “Time Is Running Out to Curb Climate Change, IPCC Report Says,” The Wall Street Journal, 20 March 2023.
[3] Brad Plumer, “World Has Less Than a Decade to Stop Catastrophic Warming, U.N. Panel Says,” The New York Times, 20 March 2023.
[4] Tammy Whitehouse, “Climate Change Now a Top 3 Priority for CxOs,” The Wall Street Journal, 18 January 2023.
[5] Stephan Liozu, “The Sustainability Ship Has Sailed. Latecomers, Grab a Raft and Hope for the Best,” IndustryWeek, 16 March 2023.
[6] Blythe Chorn, “It’s Time to Embed Climate Considerations Into Supply Chain Strategies,” SupplyChainBrain, 16 March 2023.
[7] Kirsten Loegering, “How Companies Can Prepare Their Supply Chains to be More Green, Diverse and Compliant in 2023,” SupplyChainBrain, 17 January 2023.
