Is It Time to Start Focusing on What Really Matters?

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By James Burke

Many people share the skeptical attitude from the cartoon above toward building a sustainable future.

Sustainability can help an organization improve reputational image, obtain better access to capital, meet employee expectations, and drive competitive advantage. But as the cartoon points out, what if it’s a big hoax and this is all for naught?

The answer is that it doesn’t matter. A robust, thriving consumer base is absolutely mission critical for every company on our planet. Recognizing the risk of inaction, companies have been reporting on environmental, social and governance issues for decades. But with all the data collection, subsequent evaluation, and rating/rankings, the majority of individual companies are not delivering needed performance improvements. Why?

The major culprit for lack of performance improvement can be found in the supply chain. Supply chains represent approximately 80 percent of non-financial impacts for most companies, and over 90 percent in the consumer goods sector, according to a 2016 McKinsey report. Yet very little, if any, supply chain data is collected and taken into account when scoring a company’s performance. It’s like giving a hotel a 4-star rating based solely on what you see in the lobby.

The reality is that the majority of supply chains are not improving, and in many cases, negative impacts are growing.

So what needs to happen?

Companies need to commit to working with suppliers
Simply put, suppliers need help. Their needs will vary based upon size and maturity, but all can use more and better resources for this effort – tools, expertise, access to capital, development of regional/local partnerships – would be welcomed by suppliers, especially small businesses that are short on resources. Problem identification and supportive programs for suppliers will
be the catalyst that drives performance improvement.

Press for and deploy innovation
Existing strategies, such as sharing best practices or corrective action plans have produced limited results. These are passive tactics that in most cases fail to lead to action. Companies need to identify suppliers’ sustainability shortfalls and deploy better processes to help initiate action toward performance improvement.

There are a few corporate leaders adopting this approach with suppliers. Walmart’s Project Gigaton may be the most high-profile example of supply chain engagement. Walmart recognizes that in order to realize their SDG commitments, they will need to extend their reach upstream to their suppliers, and not just to tier one, but beyond into tier-two and tier-three suppliers. Pfizer, GSK and Hewlett Packard have also established supply chain GHG emission reduction targets.

Platforms like Globality and BlockChain are well- positioned to provide new leading indicators on supplier activity in real time and address supplier issues discovered in the data collection process. This treasure trove of information allows responsible companies to forecast supply chain improvement and make appropriate adjustments on procurement.

Set external goals
Dexter Galvin, Head of Supply Chain at CDP, has labeled corporate supply chains as the “missing link” for climate action. If 80 percent of a company’s impact is in the supply chain, internal targets have limited relevance. Supply chain targets are the targets that matter, and corporate procurement, ESG rating/rankings need to recognize and properly reflect this reality.

By committing to tackling supply chain sustainability, companies can pivot toward meaningful data that accurately reflects impact and drive true change.

Posted April 16, 2018 in Vol. 8 No. 4 - July/August 2017