To increase overall ESG scores and hit ambitious targets, firms are finding the fastest path to success can be to support suppliers in their own development.
_________By ROBIN BYRD
As costs rise across almost every major category, consumers are becoming more intentional about their spending. They want to be sure their dollars are supporting firms that share their values. This has put a sharper light on ESG scores and responsible sourcing practices at a time when many firms are finding it difficult to accurately assess whether or not their suppliers are capable of meeting standards and maintaining a reliable flow of goods and materials.
In fact, some 65 percent of CFOs and other top executives report that they aren’t able to get good ESG data from suppliers, according to a recent Sapio research survey. In a follow up survey of 800 executives across six countries by Coupa Software, a further 53 percent say that even though they know their spending can influence supplier behaviors, it’s not always clear how to get the transparency they want and need for reporting requirements, especially from lower-tier suppliers.
One possible solution? Doing more to support first-tier and lower-tier suppliers in developing their own internal ESG reporting systems and programs. This can move things along quickly while ensuring that data points map cleanly to reporting targets, creating the kinds of metrics that make regulators and consumers happy. While this will need to be customized for each supply chain, firms that are already making these investments can provide guidance to others.
Amgen, a biotech firm with footprints on multiple continents, has made collaborating with suppliers on sustainability points a key part of its supplier development. The company often must deal with environmentally sensitive raw materials and waste chemicals, particularly at research labs and manufacturing sites that may be serviced by a number of lower-tier suppliers. However, the company has also made a large public commitment to green chemistry that needs to be maintained throughout the supply chain.
To spread their commitment to green chemistry down through more levels of the supply chain, the company has been partnering directly with certain suppliers to develop proprietary, compliant processes. One particularly successful initiative happened between Amgen and Triumvirate Environmental, a lower-tier supplier of waste management services. Amgen wanted to do more development work in labs based on single-use plastic research containers (versus more costly and resource intensive stainless steel) but the specialized plastics were a waste management challenge. Together, the companies established new best practices for safe and effective disposal processes for the lab bags, saving tens of thousands of dollars while keeping environmental impacts minimal. The smaller Massachusetts based firm would not have been able to develop the systems on its own, but the pairing proved mutually profitable and led to industry-wide accolades for efficiency and safety.
ABB: Sharing European
carbon-zero technologies with global, diverse
suppliers
ABB, the high-tech robotics and automation company from Sweden, was already a leader in Europe on emissions and carbon footprint reduction. However, not all of its international partners and suppliers adhered to similar standards and many lacked the appropriate level of tracking and monitoring systems in place to even provide data on emissions. As a result, the company was struggling to meet its ambitious “Mission to Zero” carbon reduction goals by 2030.
To help make up time and bridge the gap, in 2021 the firm introduced a new Sustainable Supply Base Management program for key suppliers. As a part of the program, ABB paid for the installation of digital and smart energy management solutions at three international sites. The firm also worked to bring its global suppliers up to date with the new European Union classification systems for sustainability (the EU taxonomy) to clarify and standardize metrics for reporting. These metrics were then tied to executive incentive programs to ensure that everyone was in alignment on goals and their priorities. As a result, the company was able to reclaim targets and even earned special recognition from the Italian government for improvements in sustainability at their regional plants.
KCB Group: Starting a cascading chain
of sustainability
When KCB Group, a financial service company based in the African Great Lakes region, wanted to increase its sustainability scores, first-tier suppliers were the first place it turned to. While the bank has leaned on a social and environmental management system (SEMS) internally since 2012, it wasn’t moving the needle far enough. So, the company invited first-tier suppliers to sign onto a specially designed supplier code of conduct that could then be distributed downstream to lower-tier suppliers that might normally fall outside KCB’s typical visibility.
The new code wasn’t simply issued out, however. Key suppliers were brought in to be trained on the leading points of the code, including special governance and ethics elements. The net result? In response to new progress with its suppliers, KCB was named the winner of the inaugural Global Finance Sustainable Finance Awards 2021.
Concluding thoughts
Creating supply chains that adhere to top-level goals for ESG often means firms need to reach beyond themselves. By partnering with key suppliers and supporting them in their own development, it is possible to accelerate the adoption of leading-edge standards for sustainability and other mission-critical governance goals further down the supply chain. While there’s no one size fits all solution, by looking at how other firms are addressing the problem, all firms can be inspired to do more to speed up the improvement of supply chain standards and the level of impact they have on the world.