3 Key Steps to Integrating Sustainability into Business
Today, there is no shortage of pledges and promises from organisations striving to reach their 2030 sustainability commitments, with an underlying urgency for companies to take meaningful actions towards their Environmental Social and Governance (ESG) initiatives. However, as sustainability and procurement are brought into the limelight and pressure from customers and investors to meet these pledges grows, the strategy around where to start and how to use these initiatives to make a true impact is often still not clear to leadership teams.
The question now is: how do organisations take immediate steps in their supply chain and sustainability initiatives to meet these pledges?
Integrating sustainability into business strategies
There is no single path to adopting sustainability-driven initiatives, but key steps exist that can help to successfully integrate sustainability into a business strategy.
The first step is education of the leadership team and workforce. All members of the organisation need to understand how incorporating sustainability into their practices can provide multiple benefits in the long term.
Secondly, it is important to define what sustainability means for every area of the company and to identify its benefits. From developing new products, investment decisions or services, to changing procurement practices, a business needs to demonstrate how sustainability has an increasingly central role in these decisions. Organisations must identify issues that have the biggest impact and are most relevant to stakeholders and to the business, to better understand where they should concentrate their efforts.
Once this has been determined, continuous benchmarking against a set of goals is imperative. This is where supplier collaboration tools can help. Defining key performance indicators to meet the identified goals will allow the business to detect areas for improvement and gather relevant data to track progress. For key stakeholders to accurately quantify sustainability and corporate social responsibility within a business, ESG ratings tools, such as Ecovadis can also be utilised, for measuring both metrics throughout the supply chain. This allows for meaningful comparisons between organisations.
Incentivise the right behaviour
Once a sustainability framework has been fully integrated into the organisation’s business strategy, these policies must be cascaded into conversations with the supplier ecosystem, to facilitate collaborative work towards reaching their pledges. After an organisation has implemented change within their own four walls and across their supply chain, they can also start sharing the information with other business partners and customers. A business’ own sustainability practices and policies are only as strong as its supply chain practices, and performance in this area is increasingly engaging the public conscience.
Leadership teams need to be continually incentivising the right behaviours, with robust governance models established throughout the organisation and with suppliers.
Incentivising suppliers can be done by demonstrating the positive impact they are making, such as holding supplier awards, that encourages them to partake in more sustainable practices for reputational benefit. This will enable organisations to collaborate with incentivised suppliers towards their sustainability initiatives; suppliers who don’t deliver sustainable practices will ultimately lose business to their competitors who do.
Digitisation in sustainability
Organisations need to ensure that their sustainability targets are measurable, viable, and impactful. One way in which the supply chain landscape is evolving to create this change is through the digitisation of sustainability. For example, organisations can use digital tools to map their environmental footprint and assess the impact of environmental shifts on their business. This creates a conduit for organisations to measure actions, outcomes and results towards their pledges.
Utilising data in this way allows organisations to show clear, measurable progress on how they are reaching their targets. This not only highlights progression for customer, investor, shareholder, and trading partner stakeholders but also enables them to engage with suppliers, using actionable intelligence to help them meet sustainability goals.
Looking forward, organisations need to be proactive when looking to achieve their ESG and sustainability commitments – there is no time like the present. To be successful in reaching these pledges, organisations need to digitally transform, to ensure they are integrating sustainability into their business strategy, and to apply leading sustainability practices, whilst also incentivising sustainable practices within their supply base.
Although implementing sustainability practices within an organisation can seem like a considerable cost upfront, companies will see a significant return on investment in future years. Investing in innovation to tackle sustainability challenges now will build a competitive advantage and brand trust with customers, whilst also making an impact towards environmental change that can be measured. Conversely, organisations that don’t make this change will see detrimental effects to their reputation and bottom line, leading to a loss of trust in the brand.
How to apply leading practices into your sustainability programs
Finally, there is no denying that applying leading practices into an organisation’s sustainability programs can prove challenging. To help we have outlined below a quick checklist of actions to successfully create and manage sustainable businesses and supply chains:
- Establish a strong vision: Create a strong sustainability and procurement vision that is aligned with the organisation’s overall business strategy.
- Set out sustainability targets: Determine clear targets and expectations for the organisation which can be effectively communicated to all employees, so everyone can embrace the sustainability vision and work towards reaching designated goals.
- Integration with procurement: Sustainability needs to be integrated across all procurement functions.
- Report your progress: Organisations need to ensure they are reporting all sustainability progress to their customers, stakeholders, investors etc. to show they are working towards their target milestones.
- Engage your business partners: Organisations need to align with their suppliers, distributors and other members in their value chain, ensuring they are undertaking sustainable practices. Effective collaboration is the key to accelerating sustainability across an organisation’s industry or value chain.
- Digitise your processes: Where possible look to see how you can digitise sustainability in order to map and continuously track progress with real-time, single source of truth data.
Germany Adopts Revolutionary Supply Chain Human Rights Laws
While the title states that Germany’s newly adopted that targets human rights abuse across global supply chains is “revolutionary” ─ which it is ─, it certainly shouldn’t be. But nonetheless, today, on June 11th, 2021, the German Parliament has ushered in a long-awaited shift to mandatory company compliance rules. After months of negotiation, the German lawmakers finally pushed it over the finish line within the final days of the current legislative period. The bill will see German multinational corporations held legally responsible for any human rights or environmental abuses found across their global supply chains.
“The German government has taken a critical step to ensure that companies operate responsibly,” said Juliane Kippenberg, associate director, children's rights division, at Human Rights Watch. “Respect for human rights in global supply chains is not something that should be optional.”
This news comes at a time when global corporations are already being pushed towards environmental, social and governance (ESG) compliance, with a massive drive to reduce Scope 1, 2, and 3 carbon emissions from their supply chain operations and a concerted effort to avoid suppliers and manufacturers that do not meet the standards that industry-leading companies are now expected to meet.
Who will the new law affect?
With Germany’s new legislation, organisations that fail to meet the rules and regulations could be forced to pay fines potentially equivalent to 2% of their annual global turnover. However, it isn’t applicable to all.
According to Reuters, under the act, companies above a certain size will be forced to establish set due diligence procedures that prevent the abuses; from 2023, only companies with more than 3,000 employees in Germany will be affected. From 2024, the rules will expand to companies with more than 1,000 employees.
Statistics from within the country suggest that the first stage of this regulation rollout will affect 900 companies, while the second stage will put 4,800 companies under the spotlight. The bill will also enable the government to temporarily exclude from public tenders companies that receive fines in excess of €175,000.
“Incalculable risks arise for companies,” said Joachim Lang, general manager at the Federation of German Industry. A word of warning from a respected leader, at a time when industry lobby groups and wholesale businesses fear that the new law increases bureaucracy and suggest that price rises may be inbound.
The Take of German Giants
After looking at the incoming legislation, Daimler AG, known more commonly as the automotive giant Mercedes-Benz, a company which, should there happen to be any ESG-compliance issues along its multinational supply chain, would pay a hefty fee, is welcoming of the push for change but hesitant about certain aspects of the bill.
“Daimler's position is: The respect for human rights is a central aspect of our sustainable business strategy. We, therefore, welcome the progress made on the Supply Chain Act. Although the regulations are very ambitious, the proposed legislation has a sound approach overall. It is based on internationally recognised human rights and on international agreements. And it gives companies more legal certainty in an area that has so far only been partially regulated.
Supply chains are not "chains" but rather exceedingly complex networks: Daimler alone has over 60,000 direct suppliers - and many more sub-suppliers. For this reason, we also consider the proposed risk-based gradual model to be sensible. The responsibility of the companies lies primarily in their own business area and with their direct suppliers. Companies must then take action in the deeper supply chain if there are concrete indications of human rights violations. Daimler AG already does that today.
Even though we support the proposed legislation in principle, we consider some aspects to be critical, e.g. the planned fines of up to 2% of the average annual turnover. Instead of threats of sanctions, we consider concrete measures, which companies must take in the event of deficits, to be more expedient. In addition, certain wordings are still vague and leave room for interpretation. Terms such as, e.g. "fair standard of living" should be phrased precisely in order to create legal certainty. Furthermore, documentation and reporting requirements should not lead to unnecessary bureaucracy and should be harmonised with existing rules. On the one hand, this does not help the people on the ground, and on the other hand, it puts a burden on the companies – and the implementation can pose substantial challenges for smaller companies in particular.”
This law is arguably one of the most important developments in the supply chain space so far this year. But it must be remembered that changes do not and will not happen at the push of a button and that democratic principles should be applied to the discussion prior to enshrining legislation into tablature. Environmental and human rights advocacy is a hike, not a brisk walk around the park ─ so, for German companies, it’s time to get their boots on the ground and start assessing their global, interconnected supply chain operations. And, hopefully, they’ll set a stellar example for the rest of us.