SPP: Embedding Sustainability in Procurement & Supply Chain
New incentives including consumer demand, investor appetite and now, legislation are all encouraging more sustainable supply chain operations to mitigate detrimental effects and maximise positive social and environmental impact.
Procurement and supply chain decisions have a significant role to play, and practitioners are now being asked to consider additional stakeholders, aside from those concerned with creating shareholder value. The traditional model has seen buyers expected to optimise for price and speed of delivery. Now additional considerations are also carrying major weight, including human rights, labour rights, waste, and emissions. In the contemporary context, these crucial aspects need to be assessed when establishing and implementing any company-wide sustainability strategy.
For many organisations determining impact is not straightforward for a number of reasons.
Lack of clarity about supplier supply chains
Buyers are careful to select their own suppliers, because they will have a working relationship and will sign a contract. However, it is often not part of their process to vet the supply chains of the companies that they buy from. This is hugely risky for the buyer, as they will not know of, for example, modern slavery infractions, environmental thresholds or governance misalignments. Not knowing that these risks are present in your extended supply chain means that your supply chain is compromised and for any number of reasons both supply could fail or your reputation could be severely damaged.
Data about sustainability and impact is limited or unreliable.
Understanding which datasets are legitimate and trustworthy, and reconciling datasets which do not match are challenges for anyone that collects information from the open internet. It is integral to be able to determine which information is correct and what should be disregarded.
A complex landscape of ESG targets
It's not easy to compare organisations side by side to gauge their sustainability efforts. This is due to contradictory information, a lack of standardised datasets and much still being open to interpretation. Building in mechanisms that provide context and ongoing alerts is thus crucial. Transparency is at the heart of the solution, be this in regard to non-compliance of ESG measures, or active participation to promote sustainable practices.
Pricing and practicalities
Realigning existing processes to be more sustainable is often a transformational project for organisations that were previously accustomed to a different range of priorities. However, it is not simply a case of funding new initiatives to take sustainability forward. Sustainability in supply chain is a nascent and rapidly evolving field; proponents need to determine what is the right approach for their company, people, industry and geography.
The Sustainable Procurement Pledge has been playing a fundamental role in driving conversation over the past year and has provided thought leadership in a domain that is developing and changing at a rapid pace.
Whilst no one company or individual has all the answers, as a community we’ve already seen over 5000 people collaborating, sharing insights, wisdom, pragmatism and most importantly, case studies. These case studies and examples of projects that have gone well (or not) provide a huge advantage to those who need to figure out how to improve the status of sustainability in procurement teams. Large, global organisations that have resources that can be deployed on a large scale can have a massive impact, with leaders driving change across entire categories both through their own suppliers or by showcasing what can be achieved by creating communities of interest across hierarchies.
A Watershed Moment for Sustainability Commitments
Last month saw a landmark ruling where Royal Dutch Shell was instructed to significantly step up its 2030 climate commitments and slash absolute emissions by 45% compared to 2019 levels. This ruling represents a considerable advance on Shell’s stated aim to cut 45% of its emissions intensity compared to 2016 levels by 2035 – a target which provided leeway for increasing emissions as long as the relative carbon emitted per unit of energy produced fell. Now, this imposes a much larger climate obligation on Shell in calling for an urgent absolute reduction.
A ruling that sent ripples through the oil, gas, and energy sector
A watershed moment, this ruling is sure to cause significant alarm amongst fellow oil and gas giants who recognise – for perhaps the first time – that national courts can compel organisations to accelerate their reduction of harmful emissions under the Paris Agreement. Not only does it have "far-reaching" consequences for Shell itself and may even curb the potential growth of the company, but the decision is also likely to set a legal precedent for other energy companies and corporations. According to Thom Wetzer from Oxford University, who heads up the sustainable law programme: “all companies in the energy industry and all heavy emitters will be put on notice and have to accelerate their decarbonisation plans.”
This court mandate applies to not only the Shell group’s own operations but notably also to all the suppliers and customers of the group – strongly implying that Shell is being asked to tackle its Scope 3 emissions. Consequently, it is clear that Shell cannot meet the ruling’s demands alone; to make an impact across all carbon emissions scopes, Shell and other large businesses must immediately look towards forging new, productive partnerships with supplier stakeholders. Failing to do this not only means missed targets and mounting legislative action but also the reputational damage that this will cause to its brand and the company.
Activist investor warns of existential business risk
Reports on the Shell ruling were almost immediately followed by news of a coup attempt in American oil and gas corporation Exxon Mobil. Due to concerns surrounding Exxon’s strategic direction, hedge fund Engine No. 1 ousted sitting board members, stating that the climate crisis poses an "existential threat to the business", which the board has been reluctant to confront.
This small hedge fund accused Exxon of "a failure to take even initial steps towards evolution" and of "obfuscating rather than addressing long-term business risk", partly due to a historical lack of energy industry experience in Exxon’s board. This signalled an imminent shift in the company’s sustainability strategy, which was well received by the market, with Exxon’s shares rising 1.2% the day after the event.
The drive to reduce Scope 3 emissions
And if that wasn’t enough of a shakeup, this was followed by American multinational energy corporation Chevron’s shareholders voting 61% in favour of a proposal to cut Scope 3 emissions at their AGM, signalling frustration with the company’s slack approach towards climate change. Chevron has thus far failed to match its competitors’ net-zero targets with any commitments of its own.
For those less familiar, corporate emissions fall into three categories: Scope 1, 2, and 3. Scope 1 covers emissions from sources that an organisation directly owns or controls. Scope 2 refers to emissions from purchased electricity, steam, heating, and cooling that the reporting company consumes over the course of its operations. And Scope 3 is everything else – all other indirect emissions that occur within an organisation’s value chain, both up and downstream.
Why is this significant? Until now, Scope 3’s heady combination of difficult-to-manage and thus far easy-to-ignore has led large companies to abdicate responsibility for their value chain and sweep its emissions under the carpet. However, the Shell ruling indicates that this approach is no longer viable for big business. With courts stepping in and dictating climate policy to corporations as well as governments, the pressure is mounting on all heavy emitters to tackle their true impact and reduce Scope 3 emissions.
As organisations like Shell, Chevron and Exxon are considered responsible for the actions of their entire ecosystems, sustainability performance becomes contingent on supplier behaviour. The clearest example of this lies in Scope 3 emissions which, for many organisations, considerably exceeds the CO2 they emit directly.
Therefore, the time for green-washing and lip service is now over as pressure mounts from all stakeholder groups for large corporates to take decisive action on sustainability in the supply chain. However, businesses cannot turn promises into concrete progress without actively collaborating with stakeholders across the value chain.
For every five weeks that pass, we lose 1% of the decade
2030, the deadline for achievement of UN SDG-related climate commitments, is fast looming, and with every five weeks that pass, we lose 1% of the decade. The imperative to take immediate action has never been clearer. It’s now down to procurement, wider business leaders, and their associated supplier ecosystems to put sustainability strategy into action by:
● Defining, aligning, and communicating their corporate sustainability goals to focus suppliers, partners and the wider stakeholder groups on how they can make an impact.
● Collaborating systematically through technology using transparent processes that develop trust with suppliers and partners.
● Harnessing the innovation and IP within the supplier ecosystem, turning ideas into projects that can be managed and reported on transparently, and adding clear value trackers to prove impact.
Working closely with stakeholders in the supply chain is an infamously complex process, but it can be made that much simpler using Supplier Collaboration & Innovation (SC&I) technology. This ensures strategic alignment between buyer and supplier and provides comprehensive relationship governance and real-time performance visibility. This allows companies and their suppliers to work on sustainability initiatives more cohesively and develop innovative ideas through collaboration.
Here at Vizibl – through our SC&I platform combined with our knowledge and expertise – we are helping large enterprise organisations in the energy sector better leverage their supplier relationships and move closer to meeting those lofty 2030 sustainability goals.