Will this be the decade of supply chain sustainability?
Three major trends suggest that supply chain sustainability will seize center stage during the 2020s.
One of the most significant shifts we’ve seen since the start of this century is the rising importance of sustainability for businesses—particularly around environmental, social, and ethical performance. Increasing awareness of the catastrophic effects of climate change and the destruction of natural resources as well as a growing concern for human rights violations, inhumane working conditions, corruption, and more are driving companies to incorporate sustainability into their values and their mission statements.
Furthermore, the sustainability movement shows no sign of slowing down. Instead companies are expanding their focus beyond their own four walls. The increasingly globalized nature of our world has created supply chains with dozens of tiers across the globe. Sustainability risks have grown with globalization—but so have efforts to combat the dangers.
Just before the COVID-19 crisis, my company EcoVadis delivered its 100,000th sustainability rating and scorecard. EcoVadis’ ratings track performance of more than 65,000 businesses in supply chains across 160 countries. We’ve seen it all since our founding in 2007—and over the past 13 years, we’ve uncovered three major trends that depict why the 2020s will be a big decade for supply chain sustainability:
- Trend 1: Social purpose is now core to business commitments.
- Trend 2: Supply chain sustainability performance varies by region and across themes.
- Trend 3: Sustainability is becoming a critical risk management tool.
At the core
Over the last few years, there has been a revived corporate emphasis on sustainability—especially as the global investment community’s interest in environmental, social, and governance factors has spiked.1 For executives, there’s more pressure and new motivation to serve a purpose that is measured by more than quarterly earnings and growth. And this pressure isn’t only from investors, but customers and employees too; 62% percent of customers2 want companies to take action on sustainability, and nearly 40% of millennials have chosen a job3 because of company sustainability. The new goal: building long-term, sustainable value.
Last year, 181 CEOs of large global companies signed a “Statement of Purpose of a Corporation” that prioritized sustainability, stewardship, and people alongside profits.4 Then 2020 kicked off with the World Economic Forum’s Davos Manifesto, which urged companies to engage all stakeholders and promote respect for human rights throughout their global supply chains. On the funding side, 85% of individual investors now say that they are interested in sustainable investing.5 In fact, early this year BlackRock CEO Larry Fink announced plans to make environmental sustainability the focal point of the company’s investment decisions moving forward.6 While some believe that this progress may have slowed due to the recent COVID-19 pandemic, we believe that ultimately the momentum can’t be stopped.7
Furthermore, we’re seeing corporate sustainability commitments being made from every part of the world. Seventy-two percent of global companies now mention in their annual corporate and sustainability reports the United Nation Global Compact’s Sustainable Development Goals, which define global priorities and aspirations for business development into 2030.8 Companies are actively working toward sustainability, and we believe this will be the decade where transformative progress will be made.
In particular, we’re seeing many organizations make changes to improve sustainability performance starting in the supply chain. Why? Because the supply chain offers a clear and actionable roadmap for creating a networked impact and driving real improvements. For example, many companies are working to create “sustainable procurement” programs, where their corporate social responsibility principles are integrated into their procurement processes and decisions. A recent study found that companies with mature sustainable procurement programs report more benefits across the board, including an 88% increase in risk mitigation, 53% improvement in procurement metrics, 35% more cost savings, and 29% increase in innovation.9 Additionally, a study by the World Economic Forum and Accenture found that sustainable supply chain practices actually reduce supply chain costs by 9% to 16%.10 This fact is crucial because cost reduction is more important than ever as we battle global shutdowns and shortages. The value of sustainability goes well beyond creating a better world.
As social purpose has become central to organizations, global businesses have made noteworthy corporate social responsibility (CSR) improvements in the supply chain, according to the Global CSR Risk and Performance Index.11 However, ratings on overall global sustainability performance has remained stagnant over the last few years with little improvement despite corporate commitments to create a more responsible economy—igniting a push for business leaders from stakeholders to do more than just vocalize commitments.
Variation by theme, region
Our data portrays significant thematic and geographic differences when it comes to global sustainability benchmarks. For example, organizations have been increasing their focus on the labor and human rights theme recently, and are improvingtheir performance year-over-year. With the emergence of laws around modern slavery, supply chain transparency, and disclosure, this trend will continue to dominate 2020 and the years that follow. However, lack of progress in the sustainable procurement theme shows vulnerability and limited visibility on suppliers—which is especially threatening in high-risk areas across the globe. (In the coming years, we predict a heightened focus on sustainable procurement based on our assessments.)
In terms of regions, European businesses have consistently outperformed companies in North America, Latin America and the Caribbean, Greater China, and AMEA (Africa, Middle East and Asia). While Europe’s supply chain sustainability score has improved over the years, North America isn’t far behind. Businesses in Latin America and Greater China are increasingly seeing authorities emphasize environmental inspections as well as anti-corruption and data protection legislations.
Overall, there’s clear evidence that sustainability has become a higher priority across the world. However, when assessing one’s own performance against global benchmarks, it’s crucial to take into account these geographic and theme-based differences. In order for businesses to stay ahead in the race toward sustainability, it will be critical to know where you stand on each theme based on your region.
Sustainability as risk management
Sustainability is also a risk management play. The environmental disclosure charity CDP estimates that companies could face roughly $1 trillion in costs related to climate change in the decades ahead unless they take proactive steps to prepare for the effects, such as cutting greenhouse gas emissions or reducing water usage throughout the entire supply chain.12 Businesses are also taking action to protect themselves reputationally, as society demands sustainable change and societal contributions from the brands they shop with.
The ’20s will be an exciting time for sustainability—especially where it matters most: the supply chain. Changes will be made to protect the world for our grandchildren and their grandchildren, keep vulnerable populations safe, save organizations money, and give brands the competitive edge they need to compete in a sustainable world. Supply chain professionals will need to get on board today to reap the benefits throughout the decade.
Notes:
1. Robert Eccles, “Why It’s Time to Finally Worry about ESG,” Harvard Business Review, May 21, 2019: https://hbr.org/podcast/2019/05/why-its-time-to-finally-worry-about-esg
2. Rachel Barton, Masataka Ishikawa, Kevin Quiring, and Bill Theofilou, “From Me to We: The Rise of the Purpose-led Brand,” Accenture Strategy, 2018: https://www.accenture.com/us-en/insights/strategy/brand-purpose
3. Adele Peters, “Most millennials would take a pay cut to work at a environmentally responsible company,” Fast Company, February 14, 2019: https://www.fastcompany.com/90306556/most-millennials-would-take-a-pay-cut-to-work-at-a-sustainable-company
4. Business Roundtable, “Statement on the Purpose of a Corporation,” August 19, 2019: https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans
5. Morgan Stanley Institute of Sustainable Investing, “Sustainable Signals,” 2019: https://www.morganstanley.com/pub/content/dam/msdotcom/infographics/sustainable-investing/Sustainable_Signals_Individual_Investor_White_Paper_Final.pdf
6. Andrew Ross Sorkin, “BlackRock CEO Larry Fink: Climate Crisis Will Reshape Finance,” The New York Times, Jan. 14, 2020: https://www.nytimes.com/2020/01/14/business/dealbook/larry-fink-blackrock-climate-change.html
7. Sylvain Guyoton, “Why Stakeholder Capitalism Will Help Companies Through COVID-19,” EcoVadis, April 6, 2020: https://resources.ecovadis.com/blog/why-stakeholder-capitalism-will-help-companies-through-covid-199
8. Louise Scott and Alan McGill, “Creating a strategy for a better world: How the Sustainable Development Goals can provide the framework for business to deliver progress to our global challenges,” https://www.pwc.com/gx/en/sustainability/SDG/sdg-2019.pdf
9. “2019 Sustainable 2019: https://resources.ecovadis.com/2019-barometer/2019-sustainable-procurement-barometer
10. John Manners-Bell, “How to create sustainable supply chains,” World Economic Forum, March 20, 2015: https://www.weforum.org/agenda/2015/03/how-to-create-sustainable-supply-chains/
11. 2019: https://resources.ecovadis.com/whitepapers/csr-risk-performance-index-2019
12. Brad Plumer, “Companies See Climate Change Hitting Their Bottom Lines in the Years,” The New York Times, June 4, 2019: https://www.nytimes.com/2019/06/04/climate/companies-climate-change-financial-impact.html