ESG and Your Supply Chain: 3 Steps to a Streamlined Strategy

sustainable supply chain feature

ESG and DEI+J are hot topics in retail, and supply chain is a particular area of focus. Their importance will continue to grow, and their relevance increase as younger generations enter the workforce.

As ESG becomes more relevant, thought leaders in retail recognize the importance of looking at ESG and DEI+J impacts across the enterprise. Within supply chain, the first step is identifying and mitigating the cost of your organization’s own emissions, but that’s just scratching the surface.

In addition to Scope 1 and 2 emissions, it’s essential to evaluate your Scope 3 emissions throughout your entire supply chain. According to some analyses, Scope 3 emissions count for more than 90% of a retail organization’s overall emissions footprint, and as much as 98%.

Here are some important ways to boost sustainability in your supply chain as you work to integrate it into your overarching ESG/DEI+J strategy.

Assess the Full Impact of Your Supply Chain

Supply chain impact is vast and varied. It takes time and intention to fully grasp the emissions involved end to end. Here are a few ways to measure your supply chain emissions’ environmental and human impact.

Return to the source: The largest impact will likely come from goods purchased and sold, so it is especially important to consider them. Where possible, swap less sustainable products or materials for less energy-consuming alternatives. Consider sourcing materials locally and stay committed to holistic stewardship of the environments and communities they come from.

Fabrication and manufacturing: This is often the most significant contributor to your emissions footprint. Look at the full manufacturing process through the lens of reducing impact. That might include using longer-lasting materials, choosing a more sustainable manufacturing method, or incorporating more recycled and recyclable materials.

Getting from point A to point B: Shipping materials can be a major contributor to carbon emissions. It’s essential to consider alternate, less carbon-intensive methods for transporting goods. That includes using recyclable materials and considering alternate packaging strategies. Consider materials that can be recycled or composted and exploring methods to reduce product size and weight. Ikea, for example, is nearly synonymous with the concept of flat-pack shipping products that customers assemble at home.

 Take a fresh look at product use. It’s essential to establish a circular business model for product use. A circular business model generally includes:

  • Maintaining ownership: Through a subscription or other ongoing program, the manufacturer rents or leases the product to customers rather than selling it outright. The organization producing it retains responsibility after the customer no longer needs it.
  • Increase durability: Look for ways to make your products last longer. A more durable product also creates a compelling case for premium pricing.
  • Design to recycle, reuse, or compost: Ask how the product could be reused for another purpose or disposed of sustainably.

Quantify Your Supply Chain Emissions

While Scope 3 emissions are the largest contributor to most producers’ emissions, methods for tackling them vary widely across industries and organizations.

The first step is creating a detailed inventory and setting benchmarks to work toward based on other players in your industry. See how your performance compares to peers by researching their emissions impact across all three scopes. This will help identify your greatest opportunities for improvement.

Next, focus on one area that would be most impactful for reducing emissions. Improve incrementally and avoid siloes by looping in stakeholders from across the organization.

Examine the Human Element

Greenhouse gas emissions impact the natural environment and the people and communities your supply chain touches. Prioritizing ethics, legal parameters and economic factors is crucial as you evaluate the impact.

Retailers expose their businesses to unnecessary risk when they work with suppliers that use unethical practices, such as unsafe working conditions and child labor. Performing due diligence to ensure you’re engaging the right suppliers and partners is just as important as careful planning.

  • Remember your obligations: Safe and sustainable labor practices, ethical treatment of animals, and low-impact production are all squarely on the shoulders of your organization.
  • Choose suppliers and partners carefully: Seek out suppliers and other partners who share your values and encourage them to improve their sustainability practices.
  • Quantify your impact: Keep local communities top of mind as you consider your end-to-end supply chain, especially vulnerable ones. Seemingly minor economic or environmental disruptions can have serious impacts on these populations. For example, the degradation of natural resources or local water supplies can lead to food insecurity and economic hardship.
  • Be the change: Look for ways to not only avoid harming communities, but also to impact them positively. This could be investing in reforestation efforts, incorporating the local workforce or stimulating the local economy.

What’s Next?

Moving forward, think holistically about integrating your supply chain into your ESG strategy. This includes solidifying a target for your supply chain and identifying which leaders, incentives, and other investments you’ll need to make it happen. Methods for defining this future state include solidifying benchmarks and other key performance indicators, employing design thinking principles, creating a system to score suppliers and other partners and leveraging a carrot-and-stick approach to inspire action.

It’s essential to map out all channels and their associated operations. That may include creating a risk/opportunity matrix that considers different stakeholders and their priorities.

Finally, remember that effective change often starts small and builds as teams grow toward alignment. Follow the 80-20 rule: the minority of your suppliers will make up most of your emissions, so concentrate your efforts there in the early stages of implementation.

John Chalhoub is a senior consultant, ESG with Point B