The supply chain industry hasn’t historically been populated with early adopters. That’s especially true when talk shifts from the latest logistics technology innovation to ESG strategies. Recently, a very select few large companies have used sustainability and Environmental, Social, and Governance (ESG) initiatives to differentiate themselves from the competition. More likely than not, this came from an overriding passion for doing good, conducting business ethically, and trying to minimize environmental harm. As concern over the environment has reached a fever pitch and a focus on inclusive and diverse workplaces has sharpened across seemingly every industry, customers are now pushing companies toward an ESG future by choosing to work with companies that put their best ESG foot forward.
Incorporating ESG principles into supply chain management practices is a strategic imperative for sustainability and resilience. In addition to opening up new customers to your logistics business, making sustainability, diversity, and governance changes now prepares your business for regulatory eventualities around these topics. In public companies, stakeholders are pressuring businesses to be more ethical and socially responsible, impact investors have decided that traditional financial measures should be used alongside ESG metrics when predicting the long-term health and viability of a supply chain company. Finally, a strong ESG approach acts as a recruitment tool; new generations of supply chain leaders care deeply about ethical, forward-thinking companies.
Supply chain visibility tools equipped with ESG data can help companies ensure they are aligned with like-minded organizations and that their ESG promises to customers are upheld.
What is ESG in the Supply Chain?
ESG can mean many different things across different industries. Supply chain ESG management involves logistics sustainability and a minimize-harm approach to the environment. It’s about ensuring companies operate with an eye toward social responsibility and diversity throughout the supply chain, putting in place everything from whistleblower protections to fair-wage principles to regulations involving safe working conditions. The governance end of the equation takes into account how the organization operates, complies with regulations, and enforces company policies, among other things.
Supply chain companies must function with a high level of ethics and integrity. Most importantly, these practices should be holistic — reverberating end-to-end throughout the entire organization and its supply chain all the way to any suppliers or other providers — and enumerated in corporate bylaws and customer and employee-facing materials.
To keep track of it all, logistics visibility tools like Vizion’s TradeView bring ESG transparency to corporations that need to track a complex and shifting web of suppliers, transportation providers, and other companies.
Regulatory Pressures on Supply Chain Companies
In the United States, the market has largely driven ESG actions; customers demand a greener supply chain by finding providers committed to supply chain sustainability, just as gender equality and other diversity efforts start at the market level. However, the government is also getting in on the act. In 2021, President Biden issued an order to “drive assessment, disclosure, and mitigation of climate pollution and climate-related risks in every sector of our economy.” The Securities and Exchange Commission followed that directive by creating task forces to impose a greener climate agenda. Additional ESG regulations could follow by the Department of Labor concerning retirement plan investment decisions, while a financial oversight committee focuses on financial regulations and climate change. On the state level, those governments have decided upon rules to increase diversity on corporate boards and climate-related regulations.
In Europe, supply chain sustainability is now law for ocean carriers, with the European Commission rolling ocean cargo into the EU ETS and requiring vessels to measure and offset their greenhouse gas emissions. Lesser-known regulations in Europe include the UK Modern Slavery Act and the German Supply Chain Due Diligence Act, which requires companies with a German presence to look for any potential human rights or environmental issues in their supply chains and then “weigh and prioritize the identified risks and … implement measures to prevent or remedy any prioritized risks or violations.”
To stay on top of evolving regulations around the globe, the Boston Consulting Group advises supply chain firms to embrace complete transparency into all aspects of the supply chain back to each supplier.
The Business Case for ESG Integration
It is important for companies in the supply chain to take a proactive approach to integrating ESG principles into their processes. Not only is bringing greenhouse gas mitigation efforts, diversity tactics, and strict ethics practices into your business the right thing to do, it is a strategic business decision that can drive tremendous value.
Enhancing Risk Management and Compliance
A strong supply chain ESG program brings transparency to a traditionally opaque operation, giving companies complete visibility into their logistics processes. While this visibility data has historically been used in a variety of ways, primarily to help customers track their shipments, companies can also use this data to mitigate risk and ensure regulatory compliance. Failing to comply with regulations brings fines and loss of consumer trust — and that’s just to start — so using ESG strategies to ensure every part of your supply chain is operating in an appropriate manner and within the law is a smart move.
ESG-based supply chain practices require a true commitment. There have been countless stories about greenwashing — and there are reports that a supply chain rise in ESG requirements could entice companies to start stretching the truth as far as sustainability claims. ESG is worth the investment. Beyond remaining in compliance with evolving regulations, a true ESG strategy can attract new, values-based investment and enhance brand reputation. While ESG itself may no longer be quite a competitive edge, a truly transformative ESG strategy backed by data can help win customers and ensure continued supply chain success.
Challenges and Opportunities
ESG is a cultural shift requiring holistic company buy-in. It’s not easy. It will not happen overnight. Bringing ESG principles into global supply chains promotes continued innovation and resilience, but introducing these tactics shouldn’t occur all at once.
Overcoming Operational Complexities
Supply chains are complex webs of suppliers, providers, and myriad other companies, all working in close coordination to achieve the seemingly impossible on an hourly basis. Changing this dynamic should be done carefully. Just like you carefully approach changes in software or the introduction of a new vendor, bringing ESG processes into your organization requires finesse. The challenges of achieving visibility and control over ESG factors across extensive, multi-tiered global supply chains are myriad. The first step? Make sure to partner with a supply chain technology provider that can bring visibility into every aspect of your supply chain.
ESG Best Practices in Logistics
The best way to incorporate ESG principles into your supply chain processes is to map out a plan, receive support and approval from throughout your organization, and start making progress toward revitalizing and protecting your supply chain against future regulatory changes and societal pressures.
The following are just a few best-practice tips. These are not one-size-fits-all suggestions, so make sure they will work well for your company before implementing any major changes.
- Identify risks and opportunities, no matter how small, throughout your entire supply chain, beginning with suppliers. This should be a thorough, end-to-end assessment that contains moonshot goals and easy organizational changes.
- Reach out to suppliers to cultivate transparent and collaborative relationships with suppliers. Make suppliers believe in your ESG goals. They will become your champions.
- Tap into third-party logistics visibility data and analytics platforms to keep a close watch on your supply chain and make your ESG goals a reality.
- Moving forward, make sure that ESG metrics are a key part of the procurement and supplier selection processes.
- Engage in continuous learning and innovation to adapt to emerging ESG challenges and opportunities.
The Future is Supply Chain ESG
ESG may seem complex, but it all boils down to a simple idea: “Organizations should be concerned with long-term sustainability—of their business, the people in their sphere of influence, and the planet. Putting that into practice is not easy, but with the right supply chain technology tools, you can quickly get on the right supply chain ESG path. Injecting current environmental, social, and governance best practices into your processes — and being open to change as ESG guidance evolves — brings resilience and a high level of risk projection to your supply chain.
Ready to future-proof your value chain using ESG strategies? Start with Vizion’s visibility solutions. To see how the dashboard gives you real-time data that unlocks complete supply chain transparency, book a Vizion demo today.
