Making supply chains sustainable will be crucial to meeting the United Nations Sustainable Development Goals, a new report from EY and the UN Global Compact says, however businesses have labelled it one of the biggest sustainability challenges.
The EY report, The state of sustainable supply chains: Building responsible and resilient supply chains, highlights the actions companies are taking to develop more sustainable supply chains, their primary reasons for doing so and the main challenges they are facing. It features the results of interviews with 100 sustainability, supply chain and procurement specialists from 70 companies globally.
“The results of the study show that leading companies are deriving numerous business benefits from embedding sustainability in their supply chains,” EY global climate change and sustainability services leader Mathew Nelson said.
“These benefits include product differentiation, increasing market share and growing consumer support.”
The report details six key findings regarding the state of play of supply chains.
Finding 1: supply chain sustainability can no longer be ignored
The report said companies were “embracing resiliency and responsibility in their supply chain management to adapt to externalities such as geopolitical conflicts, changing weather patterns and raw materials shortages, and to improve their impacts on the workforce, local communities and the environment”.
Finding 2: companies are predominantly risk driven with aspirations to unlock strategic opportunities and benefits
“Operational, financial, regulatory and reputational risks continue to be the major drivers for supply chain sustainability. The proliferation of regulations and standards creates consistent compliance framework and performance requirements in the respective geography, but the differences among countries and standard-setting organisations pose significant challenges to business, such as increased time and effort dedicated to compliance issues.”
Finding 3: companies tailor their approaches and governance to create sustainable supply chains
“Sustainability requirements, key performance indicators and assessment criteria are increasingly integrated in the business processes for selection, monitoring and incentivising of suppliers, and are managed by procurement and sourcing functions. However, only a few companies have fully embedded sustainability into their business models, typically with strong support from executive leadership.”
Finding 4: leading companies are establishing a shared commitment with suppliers
“Companies demonstrate different levels of maturity in their relationships with the supply chain, from basic communication to considering suppliers as an extension of their business. Mature companies are expanding their relationships significantly beyond auditing and monitoring, and are investing in training and capacity building (either individually or through industry collaborations) and incentives for the top performers. They work with suppliers toward shared commitments as they recognise that suppliers, vendors and subcontractors play an important role in achieving their sustainability goals and those of their customers.”
Finding 5: technology enables visibility and influence beyond Tier 1
“Transparency and traceability, especially beyond Tier 1 suppliers, were identified by all companies
as a major challenge. While stakeholder expectations for reporting and disclosure related to sustainability topics have significantly increased in the past few years, companies still do not have
a good understanding of the risks deeper in the supply chain.”
Finding 6: collaboration is critical for companies to achieve greater business and societal impacts
“Companies have recognised that complex supply chain challenges require teaming up with peers, academia, standards setters and non-profit organisations.”
- Read the full report