Supply chains’ environmental impact will continue to be a significant issue, with organizations and customers demanding the ethical sourcing of raw materials, production, and distribution of goods and services. Only a forward-looking supply chain strategy with the right technology solutions and governmental and investor support will help organizations build more sustainable, responsible, and ethical supply chains for the long term.
Supply chains & net zero
The global supply chain is the industry’s most significant source of carbon emissions. It is central to the fight against climate change. However, those all along the chain cannot solve the problem, despite rules and regulations in place and new ones coming into play. One reason is the complexity of the supply chain. No one stakeholder can be held accountable. For example, many large companies outsource their manufacturing and distribution to 3rd party service providers over whose actions they have little or no control. Effectively reducing emissions and achieving a circular economy requires an industry-wide effort globally, including organizations, businesses, governments, and top decision-makers down the supply chain.
Paris Agreement, carbon markets and supply chain managers
How can this be achieved with so many factors involved -from engineering to planning, sourcing, procurement, manufacturing, logistics, service management, and more? An extensive CEO study on sustainability by the UN Global Compact (UNGC) and Accenture found that supply chains are now a substantial part of CEOs’ environmental focus. The UNGC plays a critical role in pushing businesses to align themselves with universal principles on the environment, labor, human rights, and anti-corruption and to act to advance social goals. To date, nearly 15,000 companies in over 160 countries have signed on. The report involved 1,232 CEOs in 21 industries in 113 countries. It proposes several interesting suggestions supporting the premise that “the supply chain is the key to winning the fight against climate change.” One is to treat carbon as a business cost to lower emissions and meet climate goals. Again, as mentioned, this needs to be done on a micro and macro level to work. For instance, companies’ supply chain managers can consider placing an internal cost on carbon activities such as air travel. They can then collect this money for operating expenses, returns to shareholders, or sustainability endeavors. At the macro level, actions like those agreed to at COP26 will be crucial as implementing Article 6 of the Paris Agreement enables more global cooperation on carbon markets.
Steps to the net zero target
HSBC bank and the Boston Consulting Group (BCG) researched “Delivering Net Zero Supply Chains.” They propose that global supply networks need US$100 trillion in financing by 2050 to achieve net zero – almost half of which SMEs will need. Why SMEs? According to the researchers, SMEs lack access to in-house expertise or capital that big business has and therefore need creative solutions to evolve. They also need support because while more big firms make net zero pledges, delivering on Scope 3 emissions will be difficult without SMEs.
Scope 3 encompasses emissions not produced by a company and not due to activities from assets they own or control. Instead, they are indirectly responsible for emissions reductions up and down their value chain. For instance, we purchase, use, and discard products from suppliers.
Roadmap of principles and actions that stakeholders
Overall, the HSBC-BCG report urges large corporates to provide smaller businesses with finance and knowledge and for governments, industry bodies, and NGOs to also play their part through industry standards and policy changes. The report offers a roadmap of principles and actions that stakeholders need to take, including:
- Rethinking product design – re-evaluate how people use products and how they are made.
- Embracing collaboration – sharing knowledge, technology, investment, and resources.
- Building the capabilities needed for change – help fill knowledge gaps among SME suppliers to accelerate transformation.
- Investing in climate tech – reaching net zero by 2050 needs urgent, real-time investment in R&D with close cooperation between industry, finance, and science to speed up bringing innovations such as renewable energy to market at scale.
Shipper initiative
As one can see, while a global and unified effort is required, some companies are taking responsibility and showing initiative in addressing their ecological impact. For example, the environmental nonprofit Climate Group announced in September 2022 a new initiative, EV100+, to phase out the heaviest, most polluting freight vehicles. The founding members are the globally recognized Unilever, GeoPost/DPDgroup, A.P. Moller-Maersk, IKEA, and JSW Steel Ltd. The five have committed to switching their medium- and heavy-duty truck fleets (MHDVs) in OECD markets, India, and China to zero-emissions vehicles by 2040.
This move is significant. MHDVs represent just 4% of all vehicles on the road worldwide. Still, they account for 40% of road transport emissions and a third of transport fuel consumption. In 2019, MHDVs produced more than 5% of total global CO2 emissions and could reach 11%+ by 2050 without steps to decarbonize them. To achieve the Paris Agreement’s goals to limit the global temperature from surpassing 1.5 Celsius (2.7 °F), MHDVs must be fully decarbonized. Technological advances could accomplish that by 2040 if all new trucks sold globally have zero emissions.
Circular economy
Saving the planet is not only about fossil fuels and global warming. It concerns reducing our carbon footprint, deforestation, plastic waste, water pollution, wildlife endangerment, and more. The overall goal is to achieve a circular economy. Therefore, the global supply chain must aim high to reduce, reuse, and recycle. An interesting trend to follow is sustainable packaging. According to an October 2022 article by Supply Chain 24/7 news, with supply chains regaining their balance post-COVID setbacks, their focus on sustainable packaging is back with a vengeance. Of note are advances like “autobagging machines that use recyclable paper stock and greater demand for automated packaging systems that can right-size cartons on demand.”
Bottom line
Introducing more sustainable and ethical supply chains is good practice for any company. It can enhance regulatory compliance, branding, and reputation, reduce waste and overheads, and assure the public of consumer goods’ ethical and ecological production. Besides that, we all want a better future for ourselves and generations to come!
