Tracking ESG Goals Through the Supply Chain

November 21, 2022

Companies are increasingly realizing the impact that environmental, social and governance (ESG) initiatives can have on their operational and financial performance.

Corporate leaders are looking to their supply chains for opportunities to work toward ESG goals. To meet the demand for action, they must integrate sustainability across all points of the supply chain — starting with procurement. 

An organization’s supply chain can account for more than 90% of its greenhouse gas emissions. Considering that most of these emissions are generated through sourcing, spend management is one of the most effective levers that organizations have to drive supply chain sustainability. 

This element of procurement can influence sustainability and broader ESG commitments by strategically sourcing partners and products that contain lower-emission footprints as well as better human rights records.

If, however, supply chain stakeholders are unable to gain a transparent view into their supply chains, they will lack the vital information needed to evaluate and assess progress toward ESG goals.

This lack of visibility can lead to higher risk, from ignorance of forced labor at any point in a supply chain, to absorbing elevated levels of greenhouse gas emissions from suppliers. As more companies are being challenged to report on ESG metrics, it can be impossible to keep track without the proper visibility into trading partner and supplier operations.

With deep visibility reaching into the n-tier of their supply chain, companies are in a far better position to not only avoid risk, but also set a clear path toward tracking and meeting ESG goals. The best way to achieve this is to adopt technology that provides such insights — in other words, a business network.

For example, synthesizing supply chain activities into a real-time dashboard enables companies to incorporate the management of suppliers and determine at-risk suppliers. Within a network, this can be expanded to provide procurement with a real-time view of supplier capabilities and automate the sourcing function to abide by set requirements. This same foundation can support sustainable and ethical sourcing initiatives, allowing for visibility that can be built out to product lifecycle design as well. This enables transparency in the sourcing of sustainable materials, manufacturing processes and shipping throughout the product lifecycle.

Technology as an Enabler

Intelligent spend and business network technology have a role to play in breathing life into sustainability initiatives. As ESG continues to be a priority, transparency, reporting, compliance and audit requirements will make digitization necessary to scale resources and outcomes organization-wide.

Research from IDC on key trends in sustainability and ESG compares the profit and revenue performance of 680 manufacturing organizations with their digital transformation and sustainability track records. The study found that in both revenue and profit, digitally mature manufacturers that emphasized sustainability outperformed their non-digital and non-sustainability-focused counterparts.

With the right technology in place to gain visibility and partner collaboration, organizations can begin delivering these outcomes. Network-enabled insights can enable leaders to integrate carbon-tracking data sharing and intelligence across trading partners and into core business operations and strategic decision-making, as well as assess the circularity opportunities in product lifecycle design.

A guided sourcing and buying tool applies artificial intelligence as a means of promoting ESG efforts more efficiently and with greater transparency. Furthermore, utilizing a business network system that contains a trading partner directory allows businesses to conduct a targeted search by specific criteria — in this case, sustainability metrics — to identify the best suppliers for a given organization.

This network process is as valuable for buying organizations as it is for trading partners, who can create a single, standardized profile that contains all their certifications and qualifications just once, instead of filling out the information multiple times in varying formats. This makes background information more readily available for buying organizations when searching for suppliers, ensuring they’re choosing the right partners to stay on track with sustainability goals. And, in the case of disruption, organizations are in a better position to find alternative sources of supply quickly while maintaining compliance. 

Transforming for a Sustainable Future

Increasingly, carbon is being considered a global, universal currency that can be managed, traded, tracked and also reduced. Gaining visibility into the n-tier supply chain is critical to understanding where an organization is on its sustainability journey.

Viewing sustainability through the lens of procurement can help organizations to set a clear path to ESG goals. When equipped with these key insights, businesses have greater knowledge into how to reduce their carbon emissions across their supply chains, while enabling shared data and collaboration across customer, suppliers and other business partners. 

Ultimately, organizations that invest in supply chain maturity will experience greater visibility, transparency and traceability among their supply chain partners. There’s also the opportunity to gain a competitive edge in addressing rising customer and consumer expectations of sustainability. Ideally, when businesses can simultaneously drive economic returns and realize social impacts across their supply chains, they increase the likelihood of acquiring additional stakeholders that will want to deliver the same results.

Muhammad Alam is president and chief product officer at SAP’s Intelligent Spend Management Business Network.

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