August 14, 2023 | Supply Chain Strategy
Earlier, controlling costs was one of the top priorities of supply chain leaders. However, in recent years, meeting environmental, social, and governance (ESG) targets has become equally important. Companies are facing increasing pressure from customers, shareholders, and regulators to do business in a more sustainable way.
Balancing these two priorities can be challenging, but it is imperative for companies that want to be successful in the long term.
Here are three important ways that supply chain leaders can balance cost optimization and ESG goals:
Scope 3 emissions make up the largest component of a company's environmental impact. This means that companies that aim to make a real difference in terms of sustainability need to focus on reducing these emissions.
For instance, Walmart has committed to science-based targets for emissions reduction, including achieving zero emissions in its operations by 2040 and engaging suppliers through its Project Gigaton initiative to reduce or avoid supply chain emissions by 1 billion metric tons by 2030.
Walmart is not the only company that has turned its attention to reducing scope 3 emissions. Other companies that are taking action include:
Only 5% of the company’s total greenhouse gases (GHGs) come from its own operations. On the other hand, 95% come from across its value chain, from activities like farming or shipping. Nestlé is working with partners throughout its supply chain and transforming its manufacturing and packaging activities to help achieve reductions in GHG emissions.
Apple is urging suppliers to align with its carbon-neutrality goal, as the challenge in tackling greenhouse-gas emissions from global supply chains comes to the fore. The company has said it will review the work of suppliers to specifically decarbonize its Apple-related manufacturing, such as by running on 100% renewable energy, and track their yearly progress as it puts in place supply agreements. Apple already requires suppliers to report overall emissions from their operations and energy purchases, respectively, known as scope 1 and 2 emissions.
These companies are all taking steps to reduce their scope 3 emissions, which is a major step toward sustainability.
Data can be used to monitor emissions, identify opportunities for improvement, and measure the impact of sustainability initiatives. This information can help supply chain leaders make more effective decisions about how to assign resources and prioritize sustainability efforts.
For example, a company could use data to pinpoint which suppliers are the biggest contributors to its emissions, and then focus its efforts on working with those suppliers to cut emissions. A company could also use data to determine the impact of its sustainability initiatives, such as the amount of waste it is diverting from landfills or the amount of energy it is saving.
By leveraging data to drive decision-making, supply chain leaders can make more informed decisions about sustainability and can better track the impact of their sustainability initiatives.
Sustainability should be ingrained in the culture of the organization, from the CEO to the front-line employees. This means that everyone in the organization should be aware of the importance of sustainability and should be committed to the goal.
Companies can create a culture of sustainability by providing training to employees, rewarding sustainable behavior, and making sustainability a part of the company's mission statement.
For example, a company could provide training to employees on how to reduce their environmental impact in their own lives. The company could also recognize employees for sustainable behavior, such as recycling or carpooling. Making sustainability a part of the mission statement would flag to employees and stakeholders that sustainability is a priority for the enterprise.
By creating a culture of sustainability, companies can ensure that every member of the organization is committed to making a difference. This will help the company to achieve its sustainability goals and to build a more sustainable supply chain.
Balancing cost and ESG is essential for companies that want to be successful in the long term. By following the above guidelines, supply chain leaders can make a real difference in the world and help their companies to thrive.
To know more about how supply chain leaders are taking on the challenge of meeting sustainability goals while reducing costs, download our white paper, Driving Supply Chain Sustainability in the Face of Disruptions and Cost Pressures.