Corporate executives should consider five highly charged climate change and sustainability risks as they respond to growing demand to eliminate waste from their supply chains, according to a new report by Ernst & Young.
The demand comes from a proliferation of large corporate supplier qualification and scorecard programs that are employed to examine carbon footprints and resource use at every step of the product and service lifecycle–from the sourcing of raw materials to waste disposal by customers. In addition to commercial customers, consumers, investors, analysts and other stakeholders are demanding transparent information about the lifecycle of products and services.
Government engagement is also motivating corporate focus on greening the supply chain. In November, the US government–the largest supply chain in the country–announced its GreenGov Supply Chain Partnership, a pilot program to cut waste and pollution in the federal supply chain by measuring greenhouse gas emissions (GHG). Following this pilot, the General Services Administration intends to develop an incentive-based approach to contracting to favor companies that track and disclose their GHGs.
E&Y says the five risks are:
- Strategic – The supply chain, for many companies, increasingly
provides an opportunity to improve competitive advantage and reduce cost
and waste. Leading companies understand this link, particularly as
stakeholders become more interested in social and environmental costs. - Compliance – Organizations that are required to comply with
green supplier programs now need to track data on energy use and make
the information available for audits. On the flip side, if an
organization has instituted a green supplier program, it will need new
processes to track and monitor supplier compliance and to use the data
to drive decision-making. - Financial – Supply chain issues impact an organization’s
financial strategy in multiple ways, such as: opportunities to cut
costs, potential cash management and liquidity implications as a price
for carbon is set in different jurisdictions, and new due diligence
requirements for acquisitions. Additionally, as companies increase
public disclosures in non-financial reports, CFOs and audit committees
are exercising more oversight. - Reputational – Many companies are implementing supplier
qualification programs to ensure they do business with suppliers that
share their values, which helps them manage brand and reputational risk.
As such, these companies may conduct regular audits of suppliers, which
might include compliance with emissions, waste and safety guidelines. - Operational – Spare parts inventory management, manufacturing
equipment utilization, and planned maintenance are just a few areas
where the level of efficiency could be improved. Other operational areas
to assess include: unplanned downtime, reduction and innovative uses
for manufacturing waste, transportation, logistics and facilities.
“As organizations across the public and private sector decrease their
environmental footprints by focusing on supply chain operations, many
find they need to influence operations that fall outside the direct
control of a single business unit or enterprise."explained Eric Olson, Ernst & Young’s Climate Change and
Sustainability Supply Chain Leader, Ernst & Young LLP. "As a result, supply
chain leaders need up-to-date sustainability information that meets the
growing demand for transparency and accuracy from customers and
suppliers alike. Many companies are already taking a full lifecycle
approach to improve the environmental impact of their products and
services."
Recommended actions that supply chain operations professionals can take include:
- Assess climate change and sustainability reporting needs, including evaluating the integrity and alignment of data across the supply chain.
- Monitor and assess existing or potential government regulations on the entirety of the supply chain.
- Review the corporate risk register and risk management policies for appropriate inclusion of climate change and sustainability risks associated with the supply chain.
The full report is available at the link below (pdf).
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