We don’t know what the future looks like. That limitation has haunted humanity since, well, as far back as recorded history goes. Stories, plays, poems and, more recently, movies and television shows have long grappled with what is unknowable when looking ahead. But most contain one universal truth: We know that what we do today will impact tomorrow.
In the 21st century, thinking about tomorrow has become less and less an activity we do with excitement and more so one we do with trepidation. As the forecasts on climate change worsen, the need for us to do something about it today is increasingly obvious. As major players on the world stage, corporations are being looked at to lead the way in making a more sustainable and better future for us all. According to a recent PwC report, environmental, social and governance (ESG) is among the top priorities of CEOs globally, alongside long-standing priorities such as revenue growth and talent retention.
But one organization can’t do it alone. A 2021 McKinsey report found that two-thirds of an organization’s ESG commitments lie with its suppliers. In other words, choosing the right supplier partners and managing them well is perhaps the most impactful decision for a company when it comes to sustainability.
With these heightened ESG priorities, what are some trends we can expect to see come to the forefront in 2022, especially when it comes to selecting partners along the supply chain with the goal of reducing emissions and improving sustainability?
For companies that want to do right by the environment today to create a better tomorrow, here are some areas to focus on.
Transparency And Real Impact
End customers are demanding more transparency into the climate and ecological impact of not just the companies and brands they buy directly from but also the partners with which the company works. ESG scores are a solid starting point, but the finer details going into these scores can be difficult to get across easily to potential partners, much less the end consumer. More needs to be done in making a company’s sustainability profile readily apparent. When it comes to developing supplier relationships, however, there’s, fortunately, time to cover those factors in detail throughout the vetting process.
So, how do we go forward? ESG initiatives may have hit the priorities for execs in 2022, but the best way to act on them still remains to be seen. The World Economic Forum says that data is the most powerful tool we have to develop solutions to problems such as climate change. If businesses can efficiently leverage the data of their operations, they can see what steps need to be taken to make it more sustainable—and more attractive to partners on the other side of the supply chain equation.
Building ESG Into The Everyday
By engaging with suppliers that are taking demonstrable steps toward improving their environmental footprint, companies are helping their own ESG profiles, as the emissions produced by a company’s supply chain partners fall into the “Scope 3” category (more on that below). But this also has the additional benefit of encouraging suppliers to improve their sustainable practices and raise the overall level of ESG initiatives across the board. If a supplier doesn’t make efforts to be more sustainable in their operations, their business will suffer, and the ones doing it right will grow and take on more of the work. Thus, over time, supply chains will become more and more ecologically friendly if this continues to be reinforced.
Some companies, like Certa (where, full disclosure, I serve as CEO), are making it easier for companies searching for suppliers to see the environmental ratings of their options. Customers of these kinds of firms can view a supplier’s rating from an ESG-focused business sustainability rating provider when searching for partners. This kind of integration, built into the everyday processes of an organization, makes it much easier for business decisions to be made with sustainability in mind.
Focus On Lowering Scope 3 Emissions
When we discuss supplier emissions, we’re talking Scope 3 emissions, defined by Deloitte as “all the emissions associated, not with the company itself, but that the organization is indirectly responsible for, up and down its value chain.” That mainly means the emissions of the suppliers it works with, but it’s also a catch-all for other areas that don’t fall into Scopes 1 or 2 (you can read more about those in the above link).
Scope 3 tends to be the largest when it comes to emissions output, but it’s traditionally been ignored in favor of the more immediate fixes companies can make. Choosing more efficient equipment or more sustainable fuel sources are actions that are easy to both identify and address. But now that we have a handle on those easier-to-solve problems, the question is, how can we take the next step in pushing our sustainability to a higher level? We’ve had less control over Scope 3 in the past, but with the tools and data we have at our disposal, we are in a position to push forward positive change in this area in 2022.
Today, corporations have a unique ability to affect positive environmental change by assessing the way they manage their supply chain and vendor partners—an area too often overlooked in the past when discussing environmental impact. Our visibility into our environmental impact, and the tools we have at our disposal to create change, have never been better. It’s time we take the steps needed to make a real, positive impact.
Sustainability is becoming an increasing priority as partners, customers and suppliers alike demand transparency on carbon and social impact, seek commitments with increased ESG priorities in mind and target firms with shared values for partnerships and business arrangements. It’s not just the right thing to do—it’s a smart business move as well.