"Though supply chains have continued to adapt and improve since the start of the global pandemic, challenges remain that will require practically all companies to abandon prior "best practices" and focus on the kind of transformation that our new environment demands."
Executive VP, Bureau Veritas
In today's increasingly conscious consumer landscape, supply chain sustainability is no longer a mere afterthought for businesses. Consumers demand greater transparency and turn to brands that provide detailed information about their products' origins and sustainability practices. A recent study found that 65% of consumers will switch to a more transparent brand that provides value-based data like fair trade and animal welfare. Let's explore this emerging trend, its challenges, limitations, and possibilities for enterprises.
Importance of transparency in supplier sustainability
As environmental sustainability becomes increasingly important, it is crucial for businesses to consider the impact of their supply chain on the environment. According to the Mobile Net Zero 2022 report by the GSMA, supply chain emissions accounts for a significant portion of the total emissions for network operators who have already transitioned to renewable energy. This highlights the need for a comprehensive sustainability strategy that not only focuses on the company's operations but also considers the environmental impact of its suppliers.
Transparency in supplier sustainability is essential for businesses for several reasons:
It allows companies to identify and address potential risks associated with their suppliers, such as environmental harm or unethical labour practices.
It promotes accountability and ensures that suppliers comply with ethical and sustainable standards.
Transparency in supplier sustainability can help build trust with consumers who are increasingly aware of the social and environmental impact of the products they buy.
It can lead to cost savings by identifying areas of improvement in the supply chain.
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Risks associated with lack of transparency in supply chain sustainability
Supply chain sustainability is a critical aspect of business operations that involves managing environmental, social, and economic risks and effects across the supply chain. A lack of transparency in this process can pose various risks to companies, including financial losses and reputational damage. Unfortunately, a recent Economist Intelligence Unit (EIU) report revealed that over 50% of companies lack complete end-to-end visibility in their supply chains, exposing them to unforeseen risks.
For telecom and communication service providers (CSPs), the absence of transparency in supply chain management can be problematic. It can lead to unethical or unsustainable practices, such as child labour, environmental damage, or human rights violations, within the supply chain, which can have legal, financial, and reputational consequences and ultimately harm the company's reputation.
The possibility of interruptions is another danger connected with a lack of transparency in the supply chain. Companies that lack transparency may be unaware of possible supply chain risks caused by various circumstances. These interruptions can cause supply shortages, delays, and increased expenses, affecting the organisation's earnings.
Furthermore, the absence of transparency in the supply chain can make it challenging for companies to measure and manage their carbon footprint, leading to a failure to achieve sustainability goals. This can increase regulatory scrutiny and public criticism, harming the company's reputation.
Challenges and limitations associated with achieving transparency in supplier sustainability
Supplier sustainability transparency is the ability to access and understand information about suppliers' environmental, social, and governance (ESG) practices within a company's supply chain. Achieving supplier sustainability transparency has many potential benefits, including improved risk management and increased customer trust. However, several sustainability issues in supply chain management can make achieving it difficult.
Resistance from suppliers and lack of resources
Suppliers may hesitate to disclose information about their ESG practices for various reasons, including:
concerns about the potential costs of improving their practices
fears of negative publicity
a lack of understanding of the benefits of sustainability
Smaller suppliers may need more resources to invest in supply chain sustainability initiatives or to track and report on their ESG actions.
Limited access to information and lack of standardisation
Operators and vendors frequently collaborate closely on the sustainability of the supply chain. They are distinct entities with different organisational dynamics and motivations. This implies they may have other goals and tactics depending on their viewpoints on the market, business climate, and legislation. As a result, maintaining data integrity can be difficult, particularly when various suppliers have different net-zero ambitions and employ diverse methodologies to assess and report the carbon footprint of their goods and services. This variance in approach emphasises the need for standardisation and collaboration to achieve transparency and uniformity throughout the supply chain.
Balancing transparency with confidentiality and privacy concerns
Balancing transparency with confidentiality and privacy concerns is a significant challenge in achieving supplier sustainability transparency. Companies may be reluctant to disclose information about their suppliers' ESG practices for various reasons. One primary concern is the fear of violating confidentiality agreements with their suppliers. These agreements may include clauses prohibiting the disclosure of sensitive information, including environmental or social practices. As such, companies may face a dilemma between maintaining confidentiality and achieving transparency.
Best practices in supplier sustainability transparency
Adoption of industry norms and certifications
To feel all benefits of supply chain transparency, firms implementing defined business norms and supply chain rules, such as ISO 14001, Social Accountability International (SA8000), and Global Reporting Initiative, may reap the full benefits of supply chain transparency (GRI). These regulations help verify suppliers satisfy essential sustainability requirements, making progress toward sustainability goals simpler to track and evaluate.
Sustainability is being incorporated into agreements with suppliers
Firms might incorporate sustainability criteria in their supplier contracts, such as establishing particular sustainability targets or mandating frequent reporting on sustainability performance. Companies can more readily monitor and track progress toward sustainability targets if suppliers are held accountable for their environmental performance.
Using technology to increase transparency and traceability
Organisations can enhance supply chain sustainability by using technological solutions such as blockchain or other digital platforms to manage and trace their supply chains. As an illustration, blockchain technology provides a decentralised, tamper-proof method for tracking the flow of commodities and data along the supply chain. Businesses may build an immutable record of every transaction in the supply chain by deploying blockchain-based technologies, offering unparalleled transparency and traceability.
Online platforms may also measure and monitor performance in real-time to investigate prospective or present issues. Such systems enable businesses to gather and assess data on the sustainability performance of their suppliers, such as carbon emissions, water use, and waste reduction. This information may then identify areas for improvement and measure success toward long-term objectives.
Providing training and education for suppliers and stakeholders
Companies can offer various training and education programs to their suppliers and other stakeholders, such as workshops, webinars, and training sessions, to increase awareness and understanding of sustainability issues.
By providing education and training, firms can help build a sustainability culture throughout the supply chain, encouraging suppliers to adopt more sustainable practices. This can include providing information on sustainable procurement practices, energy efficiency, waste reduction, and other related topics.
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Achieving transparency in supply chain sustainability is crucial for businesses. It enables companies to assess and mitigate potential risks associated with their suppliers. It also ensures that vendors comply with ethical and sustainable standards. However, reaching the benefits of supply chain transparency can be challenging. There are several risks and limitations, such as supplier resistance, limited access to information, and balancing transparency with confidentiality and privacy concerns. Companies can adopt established industry standards and certifications to achieve this goal, develop a collaborative approach with suppliers, and invest in technology solutions.