Prove Your Extended Supply Chain Sustainability
Supply chain sustainability is a top priority. In Forrester’s analysis of the Fortune Global 200 companies, 61% of the surveyed enterprises have a named sustainability lead, and 51% have scope 1 and 2 carbon-neutral goals. But Forrester clients often ask which of the competing supply chain certifications is best for them, because there are so many options. The best option for you depends on your customers’, your regulators’, and your investors’ priorities. Below I summarize some key elements for you to consider as you determine the best way to prove your extended supply chain sustainability:
- Choose certifications that matter to customers. Consumers want to make more environmentally informed decisions and embrace sustainable behaviors. They expect brands to provide options that will help them fulfill their aspirations in ways that are price conscious, that don’t sacrifice product performance, and that still maximize convenience. B2B customers need their suppliers to help them meet their scope 3 targets.
- Check mandatory regulatory certification. From Germany’s Supply Chain Due Diligence Law, to the US’s UFLPA, global enterprises look for certifications that can help them to improve supply chain transparency and compliance. In the final analysis, though, responsibility lies with the importer of record.
- Understand who’s in your extended supply chain. Multinational enterprises have long experience of avoiding direct trade with denied parties. But if your supply chain includes intermediate products, such as flavors or essences, or mill products, such as textiles or metals, you probably don’t have direct contact with all the suppliers at every layer in your supply network. You might use an external attack surface monitoring platform to identify your likely n-tier suppliers. Extended supply chain certifications, together with chain of custody services like Tracelink, can also help. But you’ll also need to combine external public data sources like customs declarations with forensic accounting supply chain due diligence platforms and services, for example, from an SI like Deloitte.
- Beware of how extended supply chain partners treat labor. You’ll need to incorporate third-party risk data to be sure that your sourcing and supply chain strategy accounts for conventional risks, such as financial failure or political disruption, as well as more topical risks such as treatment of labor.
- Understand your scope 3 emissions. My professional association explains that reliable carbon accounting demands double entry book-keeping through the supply chain so that the carbon credits of suppliers balance the carbon debits of buyers and vice versa. Credible scope 3 emission reporting depends on establishing a carbon ledger, such as Carboledger, that balances across all the trading parties as reliably as their trading accounts. You might use an engine like Normative to trawl through your transactions to help calculate your Scope 3 emissions.
- Don’t forget your enterprise core. For example, scope 3 accountability must distinguish batches of metal alloys smelted using anthracite from those smelted using ‘green hydrogen’, so you also need full carbon accounting in your DOP backbone like SAP Sustainability Control Tower. Some Forrester clients also mine their transportation management systems to understand the impact on each consignment of the type of vehicle on which it traveled.
- Realize the potential to drive the sustainability in IT. IT’s carbon footprint is significant in many industries and continues to rise. Here, we describe services that you can use to reduce your IT footprint and accelerate sustainable application development.
- Beware of investors’ attitude to ESG risk. There are private investors with an appetite for a portfolio of investments in enterprises with high ESG ratings. But the big challenge for CFOs and CXOs is that, whatever their source of funding, their cost of capital will be significantly higher if investors and lenders charge an ESG risk premium.
- Screen the sustainability certification market. In this research, we mention platforms like Supply Shift and Sourcemap. But for a more rigorous review, read our report on the sustainability certification market.
You also might wonder how sourcing (or supplier value management), supply chain, and product lifecycle management can work together to help you meet your resilience and sustainability goals. Watch this space! My colleague Jeffrey Rajamani and I have research on that topic in flight right now.