Three reasons why supply chain impacts are overlooked and under-addressed

Over the past years, many companies have set ambitious environmental and social targets. However, we are not yet observing a change in trajectory: global GHG emissions are still rising, natural ecosystems are still being degraded and inequality challenges and human rights violations persist. Why is this? Have we been asking the right questions, setting the right targets, taking the right actions and measuring the right variables? Or are we simply not doing enough?  

Many companies focus their sustainability efforts on their own business operations, while the supply chain is overlooked. This matters because a company’s biggest impact is in its supply chain. Take their carbon footprint for example, on average, 75% of a company’s total GHG emissions fall into Scope 3, with industry variations. 

However, addressing supply chain impacts is hard, for three reasons: 

1. Often companies don’t have accurate data about supply chain impacts. 
2. Companies can only influence supply chain impacts indirectly. 
3. Supply chains are organised to move from raw material extraction, processing, manufacturing and end user, but not the other way around. 

Focus on data, contracting and logistics to address supply chain impacts

Given these challenges, what should companies do to integrate sustainability into supply chain management effectively? 

 Firstly, the data challenge is starting to be addressed by regulations. For example, the EU’s anticipated Ecodesign for Sustainable Products Regulation (ESPR) asks that companies adopt Digital Product Passports (DPPs). This will mean that from 2026/2027 onwards, companies in prioritised industries (batteries & vehicles, textiles, electronics & ICT, furniture, plastics, construction and chemicals) will need to provide information about the origin, materials, environmental impact, supply chain and disposal of each product, with other industries joining in 2030. The EU Corporate Sustainability Reporting Directive (CSRD) also stimulates the exchange of data about the sustainability impacts along the business value chain, including Scope 3 GHG emissions data, data about resource flows and information about working conditions and human rights. These will help, but they are not sufficient in themselves.  

 Companies need to start asking the right questions to exert more control over their supplier sustainability. The conditions that a company sets in its supplier contracts lock in a certain way of working and use of materials for multiple years. By reviewing the outcomes of current supply contracts, companies can determine how future contracts could be amended to unlock a more sustainable future. Equally, it is worth checking that the ‘Ps of Procurement’, (Proposal, Product, Price, Process and People) embody the sustainability ambitions of the company. 

Lastly, companies will need updated transport networks to facilitate sustainable business practices. This requires early engagement with logistics providers who have unique insights into material availability and flows. Logistic providers can support strategic decision-making on scope 3 transport emissions reductions, along with being well-positioned to suggest alternative sourcing options. Crucially, they currently have the most comprehensive platforms to design and orchestrate mass reverse logistics, which is fundamental to a circular economy. 

Where can we see this in practice?

Salesforce was an early adopter of updating supplier contracts. Through a set of sustainability-related contractual terms, suppliers are asked to set science-based targets, increase sustainability disclosures, and deliver carbon-neutral products and services. As a logistics provider, FedEx allows customers to track emissions at package and account level. This is a starting point for how logistics providers can uniquely facilitate data collection and sharing to help companies make informed decisions on sustainability. Equally, DSV Panalpina has capitalised on their market position by offering not only CO2 reporting to customers but also supply chain optimisation, sustainable warehousing, sustainable fuels and carbon offsetting. Beyond these examples, there are many more opportunities for companies to implement sustainability contractually, to collect and share data, and to leverage uniquely held knowledge from supply chain partners to achieve in-house and industry wide sustainability goals. 

Once companies normalise the involvement of supply chain players in their sustainability ambitions, progress towards corporate ESG targets will accelerate, and we can start seeing a change in trajectory towards global sustainability goals.  

Please contact our team to see how we can support with your supply chain challenges. 

Author: Lorna James, Senior Consultant, Simply Sustainable