Supply Chain Sustainability Reporting: Empowering Change

In today’s business landscape, sustainability has become a crucial factor for success. The concept of sustainability as we know it today first gained prominence with the United Nations Brundtland Report, in 1987. The report defined sustainability as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” The Brundtland Report has played a significant role in popularizing the idea and highlighting its importance. As a result, there is now a growing demand for businesses to publish sustainability reports alongside traditional financial reports.

The Shift Towards Sustainability in Business Practices

In recent years, there has been a paradigm shift in business practices, prompted by the urgency to address pressing environmental and social challenges such as climate change, water pollution, inequality, and forced labor. Investors, consumers, and governments are interested in understanding a company’s sustainability practices and their impact on the environment and society.

BlackRock, is a world-leading asset manager with significant investments in various leading companies. In his 2020 Letter to CEOs, the CEO of BlackRock, Larry Fink, made it clear that sustainability is becoming as important a criteria for making investments as other traditional metrics, like a company’s credit and liquidity risk. He pointed out that sustainability actions and their impact on corporations serve as indicators of a company’s long-term viability, aligning investment decisions with future prospects.

Customers are also putting pressure on companies through product boycotts, and governments, both local or global, are imposing sustainability disclosure requirements to ensure companies operate responsibly. Beyond that, the competitive battle for top talent has heightened, with professionals seeking companies that prioritize environmental, social, and governance (ESG) factors as well as profit. For instance, Unilever’s VP of global e-commerce, Claire Hennah, highlighted at Econsultancy’s Future of Ecommerce conference, that one of the primary reasons people are drawn to join Unilever is their passion about sustainability. By aligning itself with sustainability Unilever attracts talented people who would otherwise go elsewhere.

The Power of Sustainability Reporting

One of the key benefits of sustainability reporting is the ability to track a company’s progress towards its declared goals. By being transparent about their efforts and results, businesses can be held accountable for their impact and motivated to achieve their sustainability goals. However, for sustainability reporting to be meaningful and trustworthy, there is a need for standardized metrics and reporting frameworks. These standards ensure consistency across different companies, allowing for meaningful benchmarking and competition. And they reduce misleading claims or “greenwashing“, where companies exaggerate or misrepresent their practices.

Sustainability Reporting Standards

Several well-known standards for corporate sustainability reporting include CDP (Carbon Disclosure Project), CDSB (Climate Disclosure Standards Board), GRI (Global Reporting Initiative), SASB (Sustainability Accounting Standards Board), and TCFD (Task force on Climate Related Financial Disclosures).

Each of these standards has its unique scope of focus and target audience. For example, the GRI is dedicated to report on broad sustainability goals including environmental, social, and economic ones, and it’s designed for a broad audience including consumers. CDSB on the contrary is mainly focused on climate and the environment, and is mostly dedicated to informing investors.

Based on a survey on sustainability reporting done by KPMG titled “Small Steps, Big Shifts”, they have found that the most used among the G250 (World’s 250 largest companies by revenue based on the 2021 Fortune 500 ranking) is the GRI with 78% in 2022. Companies often adopt a combination of these standards based on their specific goals, context, and the Environmental, Social, and Governance (ESG) issues they face. Dell for example is using GRI, SASB (industry-specific standards for technology and communications hardware and software), and CDP for reporting.

Supply Chain Sustainability Reporting: Seeing the Holistic Impact

From raw materials extraction to production and transportation, almost every supply chain activity has a huge impact on the environment, society and the economy. This is why reporting solely on activities within a company’s four walls is not enough to achieve genuine sustainability. For instance, an electric vehicle (EV) manufacturer has green goals and its vehicles might be produced sustainably, but if the cobalt used in its batteries isn’t sourced ethically and responsibly, the overall sustainability of the company and its product is compromised. Supply chain sustainability reporting is essential in understanding the holistic impact of a company’s operations.

Presently, there is no standalone reporting standard exclusively focused on supply chain sustainability. However, existing standards like CDP and GRI include guidelines for addressing supply chain issues as a part of broader corporate sustainability reporting. For instance, Many companies report only their direct GHG (Greenhouse Gas) emissions. Yet, CDP urges companies to also consider emissions from their supply chains, which are on average 11.4x greater than a company’s operational emissions. Similarly, GRI addresses supply chain disclosures, such as GRI 414 (Supplier Social Assessment 2016), which enables organizations to report on the social impacts of their supply chain, and show how they manage these impacts.

Data Challenges and Technology Solutions

Reporting is not an end in itself; its purpose is to uncover sustainability drivers, manage risks, and capitalize on opportunities. This means a deep level of granularity is needed in the data collected in order to identify crucial risks and opportunities. Because supply chains are complex, with limited data transparency, traceability, and quality control issues across the value chain, this calls for technology to help with these challenges.

Artificial Intelligence can manage the collection and summarizing of structured and unstructured data (unstandardized reports and documents) needed to measure sustainability and produce key performance indicators (KPIs) for reporting purposes. Technologies such as Blockchain and cyber-security offer tremendous potential for addressing challenges related to data transparency, traceability, accuracy, privacy, and security.

There are many applications and platforms that can help with these challenges: BOMcheck and Assent, for instance, offer technology solutions for supply chain sustainability reporting. Additionally, the CO2 AI Product Ecosystem, developed in collaboration between CO2 AI by BCG and CDP, leverages AI-enabled technology to manage sustainability data at scale and with a deeper level of granularity.

Final Thoughts

Supply chain sustainability reporting is fast becoming an indispensable aspect of modern business practices. To embark on this journey, companies should follow these basic steps:

Conduct an assessment to identify critical sustainability issues within the supply chain.
Choose appropriate sustainability reporting standards that are aligned with company goals and target audiences.
Gather relevant data from the supply chain and leverage technology to manage and secure the data.
Verify the data and reports using a third party verification process (just as third parties verify a company’s financial reports).
Publish verified sustainability reports, showcasing progress and accountability.

Implementing sustainable practices within supply chains requires time and commitment. This work has only just begun. Companies are embarking on a process that prioritizes risk assessment, engages suppliers, and collaborates with stakeholders to reengineer their supply chains for transparency and traceability.