Global businesses are prioritizing sustainability in their supply chains more than ever before. Across sectors, we’re increasingly seeing businesses develop sustainable procurement policies, putting carbon reduction strategies and environmental commitments to the top of their priorities list when evaluating new supplier engagements.
According to a 2023 survey from Stanford Business School, over half (51%) of global business currently have sustainable procurement policies in place to strengthen their supply chains. The need to reduce scope 3 emissions has brought procurement to the forefront of business strategy today, and driven increasing collaboration with sustainability and other departments.
But what internal, and external, pressures have sparked this need? And what can businesses do today to decarbonize their supply chains and forge a greener future?
Group ESG Director, Crown Worldwide Group.
Strict regulatory landscape
The regulatory landscape for businesses surrounding sustainability is evolving, and becoming stricter, which has created mounting pressures for organizations to manage and report on their carbon footprints.
In Europe, for example, the EU’s Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD), despite recent European Commission’s Omnibus Package’s update, continue to require large and listed companies to disclose the environmental impact of their activity.
Over in North America, the Securities and Exchange Commission (SEC)’s disclosure rules took effect in March 2024, requiring registered organizations to disclose comprehensive climate impact information in annual reports and registration statements.
And in Asia, similar regulatory push is also on the rise with new ESG reporting standards being introduced. China, for example, is aiming for mandatory ESG reporting by 2026, aligned with the International Sustainability Standards Board.
Increasing regulation and government enforced net zero targets, of course, creates significant external pressure to act on decarbonization supply chains. However, there are some commercial drivers, too.
Today, buyers are on the lookout for their own sustainable suppliers, and companies with sustainable policies and practices will not only comply with regulations but will also gain a competitive edge in the market. In fact, research from the Greenly Institute claims that companies with sustainable procurement can gain anywhere between a 15 to 30% increase in brand value.
Not a level playing field
Despite knowing that decarbonization is a must, certain industries face more challenges in achieving this. Companies in the shipping sector, for example, have had to reroute vessels due to various geopolitical conflicts, which has increased carbon-intensive journeys.
Major container shipping lines have been forced to divert away from the Red Sea and Suez Canal, around the Cape of Good Hope, due to Houthi attacks on commercial ships. This diversion alone adds around 3,000 nautical miles and 10 days to the journey, which significantly hikes up carbon emissions.
High energy, fuel and labor costs have made it difficult for road haulage operators to get by financially, let alone invest in cleaner tech. And even for those transport and logistics operators that can afford to invest in decarbonizing their fleets, additional challenges are met further down the line when they encounter limited supplies of electric charging points.
Tech, innovation, and thinking outside the box can support in overcoming some of these challenges. For instance, fleet tracking software can help to optimize routes and reduce vehicle emissions, also aiding in guiding investment decisions by mapping out which routes are suited to electrical fleets, further reducing emissions.
Data can also be used in many other ways to assess the state of your current carbon footprint, informing strategies for decarbonization. Carbon accounting platforms, for example, can enable businesses to calculate a baseline for their annual carbon footprint, helping to strategically reduce emissions and set net-zero targets across operations.
Action needed from all sides
Despite all of this, the overall pace of decarbonization is not yet sufficient to meet current climate targets around the world.
Companies need to act now, wherever they can, in tackling major emission sources, such as vehicle and transport emissions. They should also embrace sustainable initiatives such as the circular economy. Returning products for repair, refurbishment, reuse, or recycling – rather than just instantly replacing or disposing of them irresponsibly – can significantly reduce embodied carbon, diverting tons of otherwise valuable materials from ending up in landfills.
A long-term view is essential here, but decarbonization is a complex process, and not everything is in the hands of businesses. Government investment in areas such as green energy, electric vehicle (EV) charging infrastructure, and recycling facilities, all have a part to play.
For decarbonization to gain the right momentum, greater alignment between legislation, policy, and private investment is needed for a just transition.
Strategy for sustainable supply chains
When producing a decarbonization strategy, start by addressing the big-ticket items. Affordable, clean tech, such as solar panels, can contribute towards your sustainability goals while also providing a more reliable energy source than power from the grid, supporting better business continuity. Embracing digital tools for reducing vehicle emissions, in addition to circular economy practices, can also make a sizeable impact.
While the journey of decarbonizing supply chains is complex and challenging, depending on what sector you operate in, it is essential for all businesses today.
By understanding the value of data, staying up to date and aligned with regulatory demands in your region, and adopting an innovative, problem-solving approach, you can begin making significant progress towards a better carbon footprint and a greener supply chain.
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