Sustainability and resilience are intrinsically linked. The pandemic brought this link into sharp focus by necessitating that supply networks be closer to the customer and consumer, causing shifts in sourcing, manufacturing, and distribution. This new reality has accelerated efforts within companies to purposefully determine if their supply chains pose risks to their core business.
Through our work at DT Global we are continuously learning about the range of metrics and ethical investing taxonomies being developed to improve sustainability and meet stakeholder expectations. We are advising clients on how to develop sustainable and resilient supply chains. I recently had the opportunity to discuss this with an influential business audience from across Asia and share some perspectives.
Low disclosure rates and opposition creates challenges for ESG
There’s no doubt that transformations are taking place in the business world as leaders rethink their operating models in the context of environmental, social, and governance (ESG). While there’s been lots of movement toward better ESG and creating long-term value, the process for corporates to scale up their ESG activity comes with challenges.
First, a low percentage of S&P 500 companies disclose the share of suppliers screened using ESG criteria. Reliable and comparable data remains an issue. Immense work is still to be done in eliminating forced and child labour from our global economy which reportedly generates US$150 billion in illegal profits per year. A lack of real-time visibility into local supply chain networks and sourcing practices places great pressure on organizations and suppliers in effectively managing risks (or not).
Second, some political doctrines argue against increasing emphasis on ESG considerations, insisting that these considerations go against the fiduciary duty of business leaders and investors to maximise financial return. This political opposition demotivates efforts to pursue necessary legislative and regulatory reforms in some of the world’s largest economies.
Third, based on my engagements with leaders of internationally active companies, there is a real sense of ‘unevenness’ in ESG requirements across countries and regions. For many business leaders, their supply chains are so complex, global, and distributed, that it is unclear how costly ESG changes to business processes will improve the bottom line. As a result, it is easier to simply deal with minimalist compliance measures only or add a page of low hanging quick wins to an annual report.
Effective collaboration is key to improvement
Based on what I’ve learned from my experiences working with and monitoring supply chain partners, starting with a collaborative outlook is fundamental. Regional business leaders at the 2022 Global CSR and ESG Summit, at which I spoke, advocated for strong supplier relationships as a driver of change, going beyond superficial compliance monitoring and reporting ‘process’ checks. This involves collaboration to effectively assess business model vulnerabilities, lines of communication and data sharing—all essential. This is not new, but I would say is more relevant today than ever, considering social media (real and fake) which can amplify fake news and anti-corporate sentiment. Companies can make better use of the improvements in accessibility to innovative data management and information sharing platforms, where local communities and customers can manage relationships and risks together. “Don’t trust us, track us” initiatives come to mind.
Engage in co-creative dialogue
Leaders and communities in supply chains at the local level are the ones ultimately responsible for implementing sustainability initiatives in their unique context, and when enabled will bring better solutions to the table. We would advise business leaders to begin with an inventory of their suppliers, identify what they see as the most significant environmental and social challenges and prioritise where they want to be in terms of targets, e.g., emissions, transparency, and disclosure.
Through this assessment, a leader—at whatever level of a company—can better engage relevant stakeholders, communicate expectations, design participation frameworks, and shift mindsets from what is ‘required of them’ to what you ‘want to achieve’ together by creating a shared vision and value.
As an example, at DT Global we are in the process of adjusting our procurement policy and procedures in collaboration with our vendors. We operate in 93 countries. We wouldn’t do this without talking to local staff to better understand the level of environmental sustainability across the local supply chains we use and (when appropriate) enable our teams to make local procurement decisions to reduce our supply chain impact on the environment. Working together with local supply chains we are designing the most appropriate ways of using digital tools for our vendors to share information on the types of materials utilized and the sourcing and manufacturing practices employed.
Identify obstacles and opportunities in the local context
Any supply chain solution relies on an understanding of local dynamics and perspectives. Integrating stakeholders within these efforts allows for an effective transfer of knowledge and capacity strengthening. In this way, companies can go beyond a mere transactional relationship with suppliers, encouraging local innovation that will lead to better customer experience and, ultimately revenue growth.
Understanding locally specific obstacles and opportunities is key to this. There might be a lot of ways to improve ESG and reduce footprints that stem from really good local knowledge. Creating flexible systems and even an incentive structure for local partners to identify these local solutions is an effective way to capture this knowledge.
In 2021 DT Global made a pledge and joined the Science-Based Targets Initiative, which creates a framework for us to take structured action to establish meaningful reductions targets at corporate and project levels. We cannot achieve our objectives without engaging and influencing sustainability in our local supply chains. We are committed to putting our own investments toward educating local suppliers on the range of benefits resulting from environmentally sustainable practices. An example has been to provide business continuity planning support to the local businesses we work with. Essentially this has involved examining a local supplier’s operations (usually these are smaller companies in developing markets) to identify potential risks and other business vulnerabilities such processes associated with climate change and high-risk dependencies.
These efforts have not only led to improvements in the sustainability of our own supply chains but have helped us learn and develop better products, such as our new green-guidance for grant-making activities so that sustainability and reduced emissions are taken into considerations for grant awards on all our projects.
By collaborating more purposefully at a local level with supply chain partners, companies can begin to create more sustainable, resilient change from the bottom up. When paired with smart information sharing technologies and incentive programs, this can lead to very powerful performance partnerships where local communities and customers manage relationships and risks together. A follow-on blog on this topic by this author is forthcoming.