Driving Supply Chain Sustainability in the Face of Disruptions and Cost Pressures

KEY INSIGHTS FROM THE 2023 GLOBAL SUPPLY CHAINSUSTAINABILITY STUDY BY NCSU & GEPDriving Supply Chain Sustainability in the Face of Disruptions and Cost Pressures DRIVING SUPPLY CHAIN SUSTAINABILITY IN THE FACE OF DISRUPTIONS AND COST PRESSURES2Perceived Challenges in Balancing Sustainability and Cost ControlIn the last few years, the supply chain environment has been inundated with challenges — cost pressures arising from record levels of inflation, increased interest rates, bloated inventories, massive labor shortages, and increasing supply chain disruptions — and there appears to be no sign of them easing. In the face of these obstacles, have sustainability and ESG initiatives been put on hold?Not at all. The pressure for ESG improvements is increasing and unrelenting, despite the economic pressure companies are experiencing. How are they balancing the need for supply chain sustainability with the need to reduce working capital and control costs, despite the disruptive environment?GEP partnered with Dr. Robert Handfield — distinguished professor of supply chain management and executive director of the Supply Chain Resource Cooperative (SCRC) at North Carolina State University (NCSU) — to conduct a study among procurement and supply chain professionals across a variety of industries to determine their progress and challenges in advancing ESG initiatives while controlling costs, fighting inflation, and building supply chain resilience. Chief supply chain officer (CSCO) is now more responsible for sustainability than chief sustainability officer or chief financial officer (CFO)Q. Who is primarily responsible for ESG in your organization?Source: 2023 NCSU & GEP Global Supply Chain Sustainability StudyChief ExecutiveOfficer (CEO) Chief Operating Officer (COO) Chief Supply Chain Officer (CSCO) Chief Information Officer (CIO) CPO Chief Procurement Officer (CPO) Chief Financial Officer (CFO) Chief Sustainability Officer (CSO Chief Corporate Communications Officer (CCCO)Supply chain and procurement leaders, with their buying power and their influence on the organization’s entire supply chain ecosystem, are uniquely positioned to drive and impact strategy. Thus, they have in the recent past taken on the responsibility of moving forward on sustainability and ESG initiatives and incorporated them into their overall responsibilities of operational efficiency, working capital management and cost control. However, balancing these seemingly competing demands, even in the best of times without disruption, is immensely complicated. Even the companies that are leaning into implementing sustainability initiatives and goals into their supply chains are struggling.The following results of the GEP-NCSU survey highlight this struggle. Given the priorities and focus areas that supply chain and procurement leaders note in the study, they may not be ready or prepared to drive their organization’s sustainability and social goals. DRIVING SUPPLY CHAIN SUSTAINABILITY IN THE FACE OF DISRUPTIONS AND COST PRESSURES3After the chief executive officer (CEO) and the chief operations officer (COO), the CSCO is primarily responsible for ESG initiatives, especially those pertaining to emissions and carbon-footprint reduction targets. They are now more likely to have that responsibility than the chief sustainability officer and the CFO. Due to myriad reasons — changing consumer sentiment, brand reputation and regulations, for starters — organizations have increased their focus on sustainability and emissions-reduction initiatives to shore up plans to reduce their environmental impact. Companies have the greatest control on Scopes 1 and 2 emissions, as these lie mostly within their control, but the potential environmental impact of initiatives focusing on these scopes is relatively limited. While there has been an increased focus over the last few years on Scope 3 emissions, the focus on these initiatives is still much too small to be impactful. Only a quarter of firms are prioritizing Scope 3 emissions-reduction initiatives, even though they account for 70% to 90% of a company’s total emissions up and down the value chain. Companies are not focusing on their partners, suppliers and their broader supply chain ecosystem, so they struggle to make impactful gains. However, as the CSCOs have within their sphere of influence all of the organization’s suppliers and trading partners, where most of the firm’s total emissions come from, they need to adopt a much larger role in driving ESG and sustainability initiatives forward. Ensuring that the organization has an external focus on Scope 3 emissions from the supply chain ecosystem is key to making the most impact and not falling behind.Why is there a disconnect?Organizations may be able to track Scopes 1 and 2 emissions more effectively, while tracking and measuring Scope 3 emissions are much more complicated, as it requires suppliers and partners to report their data. However, firms often