Companies don’t act in isolation in today’s interconnected world, so when it comes to their sustainability risks like climate change, they need to consider all of the links in the value chain in which they operate. Many of the CSOs who participated with the discussion were all too aware that their firms won’t be able to make strong progress on sustainability in general, or climate change specifically, without taking their supply chain with them on the journey.
For many, the key challenge is understanding the carbon footprint of their supply chain and how they can influence it. This includes Scope 3 emissions – those emissions resulting from activities by assets not owned or controlled by the organisation reporting on them. Helpful data sources are few and still evolving, but they do exist; emissions data from the Carbon Disclosure Projects (CDP), for instance, can help companies get to grips with the environmental footprints of their suppliers.
To be successful, it’s vital that companies set targets and benchmarks for their suppliers to help them understand and gain visibility on their practices. From there, they are in a strong position to engage with these suppliers – and persuade them to reduce their footprints if necessary. All of this involves a shift from a cost-only mindset to one that considers both cost and resilience to ESG risks.
Participants recognised that firms are unable to do all this in isolation. There needs to be collaboration and close partnership with other businesses to ensure a faster transition to a more sustainable, low-carbon world. A number of sustainability networks offer advice to help companies make their supply chains more sustainable: these include BSR’s “Supply Chain Leadership Ladder” and AIM-PROGRESS.
Companies can also successfully decarbonise by focusing on projects where an ecosystem of partners and support structures align. Vehicle fleet electrification is a notable example: vehicle manufacturers are armed with the right technologies to help companies make targeted emissions reductions; government policy increasingly supports fleet electrification through tax incentives and similar mechanisms; and a growing number of banks offer innovative financing structures to make fleet electrification economically attractive.
That said, financial markets also have a key role to play in supporting and facilitating the transition. Many CSOs work directly with their companies’ treasury teams to ensure that their financing activities accurately reflect their broader ESG strategies. A growing suite of financial products – like sustainability-linked bonds, or ESG-linked supply chain finance products – have evolved to help businesses improve that alignment and reinforce the investment case for sustainability.