Sustainable supply chains: The new information highway
We see it time and again: Large, publicly traded multinational develops and implements a sustainability program; measures, manages and discloses its sustainability performance publicly for all stakeholders; recognizes the impacts, risks and opportunities in its supply chain; implements a supplier sustainability program and seeks some level of disclosure from suppliers, a step that affects both publicly traded and privately held suppliers.
If you have four walls, employees and you sell or provide a good or service to customers, then you have a footprint and a supply chain that influences that footprint. Some questions to consider:
Is it a sustainable supply chain? What is a sustainable supply chain, or responsible procurement?
How do you know whether it’s sustainable? Do you develop and distribute questionnaires or surveys to your suppliers and then collect and analyze the results? Can you rely on the accuracy of those responses, or do you need to implement an audit program?
Do you take these actions across your entire supply chain, or do you prioritize? Is your prioritization based on those suppliers where you spend the most, or those goods and services you feel have the most environmental and social impact?
Who do you need to engage internally to then engage your suppliers? Is your purchasing group aware?
Managing your supply chain is an integral part of operating your business. But it’s not enough to just manage it — you have to manage responsibly. So, what does that mean?
Any company can claim to be "sustainable," however, the degree to which it is can vary. Can a product or service truly be sustainable? Can the overall sustainability performance of a company be a proxy for the sustainability performance of its goods or services?
These questions are rhetorical, of course, but in the realm of sustainability a tremendous amount of time, money and energy is actively and aggressively making many cases in many directions on these very questions. Much of this work is repetitive, inefficient and counter to a main tenet of our field — reduce, reuse, recycle and recover. If you are a procurement professional charged with integrating sustainability into your purchasing decisions, you quickly can feel overwhelmed by the options available to you. A quick Internet search on "responsible procurement," "sustainable supply chain" or any combination of these words results in findings ranging from non-profits solely dedicated to this issue or organizations with initiatives built around these issues. You’ll also find a range of for-profit solutions, as well as non-profit offerings. Is there a way to leverage what you’re already doing with what the market is providing?
The public disclosure of sustainability performance information is dramatically increasing and coming from all types of organizations, and not just corporations. The key words here are public disclosure — not supplier disclosure, which is generally locked up in a proprietary database only accessible by those gathering the data, or for a fee.
The most widely used approach for non-financial reporting is the Global Reporting Initiative (GRI). In fact, GRI reporting is being written into national laws, integrated into stock exchange listing guidelines, requested by large asset owners and managers and expected by large institutional customers, so even more disclosure will be coming. A quick look at the GRI Sustainability Disclosure Database shows not only the amount of GRI reporting, but also the general trends in reporting across all parts of the economy.
GRI — the organization and the concept of GRI reporting — has been around for 20 years and literally has resulted in tens of thousands of sustainability reports. These reports explain the reporting organization’s overall sustainability performance and even go into supplier issues. An entire research industry has emerged around published sustainability information and reports. These specialized firms look across a range of sustainability performance metrics and generally package up their analysis as environmental, social and governance (ESG) performance ratings or rankings. The ESG research firms provide investors (both asset owners and asset managers) with the tools and data to compare and contrast ESG performance of thousands of companies across industry sectors and geographic regions. Quantitative metrics and consolidated scoring allows comparisons to be made in real time; helpful to investors in assessing risk, and helpful to companies in benchmarking performance.
The ESG research firms have experienced steady growth in the demand for their services as a growing number of investors seek this information. A quick review of the PRI Signatories and CDP Signatories (asset owners and managers across the world that are interested in sustainability) provides a glimpse of the market demand for such information. Many of the world’s largest mainstream institutions are interested in ESG performance information: Bank of America; BlackRock; BNY Mellon; CalPERS and CalSTRS; Goldman Sachs; Morgan Stanley; Northern Trust; Oppenheimer Funds; State Street; TIAA-CREF; T. Rowe Price; Wells Fargo; and so on.
In addition, specialized financial data providers such as Bloomberg are integrating ESG metrics into their financial analysis of companies. Any Bloomberg subscriber quickly can compare and contrast a range of ESG issues across thousands of companies. For instance, if you want to assess whether the companies in your investment portfolio are well positioned for climate change or carbon regulation, you can look across thousands of companies for this information. This and more ESG information is already there for Bloomberg subscribers. Users can view this information across an entire index of companies across all industries, or drill deeper into any of the more than 11,000 companies covered by Bloomberg’s ESG service offering.
Given this ecosystem already exists and experts are deeply involved in assessing the sustainability or ESG performance of thousands of companies at the enterprise level, might there be an opportunity to recycle and reuse this work for supply chains?
Reporting and supply chain sustainability are trends not limited to publicly listed companies. The world’s largest single procurement body, the United States’ General Services Administration (GSA), spends more than $600 billion annually to procure for the non-military needs of the government. The GSA and the Department of Defense are actively involved in the management of sustainability in their supply chains. These and other federal agencies are working closely with the White House Council on Environmental Quality to understand the footprint of the government’s own purchasing decisions and engage and educate suppliers on GHG reductions strategies. Several federal agencies are doing their own GRI reports and the GSA is publicly suggesting suppliers report using GRI reports.
The Federal Supplier Greenhouse Gas Management Scorecard is a list of the largest suppliers to the U.S. government by spend. It publicly identifies whether the supplier discloses its emissions and whether it has set emissions targets. This information is drawn from public sources and creates added incentive on both public and private companies to measure, manage and report on GHG-related activities. Imagine this list expanding dramatically, both in length and in ESG issues covered. As U.S. taxpayers with an interest in sustainability and transparency, an enhanced public list like this could be invaluable for our field.
The opportunity for a public database
Imagine you’re Gov. Jerry Brown of California and you’re doing everything in your power to pursue more sustainable strategies across your state’s operations. You run one of the largest economies in the world. You have two of the largest public pension plans integrating ESG-oriented investment strategies. In essence, CalPERS ($288.9 billion) and CalSTRS ($188.4 billion) are already assessing thousands of companies on ESG performance, and they have a subscription to Bloomberg and other information providers. You purchase close to $10 billion in goods and services per year through the Department of General Services (DGS) where there is also a Green Purchasing program. In addition, you have one of the largest public university systems in the world, the University of California, which has made similar sustainability commitments around its Procurement Services. Further, the University’s chief investment officer oversees roughly $91 billion in assets and is also implementing a Sustainable Investment program.
As this work is already being done by the state of California and on behalf of public agencies (and thus the citizens of California), is there a way to connect the dots between investment and procurement strategies? Further, imagine the ripple effect if such information also was made publicly available. Forty-nine other states easily could tap this resource, even cities, counties, countries, universities, hospitals and businesses at large could benefit from such a public resource.
Is it feasible and legal to release such information? It would seem that the Federal Supplier GHG Management Scorecard sets some precedent here and could open the door to something even bigger, more comprehensive and freely available to all those interested. Who will take the lead — the federal government or the state of California? Only time will tell.
In the meantime
Interestingly, a related and new initiative has developed to explore the potential application of ESG rating systems to purchasing and supply chains. The Committee on Supplier Ratings (COSR) was inspired by Microsoft’s indirect procurement division in the latter part of 2015. COSR formalized into a multi-stakeholder working group and is aimed at understanding how to leverage the information and analysis being produced by the ESG ratings and rankings industry for encouraging sustainable supply chains. The Sustainable Purchasing Leadership Council (SPLC) will host an open webinar on COSR at 1 p.m. EST Feb. 9, in case you are interested in knowing more about this work.