How to Identify Your Supply Chain Sustainability Risks and Opportunities
Once you identify the risks and opportunities within your supplier network, you can take concrete action towards building a more sustainable supply chain.
In today’s climate, ESG compliance is no longer a “nice-to-have.” If you’re not taking ESG seriously, you’re simply not prepared for the future. And to take concrete action towards increasing sustainability performance, you must prioritize your supply chain, where the greatest ESG impacts are found.
Yet a recent survey by The Sustainability Consortium (TSC) found that fewer than one in five companies have a comprehensive view of their supply chains’ sustainability performance. Clearly, there’s plenty of room for improvement. Below, we’ll walk you through the steps to identify your biggest supply chain ESG risks, so you can get serious about your ESG strategy, stand out in the market, and comply with emerging regulations.
Perform Due Diligence
The first step to building a more sustainable supply chain is to assess current suppliers and rate them on basic ESG risk factors, such as Scope 3 emissions, labor practices, modern slavery, and deforestation. By doing so, you can identify the largest hotspots in your supply chain and prioritize your highest risk suppliers for focused engagement.
Companies often struggle to match up internal and third-party data to create a complete picture of their supply chain risks. Many still grapple with the task of manually sifting through hundreds of supplier data sets to look for insights. Supplier sustainability platforms were created to streamline this process, giving you the data you need to take action. Once you pool together all your data—internal, supplier-reported, and third-party audits—you can see how separate risk areas impact different levels of your supply chain.
Understand Material Risks
Now that you’ve carried out a comprehensive overview of your multi-tier supplier database, you can narrow your scope to gather more detailed intelligence. In this step, you’ll be more closely evaluating the high-risk suppliers or commodities that emerged during your due diligence period for specific ESG violations. Use your industry knowledge and talk to experts during this stage. Focus on the areas that are obvious for your industry or region.
For instance, as an apparel manufacturer, say you’ve used an assessment tool like the YESS Cotton Souring Risk Screen to understand forced labor risks in your supply chain. After analyzing your results, you’ve identified ten textile and spinning mills that may be using high-risk cotton inputs. These are the suppliers you’d want to examine more closely, perhaps following up with an on-site audit.
Remember, you should balance standardized ESG assessment options with your company’s own needs and priorities. If your industry has unique or specific risk concerns, it might be worth taking a more customized approach.
Practice Responsible Sourcing
With their unique position of leverage and direct lines of communication with suppliers, procurement teams are especially well primed to drive meaningful change. This influence can normalize the use of supplier ESG performance as a part of everyday decision making, alongside traditional criteria such as quality and price.
The trick is to provide your corporate buyers with actionable supplier sustainability data. Procurement teams are often juggling many priorities and will benefit from easily accessible, centralized insights they can use when selecting new suppliers or conducting supplier performance reviews.
Procurement changes like these are the first steps toward creating larger change within your industry network. In addition, consider checking out the U.N. Global Compact and partnering with responsible code of conduct networks such as Fair Labor Association to amplify your efforts. The more standardized your sustainability practices, the stronger—and more resilient—your supply chains.
Next Steps
Corporate momentum for supply chain sustainability is growing. Yet as Garter points out in their 2021 Guide for Supplier Sustainability Applications, poor supplier experience, survey fatigue, and lack of benchmarking insights can limit suppliers’ adoption of ESG standards.
Sphera can help. Using Sphera, companies can identify their supply chain risks and opportunities, while reducing survey fatigue for suppliers and providing them with valuable feedback on where they stand. See our corresponding white paper for more details on how to navigate your supply chain sustainability journey. Or, get in touch with us and we’ll show you how our platform can support you and your suppliers along the way.
SupplyShift was acquired by Sphera in January 2024. This content originally appeared on the SupplyShift website and was slightly modified for sphera.com.
