Historically, supply chains have been optimised to the lowest price but now expectations are that they need to be sustainable, with a drive to net zero supply chains. This is resulting in organisations building a lot more resilience into their sourcing, manufacturing, and distribution decision-making.
The supply chain will become even more important in future as companies are forced to take responsibility for their Scope 3 emissions which include all indirect emissions other than those associated with purchased energy. These are the emissions that occur in their complete value chain, both upstream and downstream. In effect, companies will be responsible not only for their own emissions but also for those of their suppliers.
“Transforming businesses to unlock value from sustainability requires engagement and connectivity across the entire value chain and indeed, industry-level changes,” says Katie Flood, Head of Transformation Execution, EY Ireland.
Defining a green roadmap
Pressure is also coming from investors and consumers. In an EY survey of global institutional investors carried out in 2020¹, 73% of respondents said they will devote considerable time and attention to evaluating the physical risk implications of climate change when they make asset allocation and selection decisions. And, 71% said the same of transitionary risks.
The March 2021 EY Consumer Index² found that 49% of consumers say they will prioritise the environment and climate change in how they live and the products they buy. And, 26% say sustainability will be their most important purchase criterion three years from now.
Indeed, consumer pressure might be even greater if there was more transparency in relation to sustainability and other metrics. Greater transparency and improved access to information will come about partly as a result of regulatory changes and partly due to food industry players using them as competitive differentiators.
Actions must be collective. We can see this necessity in the approach to the home retrofitting programme here in Ireland. It relies on individual householders to find a contractor, get quotations, raise finance, and eventually get the work done. A more effective approach would see government support for neighbourhoods and communities to come together to engage contractors on favourable terms and ensure that no household is left behind.
Setting goals will not be enough to survive in the sustainability age, organisations will need to define a path forward. Carbon offsets and renewable power purchase agreements may have some value today but determining how to bring about meaningful emissions reductions should drive the debate from the beginning. This makes it imperative to scrutinise all elements of the supply chain.
To bring about change, organisations need to baseline where they are today.