ESG Warrants Supply Chain Transparency

Some supply management practitioners revere new environmental, social and governance (ESG) legislation through the U.S. Securities and Exchange Commission’s (SEC) recent creation of a Climate and ESG Task Force, meant to embrace an international eco- and socially-responsible manufacturing process.

Others are more leery, fearing that “greenwashing” — an overzealousness to support companies with clean energy practices — will mar supply management relationships and associated ESG investment strategies.

A panel of experts discussed the pending U.S. ESG legislation and how it could impact domestic and global supply management communities in “Achieving Your ESG Goals by Increasing Transparency of Your Supply Chain,” a webinar last week.

The push toward more robust ESG practices within the supply management profession is not new, said Marc De Schutter, senior vice president of cycles and procurement at Danone, a Paris-based global food and beverage company, whose sustainability efforts began 50 years ago.

Changes on the horizon are causing manufacturers and others within supply management to look for short- and long-term solutions to meet the expansiveness that comes with greater compliance requirements.

ESG Is Partnership

Business practices that have a positive societal impact mostly come from the supply chain, said Kevin Rabinovitch, global vice president sustainability and chief climate officer of McLean, Virginia-based Mars Inc. “Procurement is the driver of that,” he said.

Matt Priest, president and CEO of footwear business and trade association Footwear Distributors and Retailers of America (FRDA), called out the need for “an end-of-life strategy (in) how we source products and at every step of the life cycle,” he said. “We have to build strategy and be best equipped to fulfill new regulatory guidelines for the future,” further emphasizing SEC governance in ESG.

Focusing on the environmental and social aspects of ESG, “the concept of partnership and visibility within supply management is important for global trade, though it comes with challenges,” noted Virginia Thompson, senior product manager at the Thomson Reuters Institute.

Some of those challenges are now at the forefront of supply chain discussion, Priest said. “Over the last 40 years, there’s been a lot of ink spilled over factory employees and forced labor issues in China, affecting how we view the supply chain practice,” he said. “Our new day job is to know where our product really comes from and execute in a thoughtful way from there.”

Thompson added, “Since the 1930s, it’s been illegal to do business with companies engaging in forced labor.” That makes it critical to have visibility into suppliers and their suppliers — “knowing how far back your tiers go and who you are doing business with,” she said. Companies will have to prove they are compliant with new regulations — but for supply management life cycles that “include international companies, providing verifiable information will be especially difficult, as they aren’t as forthcoming,” she said.

The SEC is adding a deeper layer to ESG, thereby redefining it, panelists said. “Caring about product attributes isn’t enough,” Rabinovitch said. “Now we have to understand the processes in how procurement takes place. … (so) the strategy has to be changed. Redesigning our approach is where opportunity comes from.”

Recently, supply management practitioners testified to U.S. government officials as to their stewardship in reporting forced labor practices through greater visibility, Priest said. “It requires new technology, which most mom-and-pop operators can’t afford,” he said. “So, policyholders continue to enforce new regulations without a real understanding of how supply chain works.”

Wise Workarounds

Investing in technology for added safeguards in ESG will be cost-prohibitive for many organizations, Thompson said, “but manufacturers may already have the necessary software to identify mapping of their supply chain. It might just require a repurposing of the tool … so that it fits into the supply chain.”

The decision to add technology to a supply chain will have a multitiered impact, Rabinovitch said. Organizations must consider whether “the tools prove to be interactive (or inoperable) with other technologies already in use by the sub-tiers,” he said.

Another theme from the webinar is the importance of focusing on realistic expectations in achieving ESG goals.

“We must integrate ESG into the brand … to stand for something, adding value to consumers and employees, which instills pride and attracts better talent,” De Schutter said.

Rabinovitch added, “A new set of design criteria will push more people in procurement to focus on intellectual properties to benefit the world.”

(Image credit: Getty Images/Flavio Coelho)