Sustainability is No Longer Optional for Suppliers

Apr 17, 2017 11:15 AM ET

With several governments internationally developing and implementing Climate Change, Circular Economy and Zero Waste Policies, global firms are already taking a proactive approach to supply chain risk management, while others are taking a riskier “wait and see approach”.

On the retail side, leading companies have identified supply chains as a critical risk in this area and are developing more stringent sustainable procurement policies and criteria. On the producer side, organizations will need to ensure more sustainable supply chains, design, and packaging in order to maintain competitiveness.  These new, circular business models are driving the purchase of sustainable materials, products, and services. At the same time, environmental requirements are increasingly being included in supplier contracts.

Walmart – Leading Retailers in Circular Supply Chain Management

For companies like Walmart where a large proportion of carbon footprint comes from suppliers, sustainability targets not only encompass their own operations but also their vast global supply chain.  In December 2016, the mega-retailer joined several other major retailers and producers in becoming a member of Ellen MacArthur Foundation’s Circular Economy 100. As such, the organization has committed to a more circular business approach to supply chain management.

Walmart is now planning an even tighter sustainable supply chain management system that will screen and engage suppliers. This will encourage a more circular and sustainable design of products and packaging, mitigate regulatory and reputational risks, and capitalize on cost-saving opportunities.  This will also mean an even closer focus on greenhouse gas emissions (GHG), improved packaging efficiency, reducing waste streams, water conservation, and ethical sourcing in order to reduce overall environmental and social impacts.

The latest circular economy initiative builds on Walmart’s Supplier GHG Innovation Program that achieved a reduction of 20 million metric tons of CO2 from its products’ lifecycles and supply chains between 2010 and 2015. With an eye on further reducing ‘Scope 3’ emissions through its supply chain, Walmart has set a target to reduce emissions by 1 Gigaton by 2030.  In addition, other retailers like Loblaw’s and Costco have implemented sustainable sourcing strategies that seek to ensure that their supply chains are economically, environmentally and socially sustainable.

For producers to maintain market access to Walmart and other retailers, it will be essential to develop new circular business models that encourage resource, GHG and cost efficiencies across life cycles – from design and sourcing to manufacturing, to distribution, to use, to recovery, to reuse and/or disposal.

Leading Producers Taking Action

At Unilever, who is also part of the Circular Economy 100, the sustainable supply chain program extends across 200,000 different materials and over 160,000 suppliers who work with up to a million smallholder farmers.  The consumer goods giant claims to be on track to reduce its carbon footprint by 40% by 2020.  Above all, the organization has demonstrated that sustainability can drive revenue generation. By reducing their overall environmental impact by one-third, the company grew from €40 billion to almost €50 billion in revenues with an increase in operating profit of approximately 5%.

Unilever has also recently committed to ensuring that all of its plastic packaging is 100% reusable, recyclable or compostable by 2025 and has called on the entire consumer goods industry to join them in adopting circular economy best practices.

Other producers such as Coca-Cola and Dell have adopted a circular economy model and supply chain management best practices that can capitalize on cost reductions, reduce risks, increase brand reputation and revenue growth across operations and supply chains.

Sustainable Procurement Policies and Standards

The more stringent procurement policies of Walmart and other retailers is expected to create a domino effect across the consumer goods industry. This trend is accompanied by other drivers like new regulations as well as consumer and investor pressures.  As such, producers will need to begin placing further focus on supply chain management in order to monitor sustainability risks and opportunities. In a recent study by BSR/GlobeScan’s State of Sustainable Business Survey, 84 percent of respondents said they had a supplier code of conduct, and 61 percent said they considered sustainability in sourcing strategies.

In addition, ISO 20400, the first international standard for Sustainable Procurement, is currently being finalized and due for release later this year. The latest ISO effort will build on current standards like the British Standard 8903 and the Chartered Institute of Procurement and Supply (CIPS). It will provide best practice guidelines for organizations to integrate sustainability in their procurement processes.

Amidst existing and forthcoming regulations, new international standards and stakeholder pressures, producers will need to consider more circular business models and delve deeper into their supply chains and product life cycles in order to meet increasingly rigid standards for transparency and disclosure related to sustainability, and access to markets.