Researchers estimate that supply chains worldwide generate about 60% of global greenhouse gas emissions. A sustainable supply chain is more essential than ever for businesses working to reduce their environmental footprint, while simultaneously enhancing operational efficiency. The benefits of a sustainable supply chain go beyond environmental responsibility; it also offers economic advantages such as cost savings, risk mitigation and increased customer loyalty. Integrating sustainability into every stage of the supply chain can immensely support businesses looking to minimise their carbon footprint.
What is a Sustainable Supply Chain?
A sustainable supply chain is one that integrates environmental, social and economic considerations into supply chain management practices. One of the environmental metrics is to measure and reduce greenhouse gas emissions, known as carbon emissions. It means looking at and reducing the carbon impact of every part of the supply chain, from getting the raw materials to delivering the finished product. When businesses use sustainable practices, they can have a much smaller effect on the environment while also becoming more socially responsible and improving the economy.
Where Do Supply Chain Emissions Come from?
Supply chain emissions, often referred to as Scope 3 emissions, encompass all indirect greenhouse gas emissions that occur throughout a company's value chain. It excludes Scope 1 direct emissions from owned or controlled sources and Scope 2 indirect emissions from the generation of purchased heat and electricity. These emissions can be broadly categorised into upstream and downstream activities:
Upstream Activities:
- Purchased Goods and Services: Emissions from the production of goods and services acquired by the company.
- Capital Goods: Emissions from the production of long-term assets like machinery and buildings.
- Fuel and Energy-Related Activities: Emissions related to, the production of fuels and energy purchased and consumed by the company.
- Transportation and Distribution: Emissions from logistics associated with transporting goods to the company.
- Waste Generated in Operations: Emissions from waste disposal and treatment.
- Business Travel and Employee Commuting: Emissions from employee travel for business purposes and daily commuting.
Downstream Activities:
- Transportation and Distribution: Emissions from logistics associated with delivering products to customers.
- Processing of Sold Products: Emissions from third-party processing of sold products.
- Use of Sold Products: Emissions resulting from the consumer use of products.
- End-of-Life Treatment of Sold Products: Emissions from the disposal and treatment of products after consumer use.
Environmental Benefits of Sustainable Supply Chains
The environmental impact of the supply chain has become a top business priority, especially as climate change influences consumer behaviour and regulations. The WEF’s report “Emissions Measurement in Supply Chains: Business Realities and Challenges” indicates that only eight supply chains (including food, construction, fashion and electronics) are responsible for more than 50% of global emissions. Integrating eco-friendlier alternatives into supply chain movements can have significant environmental benefits for the world like:
- Reducing carbon emissions across operations: Supply chain emissions typically represent the largest portion of Scope 3 emissions, averaging 26 times higher than Scope 1 and 2 emissions. Through sustainable supply chain management, organisations can significantly reduce their carbon footprint.
- Protecting biodiversity and natural resources: Ethical sourcing ensures that raw materials are obtained without harming ecosystems, thereby preserving biodiversity.
- Pollution Reduction: Implementing cleaner production techniques reduces air, water and soil pollution, contributing to overall environmental health of the community.
Economic Advantages of Sustainable Supply Chains
Along with its environmental benefits, implementing sustainability in supply chain practices offers significant economic benefits. Businesses that proactively adopt sustainable practices position themselves favourably in an increasingly eco-conscious market. Economic benefits of a sustainable supply chain include:
- Cost Efficiency: Sustainable practices, such as energy efficiency and waste minimisation, lead to lower operational costs.
- Improved Risk Management: Diversifying supply sources and ensuring ethical practices can significantly reduce the risk of supply chain disruptions, such as those caused by environmental legislation or resource shortages.
- Enhanced Profitability: Companies that embrace sustainable supply chain management have higher chances of seeing improved profit margins due to resource efficiency and optimised operations.
- Access to Sustainable Finance Models: Many financial institutions and governmental bodies now favour companies with strong sustainability credentials, offering better loan conditions and investment opportunities. For example, the Industrial Energy Transformation Fund (IETF) supports businesses with high energy use in adopting energy efficiency and low-carbon technologies. Sustainability-linked capitals have grown exponentially in recent years, driven by increasing investor demand for green initiatives. Companies that can prove that they are actively working to reduce emissions across their supply chain will be prioritised for these loans and contracts.
Reducing Carbon Footprint through Sustainable Supply Chain Management
One of the most significant benefits of a sustainable supply chain is the reduction of carbon emissions. Companies can achieve this by combining creative ideas meant to limit environmental effect with strategic measures. Sustainable supply chain management helps companies meet regulatory requirements and maintain compliance with international standards such as the ISO 14064 and the Global Reporting Initiative (GRI).
Key Strategies to Reduce Carbon Footprint:
- Carbon Footprint Assessment: Evaluating the carbon impact of each stage in the supply chain helps identify areas with the highest emissions. This data allows businesses to implement targeted interventions to reduce their carbon footprint.
- Renewable Energy Integration: Incorporating renewable energy sources in logistics and manufacturing can substantially reduce emissions. For example, shifting to solar-powered warehouses or electric transportation fleets significantly lowers carbon output.
- Efficient Transportation and Logistics: Streamlining routes, using fuel-efficient vehicles and adopting alternative fuels can greatly reduce transportation emissions.
- Supplier Collaboration: Working with suppliers to implement sustainable practices, such as using low-carbon materials or reducing energy consumption, amplifies the positive impact throughout the supply chain.
Implementing Effective Supplier Development Programmes
Organisations work with a wide range of businesses and partners across the supply chain. Collaborating closely with these entities on sustainability initiatives enhances corporate social responsibility and contributes to positive brand reputation amongst suppliers. It’s essential to understand each supplier's pain points through comprehensive supplier development programmes and how to best address them. Here are some steps to improving sustainability with suppliers:
Carbon Training for Suppliers
Educating suppliers on how to measure, manage and reduce their carbon emissions can significantly amplify the positive impact of sustainability initiatives. Suppliers learn methodologies like the GHG Protocol through specialised workshops. The training can provide guidance on:
- Understanding Carbon Accounting Principles: Suppliers learn how to accurately measure and report emissions across their operations.
- Identifying Emission Hotspots: Training helps suppliers pinpoint areas with high carbon intensity and develop strategies to address them.
- Implementing Reduction Strategies: Practical guidance on reducing emissions, including energy management and process optimisation.
- Monitoring and Reporting Progress: Suppliers learn to track their improvements and report progress transparently.
This training will also help build a rapport between the organisation and suppliers.
Setting clear sustainability standards and metrics
Organisations looking to improve sustainability across their supply chain must track specific indicators in their supply networks like:
- Environmental metrics: carbon emissions, water usage and waste generation
- Social impact indicators: labour practises and community involvement
- Economic performance measures: operational efficiency and cost savings
Regular supplier assessments can help track improvements in the above metrics.
Creating long-term collaborative initiatives
Shared approaches lead to long-term sustainability success. Ethical sourcing, fair labour practices and community engagement contribute to social sustainability, fostering long-term relationships with stakeholders and minimising reputational risks.
The Bottom Line
The benefits of a sustainable supply chain extend well beyond environmental impacts reduction. Companies that invest in sustainable supply chain practices are better positioned to meet regulatory requirements, avoid legal challenges and build trust with communities and consumers alike. Through initiatives such as carbon footprint assessment and supplier carbon training, companies can collaborate with their suppliers to reduce emissions and strengthen resilience against climate-related risks.