Sustainability: the wave of the future?
Companies today are facing a rising tide of regulations and an increased awareness among consumers around the sustainability of the goods they buy. With an average of 65% of a company’s added value being generated by its suppliers, consumers and regulators today hold companies responsible not only for their own practices, but also for those of their suppliers. To meet the demands of regulators and consumers, procurement chiefs must be prepared for a drastic increase in transparency regarding the sustainability of their suppliers – a tricky task that can only be mastered with the help of modern technologies.
An increasing number of regulations require companies to monitor and even report on the sustainability practices of their suppliers. Adding to existing standards such as the US Foreign Corrupt Practices Act and the Ten Principles of the UN Global Compact, many new laws have been passed in recent years. This includes the EU CSR Reporting Duty that came into effect in 2017, the French Duty of Care Act (2017), the UK Modern Slavery Act (2015), the UK Bribery Act (2010) and various regulations around things such as the sourcing of conflict minerals.
Increasing consumer awareness
Consumers today are well-informed and increasingly aware of sustainability aspects. This reflects strongly in their buying behavior, creating a demand for products that come from ethically-sound value chains. With the increased transparency enabled by social media, companies often come under scrutiny if they turn a blind eye to unethical practices in their supply chains.
For instance, when a spate of suicides among workers at Foxconn plants occurred, there was pressure on Apple, one of its customers, to take action over the working conditions at those plants. The textile industry was similarly affected when more than 1,000 workers died in the 2013 Rana Plaza accident in Bangladesh. For companies to stay competitive and meet consumer demands, procurement needs full visibility so it can identify and react swiftly to such issues.
Sustainable investing on the rise
Investors are increasingly integrating sustainability aspects into their investment strategy. Over $30 trillion of assets are now being invested according to the premise that environmental, social, and governance (ESG) factors can materially affect a company’s performance and market value. And after Larry Finks 2020 letter to CEOs we can all be certain that this trend is here to stay.
With trust, revenue and funds at stake, sustainability will become the key for businesses to maintaining their license to operate. For companies to succeed at this, they must leverage the unique position of procurement to foster their sustainability agenda. Ensuring sustainability in the supply chain is not only a mandatory legal requirement, but an opportunity to transform procurement into a value-adding function.
Making a smart bet on tech
However, monitoring the sustainability of thousands of suppliers is a complex and difficult task. Traditional methods, such as supplier audits, are resource-heavy. Many companies therefore focus on just a few strategically important suppliers. Medium-sized and smaller companies often shy away from the effort completely, which leaves them dangerously exposed to undetected risks lurking in the supply chain. Advanced technology can pick up the slack here and help CPOs gain greater insight into their supply chains. A standardised, scalable approach is necessary: one that can be applied to 100% of a company’s suppliers, not just the strategic ones. With this technology in place, procurement functions can then determine where risk lies and use their resources effectively to investigate further and take action.