Supply chains: not only are they key to a profitable business operation, but they are also becoming the cornerstone for investor buy-in. In an economy where consumers are estimated to increase by 1.8 billion people by 2025, these trends should be appealing to both corporations and investors with the potential they bring for an advance in cash flow. However, this isn’t entirely the case. With more consumer demands needing to be met, additional pressure is being put on the business sector to act responsibly in their supply chain implementation policies.
Sustainable and ethical business operations is a topic we’ve covered extensively before. It can’t be ignored that this is a vital pillar for a sound organizational structure. The reason for this is two-fold: one being the Paris Agreement that calls for a reduction of global greenhouse gases, therefore, pressuring corporations to act responsibly with their resources. Second, companies who actively strive to resolve their economic, governance, and social issues are ones who are meeting the concerns of shareholders, consumers, and investors.
Corporate leaders are now being held accountable for their supply chains and the impact they have on a global scale. Climate change is a real concern that calls for full-transparency across the board. In other words, poor supply chains are ultimately a business risk. As a result, Harvard Business Review pens that investors are seeking business leaders that focus on ESG metrics to drive their market share, profitability, and growth. In addition to this finding, a study conducted by the U.S. Social Investment Forum proved that, between 2009 and 2012, there was a 22% increase of asset managers who considered ESG reporting before making their investment decision. This number has only grown since then.
What does this all mean for the business sector? Accountability is key to growth and generating an attractive investment. ESG metrics are notably becoming a driving force for success as both investors and consumers are starting to see things differently. While striving for accountability at every stage of the supply chain is easier said than done, there are a few strategies that can make up the building blocks of sustainable development.
How to Achieve Accountability Throughout Supply Chain Implementation:
Supply chains are full of risks, especially when it comes to the potential of negatively impact sustainability goals. When looking at the hierarchy of a supply network, these risks extend to partnering suppliers, and to the final distribution of goods and services. For consumer-based company supply chains, this means that there is a potential to contribute to more than 80% of greenhouse gas emissions, according to Green Biz.
To place this argument into a factual context, let’s look at the great BP oil spill of 2010. Not only did the cleanup cost USD1.63 billion, but it also dramatically decreased their stock market price. When a similar spill happened again in 2016, BP had to pay its investors USD$175 million. While this is on an obvious larger scale, since then, investors have demanded better transparency in ESG reporting as a result. This also acts as a clear indication of the dire consequences that occur in the mistreatment of supply chain management.
So, what can be done? Open Democracy alludes that business accountability in supply chain implementation can be achieved by following 5 steps:
1. Establish Recognized Standards
Clearly defining business responsibilities surrounding supply chain avenues can help remedy situations that are being violated. By clarifying sustainable and ethical standards, businesses can contribute to the recognition of accountability.
2. Support Engagement at All Levels
Supply chain accountability needs to be seen across the board and not by selected shareholders. Systems can’t uphold an entire operation’s ESG goals if they are not effective and understood by all within the supply chain.
3. Promote Transparency
Monitoring a company’s compliance can’t be effectively managed without full transparency. From factory locations to internal operations, mandating relevant disclosure should be utilized.
4. Create Sources of Leverage
A fairly common problem all businesses may face is coming across people who aren’t motivated without incentives. The same goes for sustainability in supply chains. In complex networks, cumulative pressure may need to be applied throughout different points along the chain to bring about meaningful change.
5. Work with the Correct Incentives
Gaps in the effectiveness of supply chain implementation may arise when the appropriate incentives aren’t used and if the system is being undermined by key influencers. Accountability, therefore, needs to be claimed from the most important team member to the smallest sub-contractor.
The Bottom Line
Companies who act irresponsibly in their supply chain implementation can drastically increase their exposure to risk, viability, and profit. Consumers and investors are watching business closely to understand how corporations are tending to sustainability and to both global and local economic, social, and governance issues. It won’t be long until we see a new wave of investors take the reign for corporate responsibility with those failing to comply being left to fall behind.