This decade is make or break for limiting the damage that rising temperatures are already having on communities across the world. Corporate sustainability is a critical part of managing the many potential effects of climate change, and was the theme of this year’s Davos conference.
Does this signal a sea change in how seriously corporations are taking sustainable business practices and carbon management?
A new focus?
Now in its 50th year, the World Economic Forum brings 3,000 of the world’s most influential business leaders, politicians, activists and celebrities to the Davos mountain resort in Graubünden, Switzerland. The theme this year was “Stakeholders for a Cohesive and Sustainable World” and the organisers were keen to emphasise the measures in place to make the conference climate neutral.
The issues of climate change and the importance of sustainable supply chains moved from niche interests at the conference to its most pressing issues in the space of a decade. With delegates being asked to minimise their own footprints when traveling to the event, and speakers like climate activist Greta Thunberg, European Commission President Ursula von der Leyen and Prince Charles all using their speeches to advocate change, this year’s event felt different.
In nearly all the industries we monitor, there is lots to be positive about when it comes business, political leaders and regulators stepping up their efforts to promote corporate sustainability. There is however a long way to go. Buyers and suppliers of all shapes and sizes need to work together more effectively to build sustainable supply chains.
The consequences of non-compliance
An important part of embedding sustainable business practices is making non-compliance with environmental regulations and standards very costly for businesses. The staggering $33 billion that Volkswagen has so far had to pay out in fines, product recalls and legal costs as a result of revelations it had cheated its emissions tests is an extreme example of the financial and reputational damage that non-compliance can have. Companies increasingly face the reputational risk of being seen to be obstructing public scrutiny of their environmental record. JP Morgan made headlines recently due to its request to the US Securities and Exchange Commission that it be allowed to ignore a request from its shareholders to issue a report about its carbon management and greenhouse gas emission reduction plans.
Davos 2020 provided more evidence that the consequences of non-compliance are likely to become even greater for companies. Ursula von deer Leyen used her speech to announce that the EU aims to be the world’s first climate-neutral continent by 2050. She also indicated that an EU carbon tax on imports is going to be introduced for companies from countries “that do not respect international climate goals”.
While regulation and taxation are an important part of driving corporate sustainability, we think the real change has to come from businesses themselves. Some of the world’s biggest companies are achieving great results, with both Visa and PepsiCo recently announcing that 100% of their global energy use now comes from renewable sources.
So, what can buyers and suppliers start to do today to build more sustainable supply chains?
The starting point for buyers has to be gaining better visibility over the whole of their supply chain. In order to better promote sustainable business practices in every part of its operations, a buyer needs to determine supplier classification, through tools such as objective scoring. For example, 28% of Oil and Gas Europe suppliers do not have an environmental management system in place, exposing a potential sustainability risk. Without this knowledge, it is impossible to manage supplier performance which support effective carbon management and reduction strategies.
Any strategy needs to have both an internal and external element if it is going to be successful. Firstly, buyers need to set themselves more ambitious targets and expand the scope of their sustainability requirements. Sustainability audits are a great way of identifying inefficient processes and unnecessarily wasteful activities.
Secondly, it is important that suppliers understand both how they fit into the wider corporate sustainability goals of their buyers, and what is expected of them. Buyers can request audits to spot check suppliers and make sure that they are meeting the right standards.
Suppliers need to show their values
For suppliers, being able to accurately and reliably demonstrate corporate sustainability performance is only going to continue to grow in importance. Buyers will want to prioritise suppliers that share their values and commitments and can provide clear evidence of how they positively impact their performance.
Certification and third-party verification have emerged as key tools for suppliers looking to demonstrate their commitment to sustainable business practices over the last decade. From our own experience, we can see that buyers are increasingly searching for ethical suppliers and that audited suppliers score better on health and safety and CSR criteria.
Another benefit of being regularly audited is that it helps suppliers keep up to date with exactly what is required from them in terms of SECR compliance. Corporate sustainability is seeing a lot of big changes, especially in terms of local regulations in different regions. For companies that work with businesses internationally, staying abreast of new requirements, as well as new opportunities, is going to be an important area of focus going forward.
Embracing the new normal
Ultimately, we are all going to have to increase our efforts to promote sustainability in every aspect of modern life. If the new focus at Davos represents the new normal, then both buyers and suppliers should consider how they can step up their game when it comes to sustainability.
We want to give companies the tools they need to be leaders in sustainability, rather than simply reacting to a changing regulatory landscape. Our sustainability audits and independent Carbon Reduce certification help both buyers and suppliers operate more efficiently and unlock the many benefits that increased corporate sustainability can bring.