No Match Found
Several market trends are coming together to make sustainability in supply chains more important for businesses. Net zero targets. Increased regulatory and investor pressure on nonfinancial data. Customer demand for greater transparency and more sustainable products and services. Companies that integrate sustainability into their corporate and supply chain strategy can capitalize on these trends and realize more value in both their sustainability efforts and businesses overall.
In our 2023 Digital Trends in Supply Chain Survey, most executives agreed or strongly agreed that their supply chain strategy and operations are important to executing their company’s environmental, social and governance (ESG) strategy (86%). Most also said their digital investments in ESG have benefited their supply chains as well (79%). But many have yet to develop key digital capabilities.
Improving sustainability and corporate responsibility is growing in importance. When considering their priorities over the next 12-18 months, 24% of respondents said increasing sustainability and corporate social responsibility was among the top three. That’s up from 19% last year.
Operations leaders face a complex and fast-evolving landscape of digital offerings and capabilities to support things like supply chain transparency, measuring greenhouse gas emissions and meeting Scope 3 reduction targets. Almost every major software provider is making investments to build capabilities in this area, and hundreds of new and smaller players have entered this space as well. That can make it difficult to sort through solutions for the right fit. Four out of five respondents said employees’ lack of digital skills is a challenge to integrating ESG into their supply chains. Upskilling employees in this area can help companies be better equipped to identify digital solutions that would be the right fit.
Requirements such as the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the Uyghur Forced Labor Prevention Act (UFLPA) are changing the type of data companies need to manage and the necessary speed of ESG reporting throughout your supply chain. Companies that don’t anticipate those changes and invest in technology to help meet those requirements could expose themselves to considerable regulatory risk and potential penalties.
Awareness of such regulatory issues has improved, our survey found. About half of the respondents told us that staying aware of legislative and regulatory frameworks poses a challenge to their supply chain function — down from two-thirds last year and possibly signaling a wider understanding of the risks of noncompliance. But survey data also shows that some companies could benefit from action-oriented steps to help them make progress. Consider that three out of 10 executives said their companies aren’t actively leveraging technology for reporting their ESG and supply chain progress externally.
Scope 3 emissions — those that are upstream and downstream in the supply chain — are on average more than 11 times as large as Scope 1 and 2 emissions combined. They’re the largest, most complex and most difficult emissions for organizations to tackle. But they’re also becoming more important as companies try to deliver against their net zero and science-based greenhouse gas reduction targets.
The challenge with Scope 3 decarbonization is that companies have little direct control over these emissions, which by their very nature are outside of a company’s direct operations. Still, there are many ways companies can influence these emissions, and technology can play a key role. Some approaches include having suppliers commit to a science-based target, conducting lifecycle assessments to identify hotspots of emissions, evaluating the network of warehouses and distribution centers to optimize the distance and mode of transportation, and better educating customers to lower emissions during product use or end of life.
While the “E” in ESG often gets much attention, other areas are gaining traction within supply chains. Nearly three-fourths of survey respondents said their company either already has developed digital supply chain capabilities or has a plan in place for increasing diversity among suppliers, vendors and business partners. The same percentage (72%) said they’ve either already developed capabilities or have a plan in place for complying with forced labor prevention laws.
Even with those tech investments, companies may be able to do more to improve supplier diversity. Only 13% said increasing diversity and segmenting suppliers was a top priority, and that number was lower among consumer markets and industrial products companies. Nearly half of all respondents said prioritizing minority-owned, diverse suppliers was either a minor or major challenge to their supply chain function. As companies seek to expand their supplier diversity programs globally and diversify their supply chains — across geography, value chain placement, geopolitical and climate risk exposure, and other dimensions — digital solutions will be critical for adequate visibility, effective monitoring and meaningful value creation.
Is your company ready to be smarter in using technology to advance your organization’s sustainability and supply chain efforts? Consider these actions as potential next steps.
Operations Transformation, Partner, PwC US
Sustainability Partner, PwC US
Operations Transformation, Partner, PwC US