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4 Key Steps to Integrate ESG into Supply Chain Management Featured

While ESG goals and standards have continued to evolve within supply chain operations, there is also an opportunity to create new avenues for growth within this space. Now is the perfect opportunity to evaluate the role ESG plays in supply chains and to make foundational, forward-thinking changes.

A recent PwC survey of over 240 executives reveals the ESG-focused actions that businesses can take to  protect their supply chain and bolster their operations.

  1. Staying aware of regulatory changes and keeping up

Ever-changing regulatory environments are difficult to manage. In fact, 66% of supply chain leaders say staying aware of rapidly evolving legislative and regulatory frameworks in relevant jurisdictions is currently a challenge, with nearly a quarter saying it is a major challenge.

Businesses can respond to this regulatory landscape by dedicating time and resources to monitoring local, national and global ESG regulations and putting the same premium on these concerns that they place on other key business areas.

Leaders and their companies can be empowered to not only know of changing conditions, but how to act upon them, through dedicated functions, including government and regulatory affairs. Many organizations are presently reconfiguring supply chains to respond to both geopolitical and macro-economic factors, rendering regulatory mapping a key supply chain optimization exercise.

  1. Identifying supplier risks and make up

Supplier risks, like pollution, corruption and shortages of raw materials, are the second most prominent challenge, cited as a concern by 58% of supply chain leaders. Businesses are tasked with tackling several forms of supplier risk: traditional management, concentration risk and supplier diversity.

When companies can identify and understand the respective risks and make up of their suppliers, they can take steps to diversify the types and locations of suppliers they work with. A strategic and thoughtful approach should be taken when identifying and vetting new suppliers and the same rigorous process should be followed when evaluating current suppliers.

The use of risk monitoring tools and control towers is crucial as risk factors continuously evolve, impacted not only by weather or supplier risks but new entrants, alternative sources of demand and uncertain demand worldwide.

  1. Building confidence in supply chain ESG reporting and data gathering

Business leaders are frequently positioned to parse through extensive data about their company and its operations. Effective ESG-focused supply chain management requires confidence in reporting and data gathering. Three-fourths of business leaders say they see defining steps to have confidence in their ESG reporting as a challenge they’re either already facing (54%) or will face within the next one to three years (21%).

It is no secret that reporting can be a significant undertaking. Leaders are presented with the task of choosing a starting point. This can mean starting with the highest volume suppliers, suppliers in challenging locations and considering whether to mobilize a different group or set of skills than those applied for their own supply chain.

Leaders must consider what they already report on. Data is often already being collected and measured from the supply chain, including water usage, energy efficiency and waste management. In the continued crunch to do more and anticipate evolving trends, it is important to give and get credit for initiatives already underway without getting confused amidst new definitions and terminology. Mapping out existing data efforts is key to avoiding duplicative efforts and leveraging potential synergies.

The areas that are most challenging to collect data around are product footprint, carbon border adjustments and supply chain resiliency from an environmental risk standpoint. Investing in and developing modeling and reporting standards that address these three issues will build confidence in understanding of the supply chain and mitigate future headaches. Ultimately, business leaders need to effectively evaluate where perfect may be the enemy of good, through building a blend of collecting actuals and investing in estimation methodologies as appropriate.

  1. Reducing Scope 3 emissions 

One of the ultimate goals of much ESG adaptation is the reduction of emissions. Supply chains, with their many parts, are ripe with opportunities for refinement. Scope 3 emissions are particularly relevant as they are the result of suppliers, customers, and employees.

To reduce Scope 3 emissions, companies should open a dialogue with suppliers to facilitate an understanding and reduction of carbon footprints. Additionally, by modeling supply chain risk from climate change and other disruptions to help understand vulnerabilities, companies can anticipate their most significant pain points and prevent challenges before they occur.

Integrating ESG into supply chain management can be a challenge and requires taking a careful look at company operations. However, any short-term difficulties in implementing these changes are far outweighed by the long-term benefits of an ESG-conscious supply chain that will help to protect the business and be a value driver.

Leaders are constantly monitoring a challenging geopolitical and inflationary environment, requiring thoughtful prioritization when it comes to efforts around the opportunity for supply chains to deliver against both business objectives and sustainability goals.


Matt Comte, PwC Operations Transformation Practice Leader

Kareem Mohamednur, PwC Partner

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