What is ESG in supply chain and why is it so important?
Environmental, social, and corporate governance is now a vital part of supply chain strategy. But making it work is going to take a lot...
According to Wikipedia, “environmental, social, and corporate governance (ESG) is an approach to evaluating the extent to which a corporation works on behalf of social goals that go beyond the role of a corporation to maximize profits on behalf of the corporation’s shareholders.”
Which is an entirely accurate, but very dry, way of saying “being a good business” in all senses of the word “good”. As such, ESG goals are important across the enterprise – but their fundamental nature is especially transformative across the supply chain.
Why should your supply chain strategy include ESG?
Supplier relationship management software company Kodiak Hub says: “ESG serves as guidelines by which supply chain management strategies should be built from bottom-line to top.” And it’s easy to understand why.
Take just one of the three ESG pillars, environmental. Chances are your company has decarbonisation goals or – at the very least – serves as part of the supply chain for a company or an industry that has. You / that company or industry might also be looking to avoid carbon tax, or to improve reputational standing, or to apply for B Corp status. You / it might simply be looking for investment… In the UK, for example, The Investment Association (250 members, £8.5 / €10.1 / $11 trillion under management) wants to see companies reporting on climate-related risks in a consistent, clear and comparable manner.
Incorporating ESG into your supply chain strategy is modern business sense. But that doesn’t make it easy.
The challenge of change
Before the pandemic, most healthcare manufacturers used a lean supply chain and just in time delivery. It was industry best practice. The pandemic brutally exposed this system – and forced those companies to focus on building inventory.
But here’s the rub: it’s not just healthcare manufacturers that are affected, and it’s not just Covid that’s driving change. Many organizations find themselves with supply chains designed for a world that no longer exists. Sudden shocks are more frequent, including material shortages, changing customer expectations, and freight price increases (last year, freight rates from China to the West Coast jumped an astonishing 240%).
Supply chains need rebuilding. ESG needs incorporating. Where should we start?
ESG effects every part of the supply chain
Where do you begin to build a better supply chain incorporating ESG principles? With your partners? With a strict policy of decarbonisation everywhere? Yes and yes. But there’s something else you need to keep an eye on else it spoils your new supply chain’s reveal party like a drunk clown.
More than 61% of logistics companies agree that last-mile delivery is the most inefficient process in the entire supply chain. But 56% of shoppers won’t buy from a brand again if they’re not satisfied with the shipping service. Everyone agrees: your last mile must be quick and customer centric.
Unfortunately, that’s no longer enough. Forrester says 41% of US customers actively seek to buy from a company that aligns to their social and environmental ideals. Your last mile must be quick, customer centric, and ESG compliant.
There’s no sugar-coating this: implementing a comprehensive ESG strategy will involve a root-and-branch rethink of your entire supply chain. The reward exists. The solutions exist. Is there a will to make meaningful change?
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Continue the ESG debate at GDS’ Supply Chain Insight Summits where we bring together senior supply chain executives who are actively seeking to share, learn, engage, and find the best solutions.
