Chain Reaction: How Sustainability Is Changing Supply Chains

In many ways, 2021 was an ‘annus horribilis’ for global supply chains. Low inventory levels, rising costs, worker shortages, inclement weather, cyberattacks, and severe shipping delays (exacerbated and encapsulated by the container ship Ever Given getting stuck in the Suez) made it a year that most would rather forget.

Yet, despite these challenges, amplified by the far-reaching effects of COVID-19, enthusiasm for greater sustainability in supply chains hasn’t been dampened. In fact, up to 83 percent of executives agree that the pandemic has accelerated supply-chain sustainability or has, at least, increased awareness of its urgency.¹ At the same time, the pressure to support sustainability in supply chains has been ramped up from multiple quarters. Externally, investors, governments, and international bodies are demanding more of firms, while 84 percent of consumers say that sustainability impacts their purchasing decisions,² and more than half are now willing to pay more for environmentally responsible brands.³ Many organizations are, in turn, pushing their suppliers to help them meet sustainability targets, whether through incentivization or the threat of fines.⁴ And from within, executives have become their company’s own sustainability champions, driving action across key issues such as climate change mitigation, renewable energy, employee welfare, and fair trade.⁵

Globally, there appears to be growing awareness of the fragility of long-standing supply chains, underlining the need for greater resilience, powered by a range of sustainability initiatives:

Towards carbon neutrality

The frequency of severe weather events served as a constant reminder of the effects of climate change in 2021. While it’s estimated that a typical company’s supply chain is responsible for 80 percent of its greenhouse gas emissions, a billion metric tonnes of emissions could be spared if major suppliers increased their renewable energy input by just a fifth.⁶ As a result, ‘Scope 3’ emissions – those generated by a company’s value chain – have become a key focus, with up to 84 percent of supply-chain leaders planning to invest in climate adaptation and mitigation strategies in the coming years.⁷ Measures being prioritized include increased automation and analytics, artificial intelligence, and sensor-controlled systems, which can help to cut energy consumption and identify or prevent inefficient energy usage.

Waste not, want not

As sustainability concerns grow, so has the attractiveness of the circular economy – a model which embraces recycling, repairing, and reusing materials for as long as possible. Simultaneously, the events of the past year have precipitated a shift from traditional ‘just-in-time’ to ‘just-in-case’ supply-chain strategies, whereby surplus inventory is built up to guard against future unknowns.⁸ To implement this sustainably and mitigate the risk of wastage, post-pandemic companies are engaging in a new era of supply-chain collaboration, from origin to end user. The fact that the Biden administration’s supply-chain ‘disruptions task force’ has made improved collaboration through data sharing and freight planning central to its plans is a further reflection of this new dawn.⁹

An open book

A McKinsey report revealed that less than half of companies have visibility into their Tier 1 suppliers, and only two percent have visibility beyond their second-tier suppliers.¹⁰ But this looks set to change as businesses in global supply chains face increasing pressure to disclose their environmental impacts. As an organization’s sustainability and ethics have become measurable performance indicators, so trust, transparency, and visibility have grown in importance. Supply-chain disclosure isn’t just good governance – it can help all the players in an organization’s network share the responsibility for sustainable practices, while harnessing powerful data insights for improved operational performance.¹¹

Being human

Firms are increasingly acknowledging and interrogating how their supply chains impact society. While slavery conditions are still horrifyingly rife in many parts of the world, sustainability issues such as employee welfare, human rights, community impact, and fair trade are finally receiving substantial attention. Nike, for example, recently extended its commitment to traceability and improving human-rights protections in its supply chain, while Intel announced new diversity and inclusion goals and increased its spend with diverse suppliers.¹² High-profile announcements such as these have ramped up the pressure on companies to pay greater attention to sustainable supply chains, and to disclose the human impact of their operations.

No ‘I’ in team

The days of business viewing sustainability as a trade-off, where doing the right thing came at the cost of diminished efficiencies and profits, are long gone. In a time of unprecedented disruption, integrating sustainable practices into supply chains can help minimize risk, enhance robustness, and even generate a competitive advantage.¹³ To combat the growing challenges of economic fragility, climate change, and inequality, the world needs supply chains founded on sustainability, collaboration, and transparency. This calls for a ‘team sport’, where organizations of all shapes and sizes work more closely together to boost economic progress and societal well-being, while preserving the environmental integrity of the planet.¹⁴

On the University of Cambridge Institute for Sustainability Leadership (CISL) Business Sustainability Management online short course, you’ll explore how best to position your organization within this changing ecosystem. Discover how your firm can create shared value through its supply chain, and learn why rewiring your operations can help you seize the opportunities associated with creating a sustainable business.

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