Performance: Supply Chain Gaining Ground
- Policies & Codes: Fifty-eight percent (353 companies) set clear social and environmental standards for suppliers, up from 43 percent in 2012.
- Align Procurement Practices: Forty-seven percent (291 companies) consider environmental and/or social criteria in procurement, up from 46 percent in 2012.
- Supplier Engagement: A third (205 companies) engage suppliers on sustainability performance issues, up from 27 percent in 2012.
- Measurement & Disclosure: Thirty-four percent (210 companies) monitor supplier performance, up from 25 percent in 2012.
To become truly sustainable enterprises, companies must look beyond their direct operations and deep into their supply chains. A company can reduce its carbon footprint, water use and protect the rights of its workers, but if it sources products and materials from suppliers who perform poorly, its overall sustainability efforts are fundamentally undermined. Companies can significantly influence the behavior of suppliers and have a key responsibility in driving sustainability throughout the global economy. As customers, companies can establish the conditions for future business. They can insist that suppliers meet international human rights standards and demonstrate environmental responsibility, or risk losing their contracts. They can also engage with their suppliers, either alone or in collaboration with other companies doing business with the same suppliers, to help suppliers improve sustainability performance through technology and training.
Supply chain challenges were brought into sharp focus in 2013 when the Rana Plaza garment factory collapsed, killing more than 1,100 workers producing goods for major international brands. The images were indelible: bodies found amidst familiarly branded jeans, shirts and other apparel. From customers and investors, human rights and labor advocates, governments and other stakeholders came a call for greater accountability by companies for the practices of those they choose to do business with.
Such accountability is the first essential step in building a sustainable supply chain. Clear expectations must be established and a high bar for performance set. Companies must integrate social and environmental metrics into procurement decisions and product design and make clear to suppliers that long-term business relationships can only be established in the context of continual improvement of social and environmental performance. Quite simply, sustainability needs to be given the same status as quality, cost savings and production times. But implementing such changes is challenging and companies may need help in instituting the necessary reforms and programs. That’s why companies have to be prepared to provide long-term assistance and to collaborate with suppliers; they cannot simply set standards, sit back and insist on compliance. This means partnering with suppliers on worker training, education, safety and healthcare, and providing technical or other support for programs to improve energy efficiency, water stewardship and reduce pollution. Incentives and rewards for suppliers who meet these requirements should be core to these engagement programs.
As is the case with all aspects of corporate sustainability performance, transparency is key. Companies should disclose not only information about who is in the supply chain, but how those suppliers are or are not implementing social and environmental standards.
For this report Ceres and Sustainalytics evaluated all 613 companies on supply chain practices, including policies and codes, procurement practices, supplier engagement and measurement and disclosure of supplier performance. We saw incremental progress but far from the improvement needed to address the urgency of the challenge.
While their practices are the exception rather than the rule, many of the top performers are using collaboration as a key strategy for success. They are active participants in developing, implementing and incentivizing sustainable supply chain programs, and rely not on a single company’s actions, but on cooperation and collaboration among companies, suppliers, NGOs, labor organizations and other local community groups.