Strategies for Meeting ESG Goals and Regulations in the Supply Chain

Sustainability in procurement is not a new topic, but it is growing in importance and will soon become a mission-critical part of operations. Currently, procurement and supply chain leaders are trying to make environmental, social, and governance (ESG) a top-of-mind issue, and they are seeing results.

In the following article, we will lay out how procurement and supply chain teams can implement sourcing strategies to meet their ESG goals, adhere to an evolving web of regulations, and call out a multifaceted approach from BMW that has the potential to make waves in ESG strategy.

The Challenges of Adopting Sustainability in the Supply Chain

Adopting sustainable practices within the supply chain poses significant challenges. Here are a few of the most common challenges procurement and supply chain leaders are currently facing:

Lack of Standardization

In a recent talk at Sustainability LIVE, Chris Shanahan, Vice President of Global Sustainability Supply Chain at Thermo Fisher Scientific, predicted that there will be an increased focus on the standardization of sustainability efforts. He also emphasized the need for realistic ESG requirements, effective collaboration, and a willingness to make changes.

"You have to be willing to adapt your supply chain,” said Shanahan. "In the next two to three years, I think we have to continue to build that sort of momentum of trying to standardize to standardize approach and share information.”

Procurement and supply chain leaders must understand that sustainability is no longer just a buzzword or a "nice to have” initiative; it is now a business imperative. Overcoming resistance will require a collaborative effort from all stakeholders, including suppliers, employees, and customers.

To hear directly from Chris Shanahan on his strategies to advance sustainable supply chains, you can attend this year’s ProcureCon Supply Chain conference.

Lack of Transparency

One of the biggest challenges faced by procurement and supply chain leaders when it comes to sustainability is the lack of transparency in supply chains. Often, companies do not have visibility into their supply chain beyond tier 1 suppliers.

For example, according to a 2023 study by PwC, only 28% of companies had developed and implemented digital capabilities for measuring and verifying supply chain contributions to sustainability goals. Most had simply put a plan in place (37%), were developing a plan (19%), or had no plan at all (8%).

Without such capabilities, it is difficult to track and assess the environmental and social impacts of their products and services.

To truly embrace sustainability, companies must work towards creating a transparent supply chain. This can be achieved through various measures such as conducting supplier audits, implementing traceability systems, and establishing clear communication channels with suppliers.

Regulatory Complexity

According to an article in the National Law Review, one of the biggest obstacles to supply chain management in general is navigating complex and evolving global regulations.

"With over 76% of world trade attributed to transactions connected to global supply chains, managing these global challenges has become critical to a company’s sustained growth and success," the article said. Furthermore, "companies of all sizes that play a role in the supply chain are increasingly scrutinized for adherence with Environmental, Social, and Governance (ESG) initiatives and metrics."

Procurement and supply chain leaders must familiarize themselves with ESG regulations in the places they operate. This includes understanding labor laws, trade regulations, tariffs, and sustainability rules. They must also develop best practices and technology-enabled processes to maintain due diligence of compliance measures.

Using Education and Collaboration in Adopting Sustainable Practices

Educating team members and stakeholders about the importance of sustainable practices is foundational to achieving sustainability goals in procurement and the supply chain. This education should focus on the long-term benefits of sustainability, including cost savings, risk mitigation, and brand reputation enhancement. By understanding the value of sustainability, stakeholders are more likely to support and engage in sustainable initiatives.

Beyond internal practices, collaborating with suppliers will be critical for companies to achieve sustainability goals in the future. To foster collaboration with suppliers, procurement and supply chain leaders can do the following:

• Establish clear communication channels to discuss sustainability goals and expectations.
• Implement joint sustainability workshops or training sessions to align on best practices.
• Develop and share resources and tools that enable suppliers to meet sustainability criteria.
• Conduct regular sustainability performance reviews with suppliers to encourage continuous improvement.
• Explore incentives for suppliers who achieve notable advancements in sustainability.

This approach not only nurtures a culture of sustainability within the organization but also extends these principles across the supply chain. By working closely with suppliers, companies can create a more sustainable, resilient, and competitive supply chain.

Sustainable Supply Chain Case Study: BMW

According to a recent article in Supply Chain Digital, the BMW Group has set ambitious goals to meet ESG standards across its extensive supplier network, emphasizing the importance of ethical practices and sustainable resource acquisition. In its commitment to transparency and traceability in its supply chain, one of its "declared aims" is to ensure compliance with ESG standards, which includes "respect for human rights and responsible extraction of raw materials."

This initiative is part of a broader strategy to minimize its environmental footprint. The company has put forth an effort to reduce its consumption of raw materials and increase the use of secondary materials. Now, the company is focusing on recycling and reusing materials to support sustainable manufacturing practices.

In achieving these goals, BMW has developed a comprehensive due diligence process to oversee its supplier network, incorporating ESG issues into core business strategies.

"When we identify risks at our direct suppliers we respond to these with preventive and corrective measures, as well as enabling activities," BMW explains, showcasing a proactive approach to managing and mitigating risks within its supply chain.

Drive Sustainability in Your Supply Chain

Through strategic partnerships and adherence to strict sustainability standards, BMW exemplifies how corporations can lead by example in the drive for a more sustainable and responsible global supply chain. More procurement and supply chain leaders will be following the automaker's example soon.

To learn more about how you can create a more sustainable supply chain, don't miss ProcureCon Supply Chain 2024. It's happening from August 5th to 6th at the Westin Buckhead in Atlanta, Georgia.

Download the agenda and register for the event today.