Globally, large companies are facing rising pressure from both internal and external stakeholders to operate more sustainably, and many have made public commitments to do so.
Enterprises working to make significant strides in their environmental, social, and governance, (or ESG) initiatives can’t abdicate responsibility for the indirect impacts of their business.
A 2021 McKinsey & Company report found that two-thirds of an average company’s ESG footprint lies with its suppliers. McKinsey indicates that for most companies, supply chain accounts for more than 80% of greenhouse gas emissions and more than 90% of its impact on air, land, water, biodiversity, and geological resources.
The McKinsey study plainly states, “ESG leadership begins at home, but it can’t stay there.”
This is the case for Anheuser-Busch — the brewing company behind Budweiser and other global beer brands. Virginia Covo Naranjo, Director of Sustainability, spoke on this topic during a webinar hosted by the supply chain sustainability platform, SupplyShift.
“As the climate action head, I’ve had the opportunity to also see the impact that the rest of our value chain has on our business,” Virginia says, adding that close to 90% of total emissions stem from outside the Anheuser-Busch walls.
“If our suppliers don’t decarbonize, we’re not going to decarbonize, and we’re not going to reach our goals either,” she explains.
Virginia says that engaging suppliers has brought Anheuser-Busch closer to achieving its sustainability goals, but the overall impact is even greater. Encouraging decarbonization efforts among suppliers kicks off a trickle-down effect of environmental action that will hopefully influence more carbon-intensive business sectors to begin their own ESG journeys.
It’s become clear that the need to engage suppliers for sustainability data has never been more critical for large companies. Still, it’s difficult enough to collect the data you need from within your own organization.
As your company’s ESG or corporate sustainability head, where do you even start?
Defining your scope and identifying your suppliers
Before you can begin to collect any data from your suppliers, you need to determine the scope of your efforts, including which suppliers you want to engage with.
McKinsey’s study recommends identifying the most significant areas of risk and opportunity for improvement within your supply chain. Ask yourself, what factors matter most in the context of the enterprise’s overall ESG goals.
During an ESG & CSR Board panel discussion on ESG data collection, Jeff Freeman, Director of Sustainability at Cimpress, shared how the organization came to identify those suppliers.
“We have a Scope 3 spend-based carbon footprint, so that gives us a nice connection point between who we spend the most money with and what parts of our business are the most carbon-intensive,” Jeff says.
During the same panel discussion, Claudia Lin, CSR Program Manager at NVIDIA, shared that her team is also looking at spend-based carbon emissions and is currently in the data collection phase of this journey.
To aid in the process, NVIDIA leverages its membership with the Responsible Business Alliance, or RBA, which Claudia described as a consortium of companies working together to improve global supply chains. Through the RBA, NVIDIA requires its strategic suppliers to submit their energy, water waste, and greenhouse gas data, as well as their own sustainability goals in a portal.
“The benefit of being in the RBA is that suppliers submit their data into the portal once, and then all the customers that use the supplier are able to see it, which significantly reduces fatigue in our supply chain and really allows us to access more suppliers than we would if we were reaching out to them individually,” Claudia says.
One of Claudia’s peers on the panel, Brittany Brama, Principal Sustainability Manager at C.H. Robinson, further emphasized the benefits of using collected data points either through the RBA or groups such as the CDP and EcoVadis.
“I would suggest for those listening to really do exactly what Claudia is mentioning,” Brittany says. “The fatigue is real.”
Working with your suppliers
Once you’ve identified the specific suppliers you need to engage, it’ll benefit you to establish a meaningful relationship and a strong line of communication with them.
As you begin this journey, it’s paramount that your suppliers understand and trust the data collection process so they’re more willing to participate year-over-year. Remember to keep transparency top of mind when working with suppliers.
During the SupplyShift webinar, Account Executive Nicole Rhodes explained that oftentimes, suppliers aren’t aware of what their data is being used for. They worry if they answer incorrectly, their contracts could be in jeopardy.
You’re more likely to receive valuable responses from your suppliers if you’re able to highlight the incentives for them. At the SupplyShift webinar, John Whitney, Sustainable Value Chain Lead at Accenture, highlighted one of these “carrot, not sticks” approaches to engaging suppliers.
“I think the most successful programs start first with establishing policies as a matter of practice and a ‘requirement’ to share data and impacts and then use prioritization and preferential terms as a further incentive to motivate suppliers to take action,” John says.
It’s also important to meet suppliers where they are at. A recent Gartner study reports that 30% of supply chain leaders say they have no or low-maturity supply chain sustainability initiatives and are hindered by limited resources, conflicting priorities, and low visibility on early wins.
It’s no secret that there can be a lot of newnesses in the ESG space, not just for enterprise programs but also for their suppliers. Some suppliers may be excited to share their data with you, as it validates their internal processes, and others may not be equipped to provide you with the exact data points you’re looking for.
“I think there’s sometimes some concern they don’t know where to start or how to start,” Jeff Freeman says during the ESG & CSR Board panel. “Sometimes they’re looking for a little bit of guidance just to even help them start crawling in that direction.”
Consulting your industry peers
In an ever-evolving field like ESG, it’s always beneficial to take advantage of all the resources at your disposal. One of which is your industry peers — those facing the exact same challenges.
When it comes to engaging supplies, benchmarking your journey with other ESG leaders can be an effective tool. This could provide you with an inside look into other companies’ experiences working with specific suppliers and their overall ESG integrity.
Conversations like this take place in various community groups, such as the ESG & CSR Board — the confidential, peer-to-peer community designed for sustainability and CSR leaders.
