Given today’s geopolitical conflicts, global economic uncertainty and growing fears of yet another COVID variant wave on its way, it could be easy to overlook the importance of Earth Day 2022.
But hopefully, on April 22 most of the world can pause for a moment and reflect on the timely theme of this year’s Earth Day — “Invest in Our Planet.”
Quite frankly, I can’t think of a more appropriate theme.
Over the last several months, I’ve been in talks with industry and government leaders on a range of operational resilience, risk mitigation and supply chain visibility issues. One of their top concerns: ensuring that environmental, social and governance (ESG) best practices are woven throughout their enterprises and are creating shared value for their customers, employees, communities and businesses.
Earlier this month, we announced a partnership with ServiceNow that will help many of these business leaders sleep better at night. The integration of our technology into ServiceNow’s Vendor Risk Management (VRM) offering will give their customers greater visibility into ESG risks by providing instantaneous multi-factor risk assessments for every entity in their supply chain.
One firm already leveraging this technology integration is Blackstone. Jennifer Morgan Global Head of Portfolio Operations at Blackstone, put it this way: “Blackstone believes that ESG principles are crucial to developing strong, resilient companies and assets that deliver long-term value for our investors. We’re focused on addressing ESG related risk in a holistic manner that helps our portfolio companies drive deeper visibility into their supply chains to ensure resilience, mitigate environmental, social and regulatory risk, and promote growth.”
The volume of these discussions has risen considerably since last month’s proposal by the U.S. Securities and Exchange Commission to require standardized reporting of ESG practices. I wrote about the implications of that proposal a few weeks ago and noted that more and more investors are truly focused on investing in our planet.
Other recent actions, including New York’s proposed Fashion Sustainability and Social Accountability Act, Germany’s Due Diligence and Supply Chain Act, and The European Union Corporate Responsibility Reporting Directive all point to greater societal and regulatory accountability for businesses here in the U.S. and around the world.
Invest in our planet with technology
Little wonder that technology investments in supply chain businesses are. Supply-chain technology startups raised $24.3 billion in venture funding in the first three quarters of 2021, 58% more than the full-year total for 2020. That pace of investment has not abated.
The sense of urgency is clear, especially among leaders in the consumer-goods industry. Consider that by 2025, almost two billion people are expected to become global consumers, nearly doubling the amount of people purchasing goods from global supply chains in 2010.
In addition, the consumer goods sector is expected to grow by five percent a year for the next 20 years. To meet new global climate requirements, consumer goods companies will need to trim greenhouse gas emissions by more than 90 percent by the middle of the century. The mandate for B2B enterprises is equally strong especially as more transactions and relationships have migrated to the digital world, raising the bar on trust and visibility.
You can only measure what you can see
These challenges are underscored by the fact that only about one in five supply chain managers today say they have visibility into their suppliers’ sustainability practices.
Additionally, our own surveys at Interos show that 37% of responding businesses struggle to obtain the data to measure supplier sustainability accurately.
Businesses have long relied on suppliers to self-attest to their sustainability and ethics status. This information is often inaccurate and submitted through a cumbersome manual process on an annual basis. Given the rapidly changing nature of the modern supply chain ecosystem, periodic self-reporting is no longer adequate, but it is still the method 74% of businesses rely on, according to our study.
This lack of trustworthy information leads to real-world problems: 41% of organizations reported that ESG-related risk factors had caused detrimental impacts to their business in the past two years, making it harder to achieve a sustainable supply chain. ESG-related disruptions today cost companies an average of $35 million in lost revenue annually.
The environmental impact in the supply chain isn’t limited to greenhouse gas emissions. Water scarcity, negligent land-use practices, toxic waste, water pollution, deforestation, air quality and energy consumption are all important factors.
Four investment priorities to think about
In my recent discussions with leaders, at least four key areas consistently surface as priorities around technology to invest in our planet.
- The first is investing in tools that increase supply chain transparency to ensure suppliers are using ethical sourcing. Today’s supply chain leaders need that visibility to ensure suppliers are following sustainability standards and regulation, whether it’s in their mining, manufacturing or labor practices. Transparency also helps sourcing managers make informed decisions when onboarding new suppliers. Equally important, it is the difference between investors having confidence in your data or not. Blackstone’s Jennifer Morgan further explains: “Our job is to invest in amazing companies and support them to reach their potential. A huge part of that is the way we help them drive ESG value. Technology is transforming how businesses do that.”
- The second is investing in visibility tools that can provide for greater supply-and-demand planning to reduce overproduction and inefficiencies. When supply and demand planning is out of sync, the results can lead to too much or too little production and distribution, all of which results in waste that impacts the environment. Leaders can avoid these issues with the smart deployment of artificial intelligence, machine learning and predictive analytics that create more efficient supply and manufacturing processes.
- The third is investing in visibility tools that can help optimize routes and reduce fuel consumption. With greater visibility into supplier behavior and other factors that can impact distribution, such as natural disasters, new regulatory measures and cross-border conflict, leaders can optimize international, national and local shipping routes. Advanced analytics can even update routes in real time to take account of congestion and other issues.
- The fourth is investing in visibility tools that streamline supply chain processes to reduce waste. While supply chains can be improved through major transformational changes, they can also benefit greatly from iterative improvements. Good analytics and reporting works with machine learning to continually improve processes throughout the supply chain. Every change that slightly reduces waste, speeds up delivery or enhances quality can improve the health of both your business and the environment.
As we recognize Earth Day 2022 and its theme of “Invest in our Planet,” I hope everyone takes a moment to reflect on the technology investments needed to help organizations create more sustainable, responsible and ethical supply chains.
Here’s to a productive Earth Day.