Corporate Responsibility Requires Supply Chain Transparency – Certain Companies Have an Advantage

The focus of sustainability efforts should shift to supply chains

Sustainability and digitalization are two megatrends revolutionizing the economic environment, business models, and supply chain management in unprecedented ways. This has a significant impact on business operations and competitiveness in global markets. It directly affects economies, especially those, which heavily rely on the competitiveness of its export companies.

The importance of supply chain management has become increasingly pronounced in recent years. Companies have been particularly vulnerable to supply chain disruptions, as evidenced by events like the COVID-19 pandemic, the war in Ukraine, and recent economic uncertainties.

The priorities in SCM have shifted rapidly. Global material supply challenges caused by the pandemic and war brought material availability into focus. Meanwhile, rising inflation and interest rates have forced companies to prioritize costs within their supply chains. Now, the focus of many companies is increasingly turning toward sustainability.

It is important to note that the majority of social and environmental impacts generated by companies occur outside their own operations, largely within their supply chains (so-called Scope 3 emissions).

For example, according to a 2020 report by the U.S.-based Carbon Disclosure Project, greenhouse gas emissions from supply chains are 11.4 times higher than an organization’s internal operational emissions. Therefore, simply improving internal sustainability is insufficient, and the focus needs to shift toward reducing the impacts within supply chains.

Increasing Regulatory Pressure on Supply Chains

Regulation related to sustainability is increasing at an accelerating pace. For instance, recently implemented EU regulations, such as the CSR directive and the CBAM (Carbon Border Adjustment Mechanism), as well as the upcoming CSDD directive, are further tightening the data collection and reporting obligations for companies, extending across entire supply chains.

Initially, these requirements will focus on carbon emissions reporting, but shortly, other environmental and social impacts will also become more prominent. Although the initial requirements apply only to larger companies, the effects will extend throughout supply chains to impact all businesses.

Challenges in Implementing Sustainability Activities

Many companies are already relatively advanced in preparing for this shift, but a significant portion are still in the early stages. One reason for this is that supply chain sustainability is often seen as a large and complex challenge, with practical solutions difficult to find.

Companies face challenges with calculating the return on sustainability investments, as well as a lack of resources, expertise, and tools. As a result, sustainability development has not received the priority it deserves.

According to a recent survey by the financial group OP, one-third of companies are preparing to increase their investments as interest rates decline. Companies are particularly looking to invest in digitalization, and sustainability, as well as in personnel and expertise. Investing in these areas presents an opportunity to gain significant competitive advantages in the future.

Achieving Sustainability Improvements Through Digital Solutions

Companies that have been pioneers in digital transformation are also in a favorable position when it comes to developing sustainable business practices. Digitalization offers practical solutions and tools for managing sustainable business operations, collecting data, reporting, and improving processes.

New digital solutions and platforms enable a new level of transparency between companies within supply chains, which was previously not possible. Transparent information sharing and real-time communication among parties allow for the comprehensive development of a sustainable supply chain at both strategic and operational levels.

Digitalization can also eliminate manual routine work, freeing up time for designing more environmentally sustainable and longer-lasting products, as well as developing the social sustainability of the supply chain.

Moreover, reorganizing working processes within supply chains through digital solutions enhances the efficiency, job satisfaction, and well-being of professionals working in the supply chain.

As regulatory demands tighten, companies must secure their place within the supply chain by investing in business models that improve sustainability and processes that extend beyond organizational boundaries. Investments in supply chain sustainability should be viewed as a strategic license to operate or even a reason to win, not as a necessary evil.

Timo Rossi, CBDO & Co-founder
Jarl Matti Anttila, CCO & Co-founder

This article was published originally in Talouselämä magazine on 29 July 2024.