ESG

How ESG education can unlock the potential in supply chains 

With its ability to improve sustainability and profitability while mitigating risk, the value of ESG education in the supply chain cannot be understated,

With its ability to improve sustainability and profitability while mitigating risk, the value of ESG education in the supply chain cannot be understated. Image: REUTERS

Teresa Russell
Sustainability and ESG Consultant, SCERTIFY
Share:
Our Impact
What's the World Economic Forum doing to accelerate action on ESG?
The Big Picture
Explore and monitor how ESG is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

ESG

Listen to the article

  • Supply chains are responsible for up to 90% of consumer companies’ emissions and environmental impact.
  • The sustainability knowledge gap remains the greatest obstacle to executing on ESG factors in the value chain.
  • Effective ESG education enables supply chain professionals to improve sustainability and profitability of the supply chain.

Pressure is mounting on companies to ramp up their sustainability efforts — and the supply chain is a hotspot for environmental and social impact.

Developing procurement and supply chain management professionals’ skills and capabilities in environmental, social, and governance (ESG) is a surefire way to enhance business productivity and improve sustainability.

According to a report by McKinsey & Company, as much as 90% of greenhouse gas emissions and other environmental impacts are the result of consumer companies’ supply chains. As such, the supply chain has significant potential for achieving major advancements in sustainability performance.

Have you read?

Challenges and opportunities

With effective ESG education, procurement and supply chain professionals can identify and measure the most pressing sustainability issues for their company, and improve resilience by mitigating disruption, legal, and other risks in procurement practices.

A recent survey by Avetta found that a “lack of in-house understanding of the importance of ESG issues within the supply chain” was the greatest challenge to incorporating ESG practices into the supply chain, followed by a “lack of suppliers understanding of ESG issues.” For optimal business outcomes, developing sustainability capabilities is critical for supply chain professionals at all levels.

But it’s not just sustainability that stands to benefit from introducing ESG education into the supply chain.

According to the International Labour Organization, 16 million people are exploited in corporate supply chains. Corruption, counterfeiting, and other governance issues also detract from supply chain ethics and cause harm. Combined with the pressing need for a sustainability push, the case for an ESG overhaul of value chains is undeniable.

As well as the ethical issues at play, applying ESG education can unlock financial and reputational gains for a company. Once proficient, ESG leaders can pass along their knowledge to suppliers to help them improve, in turn, upon their own practices. This reduces the emissions of a company's wider value chain and improves its social impact.

Regulatory evolutions

Existing and upcoming regulatory requirements provide additional impetus for senior business leaders to quickly rethink their approach to value chain management.

The European Union’s Non-Financial Reporting Directive already requires mandatory sustainability reporting for large companies, and the European Commission — the executive arm of the bloc — is expected to release additional sustainable corporate governance legislation shortly.

The United States Securities and Exchange Commission (SEC) is not far behind. It is expected to follow suit this year with its own climate risk disclosure requirements.

These rules add a new layer to value chain risk and compliance, requiring companies to integrate sustainability into their supply chain strategy and operations practices. ESG education will be key to ensuring regulatory requirements are met.

Loading...

Leveraging ESG education

There are countless possibilities for applying ESG education to procurement and supply chain management. Here are just a few examples of how ESG knowledge can improve business performance.

Environmental: Optimize resource utilization

The ESG mindset helps leadership to think about the supply chain in a new way. Instead of a linear process with waste and negative externalities, viewing the value chain as an interactive ecosystem can help companies reuse instead of lose materials and resources.

Take water, for example. It is a key resource in food and beverage, manufacturing, textile, and other industries. ESG-educated professionals are more equipped to develop metrics to capture key data points surrounding water use, wastage, and pollution. They can use this knowledge to identify key stages in the product lifecycle where water use can be reduced, water can be recycled, or water quality can be improved.

These changes can add up to big savings for companies, while benefiting the health of the community and conserving a valuable resource to boot.

Social: Improve working conditions and brand reputation

"Expertise in human rights compliance is a must for holistic supply chain management".

Teresa Russell, SCERTIFY

Monitoring the social conditions of workers throughout the supply chain is a complex but necessary task. Companies are increasingly coming under fire for the presence of forced labor in their supply chains, even for second and third-tier suppliers. Because of this, expertise in human rights compliance is a must for holistic supply chain management.

Supply chain professionals with knowledge about social issues in the supply chain can develop better protocols for monitoring and auditing suppliers to create more effective remediation plans. These practices are critical to maintaining brand reputation, reducing legal risks, and improving working conditions across the board.

Governance: Prevent counterfeiting

Counterfeit items also present significant legal and reputational risks. Businesses can find themselves the victim of counterfeiting when another company falsely sells products to them or under their brand name.

Procurement teams must be educated on counterfeiting — both how to spot it and how to handle it — to mitigate these risks.

Capable, ESG-educated professionals understand the correlation between corruption, counterfeiting, and other governance issues. They can best identify high-risk products and help develop policies to identify and manage counterfeiting situations related to sourcing and the supply chain.

Discover

How is the Forum helping to navigate global value chain disruption?

ESG-oriented supply chain management entails establishing a chain of custody that documents a product’s movement throughout the value chain, ensuring the authenticity of products at every stage. It also requries collaboration with suppliers; educating suppliers on this and other governance issues also reduces the risk of counterfeiting occurring.

The value of ESG education cannot be understated. Professionals with these tools and skills will outperform their peers and capture greater value in the supply chain. ESG-educated leaders are what businesses and the world need to lead in the transition to a sustainable society.

Loading...
Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
ESGSupply Chain and Transport
Share:
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

How to move beyond the anti-ESG backlash

Claire Skinner

November 28, 2023

About Us

Events

Media

Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum