How To Improve ESG With Increased Supply Chain Visibility
Technology in the supply chain is boosting the sector’s ESG credentials while giving investors more reasons to take notice.
Among other social issues, climate change awareness has increased significantly in circles of investors, and institutions are taking notice. Indeed, the extent to which a company is recognised for its environmental, social and corporate governance (ESG) has emerged in recent years as a key criterion for investment, and this is clearly more than a fleeting trend. Today, sustainable investing, also known as ESG investing, is a significant market force.
As a result, institutions have begun implementing ESG goals in their portfolios. While these goals have rendered previously profitable investment sectors no-go zones (tobacco, fossil fuels), new sectors are emerging as potentially lucrative hotspots.
One of these sectors is the supply chain. Massive investment in supply chain visibility has increased efficiency. A side-effect of this investment has been greater control over emissions. Coupled with reduced waste and the potential for greater emission controls, investors stand to gain significantly.
Here’s how supply chain visibility can help you achieve your ESG and broader portfolio goals.
A better understanding of scope 2 and 3 emissions
The supply chain world is a complex one, with multiple entities interacting to produce results. This web of interdependencies makes tracking emissions a tough task. For instance, a manufacturer might use sustainable raw materials and environmentally-friendly production techniques. Yet, if its logistics partners rely on unsustainable sources of energy, the manufacturer’s ESG efforts are moot.
Traditional reporting has targeted Scope 1 or direct emissions. These days, ESG guidelines prescribe measuring Scope 2 and 3 emissions created by indirect consumption. For instance, emissions generated through the purchase of utilities such as electricity and water fall under Scope 2. Emissions generated in a company’s value chain (such as last-mile emissions) are considered part of Scope 3.
Data visibility in the supply chain is a function of interconnected systems. A logistics company’s technical infrastructure integrates with a manufacturer’s, allowing everyone access to shipment information relating to locations and conditions. As a result, manufacturers can measure delivery time and track emissions generated per delivery.
Insight into these datasets gives stakeholders a chance to plug ESG leaks. For instance, how well are vendors performing? Are they adhering to ESG guidelines or greenwashing performance? Data allows stakeholders to educate their partners and prioritise ESG goals while maintaining margins, thereby increasing their firm’s attractiveness to investors.
Revisiting product recyclability concepts
Sustainable consumption is becoming an important value among shoppers. As fast fashion companies are increasingly discovering, consumers are not afraid of voting with their wallets. The food and healthcare sectors have felt this impact as well, as moves towards local produce and vegan lifestyles attest.
Manufacturers can leverage supply chain data to understand consumer needs and design reusable products. Data relating to product returns, purchase frequencies, and product damages provide stakeholders with key information regarding product lifecycles.
In the past, manufacturers maximised profits by creating fragile products that would inevitably need replacing within a few years. However, as consumer behaviour changes, this manufacturing trend will likely be replaced by a move towards longer-lasting goods.
Multiple supply chain datasets generated via condition monitoring, inventory, manufacturing line IoT instruments, and customer returns help manufacturers understand their products’ lifecycles so they can curb waste. Greater visibility also gives manufacturers insight into the impact green materials have on their sales.
By developing interconnected systems, manufacturers can correlate the use of sustainable materials with retail sales and returns. Powerful analytics platforms can detect changes in consumer preferences as they occur, helping manufacturers redesign their processes as needed.
Supply chain visibility data can also be passed on to consumers, offering them ESG validation. For instance, medical packaging in the EU comes with a QR code that gives customer information on product sources and ingredients. Similar moves in retail and food are underway, giving companies the ability to use ESG as an edge in the markets.
Better routes for freight and last miles
Delivery route design is an intricate process, with logistics companies balancing several variables. For instance, vehicle capacity, technology, weather, geopolitical conditions, and infrastructure en route are a few variables that need balancing. They’re also under tremendous market pressure to deliver products on time and in optimal condition.
It’s easy to believe that ESG will take a backseat, given these variables. However, supply chain visibility data naturally boosts ESG by reducing waste in the delivery chain. For instance, optimal route design automatically reduces waste caused by improper storage and good handling.
Automated alerts generated by IoT devices attached to shipments prevent goods from falling out of ideal conditions while in transit. These datasets also reveal the state of infrastructure along delivery routes, allowing companies easy route evaluation.
Given the sophisticated nature of these models, adding a layer of ESG-related goals is relatively straightforward. For instance, designing routes with fewer emissions while balancing other variables is simple thanks to advanced technology such as smart contracts and AI.
Sophisticated route modelling techniques also allow stakeholders to model deliveries before executing them. Thus, emissions and related ESG data can be projected in the scenario planning phase. Any deviations from these expected levels can be examined and addressed to create even more efficient systems.
Better visibility, more sustainability
Visibility data is giving supply chain stakeholders the chance to create efficient processes. A direct result of these efforts is better net margins thanks to reduced costs and waste. Investors stand to gain significantly from these advances while meeting their portfolios’ ESG goals.