Smarter procurement and sustainability

Jarrod McAdoo at Ivalua discusses how a smarter approach to procurement will be key in meeting sustainability requirements amid mounting legislation

 

In an increasingly complex world, the pressure to comply with sustainability legislation is reaching critical levels.

 

Organisations working with legal entities in the EU are preparing for the EU’s Corporate Sustainability Reporting Directive (CSRD). Despite a two-year delay, organisations are already preparing so they can meet CSRD’s requirements ahead of its implementation. The CSRD requires organisations to disclose ESG matters, increasing corporate transparency and Scope 3 responsibility. 

 

Additionally, an EU regulation on deforestation-free products will come into force from the 30th December 2024, and affect any company that sells or exports the relevant commodities and products to or from the EU market, as well as companies who trade these products. Non-compliance could result in fines of up to 4% of turnover, and the confiscation of products.

 

The EU has also legislated for the introduction of digital product passports – a digital record of product origins, the materials used to make it, and its recyclability – from 2027, in a bid to curb unsustainability in supply chains. These will be aimed at helping consumers make informed choices based on a product’s history and its environmental impact. Meanwhile, the Competition and Markets Authority (CMA) has developed the Green Claims Code to check that environmental claims are genuinely green, setting out six points for consumers to look for when considering a purchase. 

 

Against mounting supply chain regulations, it’s more important than ever for UK businesses to renew their focus on ESG. 

 

The crackdown on greenwashing

To alleviate pressure and demonstrate their commitment to sustainability, organisations have been seeking to increase transparency by sharing their progress and highlighting sustainable product lines. But as they manage increasingly complex supply chains, organisations can open themselves up to accusations of greenwashing and regulatory fines if suppliers further down the value chain are not operating sustainably.

 

But with large organisations dealing with as many as 50,000 suppliers across hundreds of different regions, it’s extremely difficult to accurately track suppliers’ green practices, especially beyond tier 1 and 2 suppliers. Many organisations struggle to gain visibility into Scope 3 emissions, which on average are responsible for around 75% of total emissions. This leaves organisations wide open to unintentional greenwashing and regulatory fines unless they make a change.

 

On the other hand, organisations may try to avoid talking about their green practices to avoid being placed under the microscope –  this is being described as ‘Greenhushing’.

 

This occurs when organisations don’t actively report on green initiatives to evade scrutiny. They may decide to remove green claims to protect themselves, reducing the risk of unwanted questioning on the legitimacy of their internal ESG practices. This is especially true for those organisations without visibility into complex supply chains.

 

However, this is not a workable approach. Customers want to buy from sustainable brands, so organisations are vulnerable to losing market share if they can’t provide truly sustainable goods. Customer trust and loyalty are also at stake: more than 80% of UK customers claim they will boycott apparel brands that do not prioritise ESG by 2025.

 

So how do organisations find the right balance?

 

Supply chain transparency and sustainability

Organisations must ensure they can back their green claims up, or risk being caught up in scandals and customer boycotts. This reputational damage can incur astronomical costs, whether it’s through legal battles, loss of customers, or a dip in share price.

 

To reduce the risk of unintentional greenwashing and regulatory repercussions, organisations must adopt a smarter approach to procurement that helps to carefully select suppliers, assess their environmental impact, and identify opportunities to work with suppliers to meet sustainability requirements.

 

This means getting granular visibility into supply chains to ensure organisations can measure the environmental impact of suppliers and sub-tier suppliers. Closely monitoring supplier risk and performance, and tying these to actual business decisions is key.

 

Investing in tools that facilitate strategic collaboration with suppliers will help to verify actual product emissions, define improvement plans to reduce emissions, and accurately track and report progress. This will enable organisations to share meaningful developments on their sustainability journeys and avoid accusations of greenwashing or greenhushing.

 

What’s more, improved supply chain transparency will help organisations work more closely with suppliers in the future on sustainable initiatives. All while facilitating long-term cost savings and ensuring that green products don’t eat into thin margins.

 

Practising what you preach

With rising customer expectations, and growing pressures from regulators, organisations must implement sustainable practices across their entire supply chain - ensuring suppliers are minimising their environmental impact.

 

Organisations themselves have been keen to increase transparency by sharing their progress and highlighting sustainable product lines, to reduce pressure and demonstrate their commitment to ESG. But as organisations manage increasingly complex supply chains, they can also open themselves up to accusations of greenwashing and regulatory fines if their sub-tier suppliers further down the value chain aren’t doing their part.

 

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Jarrod McAdoo is Director of Product at Ivalua 

 

Main image courtesy of iStockPhoto.com and Khanchit Khirisutchalual