It’s no longer enough to track their own internal ESG metrics. Businesses are turning to an array of mechanisms to track sustainability throughout the supply chain.

In the critical race to combat climate change, sustainable supply chains are a key business imperative. Consider that companies generate more than two-thirds of the planet’s emissions. And by some calculations, it’s their supply chains that are responsible for more than 90% of these emissions.

However, creating a net-zero value chain is a complex process requiring transparency, data-sharing and collaboration. The good news is, more organizations are now taking on the hard work of tracking, reducing and reporting on the environmental impact of their supply chain.

(For a full description of the net zero era and a field guide to navigating it, see our report “The Future of Us.”)

Why now

Environmental, social and governance (ESG) issues have become business priorities, and global supply chains sit at the heart of them. According to global disclosure organization CDP, environmental risk in supply chains could cost businesses globally up to US$120 billion within five years. CDP further estimates that a business’s supply chain emissions are 11.4 times greater than their own direct operations.

Environmentally conscious consumers are driving change by demanding more transparency about the impact of organizations’ supply chains. In a study by Carbon Trust, two-thirds of global consumers are more likely to think positively about a brand that can demonstrate it has lowered the carbon footprint of its products. Today, consumers want to know everything from the supply chain lineage of their clothes, to the ingredients in their perfume.

As a result, one-fifth of the world’s largest companies have committed to meeting net zero targets, but these pledges are nothing unless acted upon. Companies need to build responsible supply chains that address emissions, circularity and trust—and, by doing so, unlock wide-ranging business benefits, from improved operational performance to enhanced brand image.

What to look for

Facing heat from consumers, investors and regulators, companies are beginning to ask their suppliers to provide climate impact data and improve their carbon footprints.

Tesco, for example, has called on its suppliers to share greenhouse gas data and target net zero, and Walmart has developed sustainable supply chain goals and tools to improve its suppliers’ sustainability. Intelligent tools such as Sourceful are also providing companies with a global network of responsible and closely monitored suppliers.

By digitizing the supply chain with analytics, digital twins, IoT and AI, companies can make their supply chains more transparent, all the way downstream and right into the hands of consumers. Colgate Palmolive, for example, is using data analytics across its value chain to test and reshape the way customers use its products, with innovations in bio-degradable packaging and swapping out synthetic plastics for natural materials, all targeted to improve the environmental footprint of each product.

Analytics can also help businesses bring transparency to the raw materials used in their products. Google and World Wildlife Fund Sweden have created an environmental data tracking platform that will score a range of raw materials on water use, air pollution and waste generation, referencing each step in the textile supply chain.

Digital twin technology has a strong potential to embed sustainability across the supply chain. For example, companies can create a digital twin of their supply network that optimizes cost and customer service levels while simultaneously analyzing its carbon footprint, which would ensure they meet their sustainability targets while delivering business benefits.

The ability to virtualize supply chains through digital twins could also aid the emerging philosophy of “design for sustainability.” For example, when applied to packaging, digital twins can simulate package shapes and materials in order to test for defects before deploying them, which reduces both financial and environmental cost.

IoT, meanwhile, can provide companies with a real-time overview of exactly how their facility or asset is performing. Shipping giant Maersk Line, for example, built an infrastructure of sensors and mobile and satellite communication technology to monitor its fleet of 300,000 refrigerated produce containers. The increased transparency of container conditions led to a decrease in necessary inspections, resulting in both lower operational costs and reduced CO2 emissions.

AI will be crucial for companies to bring supply and demand together. Workforce planning, supplier selection, route analysis, optimization and many other processes can be made real-time with AI and machine learning. McDonald’s is using AI to optimize its supply chain. The AI system cross-references data from all over the McDonald's supply chain network and suggests items that will maximize profit and customer satisfaction while making the best use of available stocks.

How to prepare

With clear product labelling, businesses can start to meet consumer demand for data that helps with their sustainable purchasing decisions. Skincare brand Cocokind stamps each of its products with a label that outlines its environmental impact, from sourcing through disposal.

Businesses can also use blockchain to shift the focus from their internal operations to their entire supply chain. All supply chain partners joining the blockchain will have visibility into how products and materials are sourced, shipped, processed and distributed. A top beverage manufacturer, AB InBev, is using blockchain to track the handling of key ingredients throughout the supply chain. This has created a tamper-proof digital audit trail to ensure environmental standards are maintained, and to improve the use of natural resources.

Another big issue businesses will need to address is governance: Who owns the sustainable supply chain? Is it the responsibility of the sourcing team to find sustainable suppliers? Or is it the logistics team's job to ensure that goods are transported sustainably? Or is it the IT department that is managing data needed for sustainability?

The answer is probably all of these groups, as sustainability is an essential consideration at every stage of the supply chain. A clear governance mechanism will help companies achieve their sustainable supply chain goals holistically.

In short, collaboration will be essential to combating climate change, and we’ll see more groups forming to do just that. In Europe, for example, automotive network Catena-X is fostering uniform standards for the secure and transparent exchange of data and information among European auto manufacturers, suppliers, dealers and software and equipment providers.

The time has passed for supply chains to follow an ”inside-out” operating model that focuses on increasing operational efficiency and reducing cost. An ”outside-in” approach will shape tomorrow’s supply chains: continuously working with trade partners, and adapting and evolving with digital at the core to meet changing customer demand.

For our full report, read “The Future of Us.”

This article was written by Euan Davis, AVP at Cognizant Research.