Responsible Sourcing to Cut Scope 3 Emissions in Supply Chain

In a 2021 survey by MIT and the Council of Supply Chain Management Professionals, 59% of respondents said their companies had invested in increasing sustainability of their supply chains. 

For businesses producing goods, their supply chains generally have a significant negative impact and related costs on the society and environment. The supply chains are responsible for the bulk of greenhouse gas emissions, also referred to as Scope 3 emissions. 

Realising the negative sustainability issues occurring from their supply chains, organizations have started working with their supply chain teams and suppliers to incorporate ethical and responsible sourcing to manage and reduce these impacts to become true net-zero emitters.

What is Responsible Sourcing? 

According to the International Chamber of Commerce (ICC), responsible sourcing, also referred to as supply chain responsibility, is a voluntary commitment by companies to take into account social and environmental considerations when managing their relationships with suppliers. 

Responsible sourcing in supply chains thus means that an organization and its suppliers operate their businesses and supply chains without negatively affecting the environment and society.

Examples of Responsible Sourcing  

A large retailer, for example, sources the goods only from those suppliers using the company's sustainability index. On the retailer's e-commerce site, suppliers with higher sustainability index scores have their products tagged with the label ‘Made by sustainability leaders’, giving them greater visibility.

Key Factors Involved in Responsible Sourcing 

Businesses considering sustainability initiatives need to focus on identifying a purpose for a responsible sourcing strategy that is aligned with their vision and sustainable objectives. 

Once this is completed, the responsible sourcing business may consider adopting the following strategic factors for ensuring a successful, responsible sourcing program:

•  Intensive dialogue and collaboration 

A baseline has to be set with the available data for specific categories – safety, health, environment, social, governance (regulatory compliance) and fair trade, leading to a set target that is to be achieved by the sourcing ecosystem. An intensive engagement with Tier 1 supplier is preferable, as trying to roll out the program to all suppliers would be cumbersome and inefficient. 

One-on-one collaboration with the suppliers is essential to convince them of the need to adopt sustainable practices for improving overall business growth.

•  Robust risk management & compliance approach 

Internal stakeholders could adopt a general framework on spend categories across the responsible sourcing business basis sustainable risks, their compliance and the value associated. 

As part of this framework, the business has to set up sourcing policies aligned with its sustainable objectives for developing the criteria and the metrics for selecting suppliers. 

By adopting these measures, companies can observe how compliant their suppliers are by evaluating their sustainability performance and the risks of the suppliers entering into lucrative contracts with them. 

•  Fair business practices 

Fair business practices promote the fair treatment of all the internal and external stakeholders involved in an enterprise's extended value chain. Practising fair trade also involves:

• Adopting ethically responsible ways of operating the business
• Employee engagement – ensure fair worker compensation open and transparent work culture, amongst others 
• Supplier and partner engagements – promote diversity and minority- and women-owned businesses
• Community engagement

Importance of Responsible Sourcing in Supply Chains 

Traditionally, procurement organizations have always oriented toward cutting costs in the buying process by adopting measures detrimental to ESG standards. 

However, due to public opinion and government regulations, today's organizations have embraced ethical and responsible sourcing practices based on safety, quality, innovation and social and environment, instead of just focus on spend management.

•  ESG-based investments 

Organizations with good ESG metrics have higher returns with lower risk exposure on investment. Such organizations tend to be respected for their integrity and openness, higher efficiency, and better risk handling capability, thus becoming a benchmark for attracting market investments.

•  Build a sustainable supply chain 

Identify a set of ESG concerns and collaborate with Tier 1 supplier to reduce carbon footprint at points where emissions are higher than the established norms across the supply chain.

•  Reducing operational costs 

Enterprises can reduce their operational costs  and greenhouse gas emissions at source by evaluating the costs and carbon footprint for every part and manufacturing step in making a product.

•  Ensure brand reputation 

In a survey by the International Trade Centre (ITC) of European retailers, 85% saw an increase in sales of sustainable products in the last five years, and 92% expected it to increase further in the next five years.

Thus, more and more consumers are demanding sustainable products pushing businesses to prioritise ESG goals and provide complete visibility into their supply chain activities to ensure increased brand reputation.

Benefits of Responsible Sourcing 

Here are a few ways how adopting ethical and responsible sourcing benefits the enterprise besides the social impact of helping the community and environment:

• Promotes transparency and accountability
• Enables long-term profitability and thriving of the business
• Increases overall efficiency and cost savings
• Enhances brand image and shareholder value
• Retains competitive advantage and increases market share
• Promotes better supplier relationships resulting in innovations and supply chain resiliency

Conclusion 

With the dawn of supply chain sustainability , more and more businesses realize how their business activities and supply chains negatively affect the society and environment. Companies also realize that poor sustainability management practices can negatively affect their brand, growth and profitability. 

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