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Green supply chain management

What is green supply chain management and why is it important?

Green supply chain management (GSCM) involves integrating environmental considerations into the traditional supply chain management.  But it doesn’t stop there. Social factors, such as guarding against child labor, and economic issues, such as paying a living wage, are also crucial.

In delivering on sustainability commitments for its supply chain, a company needs to consider:

  • carbon emissions and footprints
  • water and chemical use
  • labor conditions and
  • health and safety
  • the use of natural resources
  • waste

A sustainable supply chain is one that takes economic, environmental and social factors into account when making procurement decisions and can deliver what is known as the Triple Bottom (TBL) line of profits, people and planet.

Rather then just attempting to mitigate the impacts of the supply chain, GSCM involves driving value creation. Business goals are simultaneously aimed at maximizing profits and social impact, while at the same time minimizing negative s and, in some cases, such as regenerative agriculture, creating a positive change.

The approach requires a high degree of collaboration, transparency and integration along the whole supply chain.

Green supply chain management is important because businesses are under increasing pressure from a whole range of stakeholders to avoid any negative environmental and social impacts from their actions. This includes growing levels of government legislation and regulation, like the upcoming EU regulation on Due Diligence and deforestation or current regulations on Chemical use, waste, and climate change.

But greening a supply chain isn’t just reactive. It can also increase efficiency and reduce costs, help companies to enter new markets, and make them more resilient to disruption caused by climate change or pandemics.

What is green supply chain management and why is it important?

Green supply chain management (GSCM) involves integrating environmental considerations into the traditional supply chain management.  But it doesn’t stop there. Social factors, such as guarding against child labor, and economic issues, such as paying a living wage, are also crucial.

In delivering on sustainability commitments for its supply chain, a company needs to consider:

  • carbon emissions and footprints
  • water and chemical use
  • labor conditions and
  • health and safety
  • the use of natural resources
  • waste

A sustainable supply chain is one that takes economic, environmental and social factors into account when making procurement decisions and can deliver what is known as the Triple Bottom (TBL) line of profits, people and planet.

Rather then just attempting to mitigate the impacts of the supply chain, GSCM involves driving value creation. Business goals are simultaneously aimed at maximizing profits and social impact, while at the same time minimizing negative s and, in some cases, such as regenerative agriculture, creating a positive change.

The approach requires a high degree of collaboration, transparency and integration along the whole supply chain.

Green supply chain management is important because businesses are under increasing pressure from a whole range of stakeholders to avoid any negative environmental and social impacts from their actions. This includes growing levels of government legislation and regulation, like the upcoming EU regulation on Due Diligence and deforestation or current regulations on Chemical use, waste, and climate change.

But greening a supply chain isn’t just reactive. It can also increase efficiency and reduce costs, help companies to enter new markets, and make them more resilient to disruption caused by climate change or pandemics.

Reason 1: Reducing your carbon footprint

While the natural starting place for companies looking to become more sustainable is their own operations,

In in its 2020 report Changing the Chain, CDP estimates that a company’s supply chain produces 5.5 times as many greenhouse gas emissions as its own operations. Cutting these so-called Scope 3 emissions is one of the primary goals of green supply chain management.

But while reducing impacts beyond a company’s direct control poses challenges, it also provides opportunities to work with suppliers and multiply positive environmental impacts.

Reason 2: Protection from risk

A sustainable supply chain can help protect a business from risk.

Introducing sustainability to a supply chain requires transparency, communication and a thorough understanding of your suppliers and the risks they are exposed to. C For instance, choosing a supplier that uses recycled rather than virgin raw materials reduces the risks associated with the decline of natural resources.

By carrying out due diligence checks on suppliers, and adopting protocols such as the UN Guiding Principles on Human Rights, companies can help to guard against human rights violations in the supply chain.

However, understanding and managing the risk in your supply chain should not mean changing the riskier suppliers or sourcing areas. True sustainability frontrunners will engage in the riskiest areas of their supply chain to help raising the bar. This may include collaboration with other peers, with NGOs or Governments – and this is the difficult part. On this regard, SourceUp offers a framework that companies and other stakeholders can use in order to start this collaboration at the landscape level.

Reason 3: Protecting natural resources

Failure to adapt and adjust unsustainable business practices and take a more proactive stance to protecting natural resources, will have major environmental consequences. It will also have a huge and negative impact on companies that rely on a supply of critical natural resources to produce their products. Environmental changes brought about by climate change may affect the availability of materials and resources, posing potential disruptions to supply chains.

Reason 4: Protecting Biodiversity

The loss of habitat and biodiversity will have a major effect on businesses with agricultural supply chains too, threatening both current operations and future opportunities.

As a result, companies such as Unilever, Danone, and L’Oréal have taken decisive steps to restore biodiversity in agricultural supply chains. Priorities include fostering regenerative practices, reviving high-value ecosystems, and increasing the diversity of raw materials in their product portfolios.

Unilever have also committed to investing €1 billion in a new dedicated Climate and Nature Fund, which the company will use to pursue projects on landscape restoration, reforestation, carbon sequestration, wildlife protection and water preservation.

However, the leverage of individual companies is diluted in the farthest points of the chain – e.g., smallholder farms in tropical regions. There, companies will need to work with other buyers and organizations – not necessarily in the same sector, to achieve a critical mass that would allow the effective implementation of responsible sourcing practices. In these places, the efforts should be targeting entire sourcing regions – as the environmental and social impact happens at regional level, rather than individual farms.

By using SourceUp, companies can search for multi-stakeholder initiatives working at the landscape level in their key sourcing regions. By collaborating with these initiatives, companies will ensure their projects are aligned with the efforts of local stakeholders, increasing its legitimacy and effectiveness.

Moreover, and as we said earlier, SourceUp also offers an approach that can be used by companies to start landscape initiatives in relevant sourcing regions and – with the help of local stakeholders- become Verified Sourcing Areas. In fact, key to this approach is that it encourages both responsible sourcing but also sustainable development at scale by linking buyers with coalition of regional farmers and producers, that operate sustainability.

Benefits of green supply chain management

Benefit 1: Winning new business

By going beyond simply complying with sustainability legislation, you can set your business apart from competitors. Word about your sustainability efforts will spread, attracting and retaining more workers, customers or clients.

Demonstrating social value can also be a major boost when tendering for public contracts, which often use processes that place a huge emphasis on social value.

Benefit 2: Finding and retaining staff

Strong sustainability credentials can help to both recruit new, socially and environmentally aware staff, as well as retain existing talent.  A sense of purpose and clear goals, which resonate with staff on a personal level, can be hugely motivational.

Benefit 3: Protecting your reputation

With the growth of social media, and ever more vigilant NGOs and media organizations, managing the risk of reputational damage has never been more important.

A strong green supply chain strategy can help to avoid this.

As Sonya Bhonsle, global head of CDP’s Supply Chain program, says: “If your suppliers are doing things that are seen by the media or activist NGOs to harm environmental or social aspects of communities, they’ll hold you accountable.”

Benefit 4: Cutting waste, saving money

Creating a sustainable supply chain needn’t cost money. In fact, the opposite is true, with changes and refinements to the way in which your supply chain operates often saving money and improving profitability.

Simple steps such as switching to less energy intensive equipment or recycling and re-using waste rather than paying landfill fees, can cut costs. Non-compliance, on the other hand, can lead to fines and legal fees.

Benefit 5: Improve business resilience

A business that adopts green supply chain management practices is more flexible and more quickly able to adapt to challenges, as it has more information on its suppliers, sourcing areas and so on. This in turn  helps to ensure resiliency to supply chain disruptions.

Components of green supply chain management

There are no hard and fast rules, no one size fits all approach, when it comes to what makes up a green supply chain. They differ by industry, sector, commodity and business model, and each will have its own potential impacts.

However, there are a few key components that are included in almost every model.

Component 1: Ethical sourcing

Ethical or responsible sourcing is it a key component of green supply chain management and focuses on human rights, and both the social and environmental impacts of how something is sourced. For instance, businesses need to consider factors such as paying a living wage, the provisions  of safe and clean working conditions, and the wider impact of their operations on surrounding communities – land grabbing, water pollution. Important environmental considerations such as deforestation fall within this category.  

Component 2: Green product design

Sustainable product design involves ideas such as using cleaner processes and more environmentally friendly raw materials and components. This can help to reduce the ecological impact of a product during its life.

It includes concepts such as Design for the Environment (DfE), an approach that encourages sustainability and can lower the environmental impact of new products at the design stage. Through DfE, companies evaluate the products they are developing, applying environmental criteria to resource selection, manufacturing, packaging, and end-of-life disposal.

Green design also supports the reusing, recycling, and remanufacturing of products, which helps firms to improve their environmental performance and provides opportunity to reduce their costs.

Companies can make use of tools and methodologies such as Life Cycle Assessments (LCAs) to compare the environmental and social impact of different production processes.

Component 3: Supplier Code of Conduct

An increasing number of companies are introducing a Supplier Code of Conduct as a way of ensuring that they are partnering with businesses which share their ambitions around sustainability. A code can help to reduce supply chain risk, improve brand image and ensure ethical working conditions across the supply chain. To be effective, however, it must be a two-way relationship, and collaboration with suppliers is vital to help ensure they live up to the code.

In that sense, the use of codes of conduct without responsible purchasing practices can become an abuse of companies at the top of the chain – an abuse that will reach the lower tiers and less empowered actors of it like smallholders.

Component 4: Close the Loop

Circularity is a growing element of the sustainable supply chain, especially as the environmental and social impacts of producing and collecting raw materials increase, along with their potential costs and the volatility of their availability.

Most supply chains begin with materials, which are shipped to the manufacturer. The resulting products will then be shipped to distribution centres, and then on to the final destination. Once their product lifetime is reached, the products often end up as waste.

The circular supply chain seeks to reduce that waste, or even eliminate it, by connecting and adding in two new steps: , and sending them back to the manufacturer for reuse.

This links to the idea of Reverse Logistics, with companies taking back old products from their customers to recycle and repurpose them.

An important area of the circular economy is how companies can recover the raw materials from products that have already been sold – or the products themselves. This has been translated in Extended Producer Responsibility (EPR) policies that are being applied in countries such as the EU.

Component 5: Greening transport

Transport and logistics are also a places where greenhouse gas emissions savings can be found in the supply chain.

The fuel that powers a fleet is also a growing area of considerations, especially ways in which to avoid and reduce tail pipe emissions. As battery technology continues to improve, and a fit-for-purpose charging infrastructure grows, electric vehicles have an increasing role to play. Vehicles powered by hydrogen fuel cells are also being developed, while other companies such MacDonald’s are thinking outside the box by running trucks on bio-diesel created from old cooking oil from their restaurants.

Video: https://www.youtube.com/watch?v=pHB7RPZkvfc

Other consideration include more aerodynamic design and avoiding so-called empty miles, and looking at ways of making return journeys more efficient, can also deliver savings.

Green warehousing, which uses features such as advance energy management and LED lighting, can also help to reduce a supply chains carbon footprint.

How to implement green supply chain strategies

There is no right or wrong, or a predefined set of steps that companies should take to implement Green Supply Chain principles. Below there is a set of actions that are proposed to initiate the journey.

  1. Understand your opportunities and options for risk reduction

Assess the environmental and social impact of your current supply chain in the regions in which you operate or from where you source. This can provide insights into opportunities for risk reduction in your supply chain practices. A scoping report can identify the sourcing regions where sustainable regional development can deliver the highest . A first step in this is to understand where your products come from and map your entire supply chain, which can be complex and time consuming.

  1. Develop your strategy and set sustainability goals

Allocate resources to create or revise your corporate strategic plan to incorporate sustainability in the supply chain. Perform dynamic materiality analysis involving internal and some external stakeholders will help you to define a relevant and sound agenda, while allowing a sense of ownership by these stakeholders.

  1. Partner up with the industry and public partners

Using platforms such as SourceUp to convene market partners at a jurisdictional level in several countries. For impact on sourcing areas, you can engage with industry networks and coalitions, or source commodities from areas with landscape initiatives in place.

  1. Co-create or co-invest in innovative business models

First, you can invest in activities within your supply chain that add value to the product and to the place where raw materials are being produced. Furthermore, you can work with other sustainability leaders to develop high-risk innovative business models with ecological benefits. In SourceUp, companies can find relevant projects in key sourcing areas where local coalitions are involved in pursuing the same vision.

  1. Monitor and report

are key to the credibility and comparability of corporate sustainability efforts. The SourceUp platform can help you to start monitoring and reporting on your supply chain’s sustainability performance in regions where data is difficult to gather. For instance, in the south-west Mau Forest in Kenya, a Coalition led by IDH helped to bring together all the key stakeholders to begin regular monitoring of the forest, helping to end illegal activities and restore huge areas of degraded forest.

Step 1: Identify sustainability issues within the supply chain

It is important to analyse your entire supply chain, break it down into its various elements, and identify potential areas for improvement. Until you identify the sustainability problems in your supply chain, you cannot begin to work with your suppliers on solving those problems.

Step 2: Commitment needs to come from the top

An organization’s commitment to sustainability needs to come from the top; it needs to be seen as a boardroom topic. As the UN Global Compact website says: “If the chief executive sees the supply chain as an extension of their workforce and community, the company can set expectations for best practices across its supply chain.”

Commitment to an over-arching target, such as the Science Based Targets Initiative, can also help create buy-in across an organization.

Step 3: Know your suppliers

Identifying critical issues across the supply chain, such as child labor and chemical use, is challenging if you don’t have visibility of who supplies your suppliers

An increasing number of companies are introducing pre-qualification surveys or supplier scorecards to assess whether a supplier shares their approach to sustainability. It typically covers areas such as their environmental management and buying practices, and whether they are compliant with all the relevant regulations.

It is important to explain to suppliers what you are trying to achieve, and the role that they can play. This can also involve providing them with training, advice and technology to improve their own operations and introduce alternative, sustainable practices or products.

Step 4: Procurement teams have a key role to play

Collaboration between sustainability and procurement professionals in an organization is crucial for a successful supplier engagement program. Procurement teams must make sustainability a decisive factor in evaluating suppliers, ensuring that it ranks equally with cost and quality. This involves working with suppliers, helping them understand their impacts and actively helping them to take action. It is also important to cascade information all the way down to lower-tier suppliers, and not just concentrate on Tier 1 and 2.

Step 5: Incentivise your suppliers

Rewarding suppliers that work to improve their own sustainability is seen as a good way to incentivise best practice.

For instance, companies that use Walmart’s Sustainability Index, which involves completing a supplier-sustainability scorecard, have their products tagged as “made by Sustainability Leaders,” on the Walmart website, giving them an incentive to participate.

Step 6: Collaboration is key

It is widely accepted that talking to and collaborating with suppliers is the key to a truly sustainable supply chain. Companies cannot fight issues such as poor labor or environmental practices alone – it is important to engage in activities that promote sustainability collectively.

Collaboration is the cornerstone for SourceUp’s landscapes approach, which brings together all the key stakeholders across an area and helps to improve the sustainability of commodities that are entering the supply chain. This approach takes in a range of social and environmental considerations, from developing regenerative farming techniques to paying a living wage.

For instance, the Explore Sourcing Area of the SourceUp website allows you to search for collaborative partners around separate commodities, locations and sustainability goals.

Step 7: Embrace technology

Technology such as artificial intelligence, blockchain and the Internet of Things is playing an increasingly important role in supply chain sustainability. Smart technology can help to improve environmental stewardship, reduce damage and ensure the sourcing, manufacturing and distribution of products is carried out in a sustainable way.

Step 8: Set measurable goals

Companies will only achieve their own sustainability goals if they set similar high targets for their suppliers, and then monitor their performance. Supply chain transparency is critical and a growing number of businesses are now able to help companies to track social and environmental issues across their supply chain.

Many companies have a set procedure for dealing with those companies that fail to meet standards. This often begins with attempts to change bad practices with support and advice but may end with censure and contract removal for those that fail to change.

Step 9:  Keep monitoring, keep disclosing

More and more businesses are asking their suppliers to volunteer information about their business and who supplies them. As a recent  CDP report shows, some of  the world’s largest companies, including Diageo, Walmart and the Kelloggs, are using disclosure to push positive change down the supply chain. This has the effect of speeding up  the rapid transition to a sustainable, low-carbon economy.

Unilever, for instance, uses a free software tool to collect data from farmers in their supply chain to assess their sustainability of their practices, with the goal of maintaining a supply chain that procures 100% of its agricultural content from sustainable sources.

This video from CDP further illustrates this point.

Sustainability standards and programs

In terms of traceability, transparency and supply chain provenance, independent third-party validation can help to underpin brand credibility and mitigate risk.

There are a number of standards that address different aspect of developing and managing a green supply chain.

As Ruth Rennie, director of standards and assurance at the Rainforest Alliance says: “Sustainability standards and certification focus businesses on necessary actions and measurable requirements. This key data on risks and performance, updated through regular verification, is critical for businesses to constantly adapt their strategies for building more resilient and sustainable supply chains.”

Standard 1:  ISO 20400:2017

Provides guidance to organizations, independent of their activity or size, on integrating sustainability within procurement.

Standard 2:  ISO 14001

Standard that can help put an environmental management system into place and identify gaps in your business, including your supply chain. It is also a quick and easy way of demonstrating green credentials to a potential client.

Standard 3: CDP’s Supply Chain Program

Global data-collection platform which asks suppliers to disclose, measure and act on their environmental impact, with the potential to drive down emissions, improve water security and end deforestation.

Standard 3: Accreditation Schemes

Accreditation schemes such as the Rainforest Alliance’s Sustainable Agriculture Standard, often include a supply chain element.

The UTZ program specifically covers the sustainable farming of crops such as coffee, cocoa and tea, while other initiatives focus on the sustainable sourcing of a single commodity, such as the Roundtable on Sustainable Soy.

Companies can also sign up to specific pledges to reduce the carbon impact of their operations, including their supply chain, such as the Climate Pledge.

Green supply chain management examples

Example 1: Carrefour and Sustainable Calf Production

Using an IDH Production, Protection, Inclusion (PPI) Compact, the Sustainable Production of Calves Program has been set to produce deforestation-free calves in partnership with Carrefour Brazil. Targets are based around the acceleration of livestock production while expanding forest conservation and improving living conditions of small holder farmers at the same time. As Lucio Vicente, head of sustainability Carrefour Brazil says: “The partnership with IDH aims to train producers on best management practices, increased land productivity, restoration, and conservation, generating greater efficiency, social, economic, and environmental development.

Example 2: Unilever and Scope 3 emissions

In order to tackle Scope 3 emissions in its supply chain, and help suppliers meet its standards, Unilever is building emissions reporting requirements into its invoicing system, including data standardization, which is key to comparing a supplier’s impact and tracking progress.

Example 3: Walmart’s Project Gigaton

More than 2,300 suppliers have signed up to Walmart's Project Gigaton, which is designed to remove one billion metric tons of greenhouse gases from its global supply chain by 2030.

Walmart has also partnered with HSBC to offer its global suppliers improved financing rates tied to their sustainability performance, with firms in its supply chain that can demonstrate progress on cutting carbon emissions able to apply for preferential financing packages.

According to Walmart’s assistant treasurer Matthew Allen: "Investing in sustainability can not only lead to higher productivity and cost savings for suppliers, but can also drive their business growth as they make a positive contribution to the world."

Additionally, for SourceUp partnerships for transformational change, you can read more here

Challenges of green supply chain management and how to deal with them

Challenge 1: Make sure your expectations are realistic

It is important that companies have realistic expectations of their suppliers, both in terms of deadlines and what they can actually deliver in a sustainable way.

Challenge 2: Know your whole supply chain

Companies should make an effort to find out more about their lower tier suppliers too. These small and medium-sized private firms are often invisible, and put little information into the public domain, which means they pose a much greater risk.

The most successful sustainable supply chains are those run by businesses that work with their major suppliers to identify and mitigate risks further down the supply chain.

Challenge 3: To simplify or not to simplify?

Simplifying the supply chain, and dealing with and monitoring less suppliers, is one way of making a supply chain more sustainable.

This is an approach taken by Mars through its Palm Positive campaign, which has pledged to reduce the number of palm oil mills it works with from 1,500 to just 50 by 2022. Working with fewer suppliers makes keeping to strict standards simpler, and as a result easier to identify and drop suppliers for violations around issues such as deforestation and labor rights.

However, this approach also means the contracting company has less ability to influence, and encourage higher standards among farmers.

And in conclusion…

It is now accepted that the majority of a business’ environmental and social impacts come not from its own operations but from its supply chain. As a result, creating a green supply chain is a responsible way of doing business, and suppliers should be seen as important partners in achieving this.

Developing a solid and coherent green supply chain strategy can bring many benefits. It can help guard against reputational risk, save money through the better re-use and recycling of materials and ultimately help to tackle global issues such as climate change, deforestation and pollution.