Sustainable Supply Chains — Are You Ready?

By: Glenn Margraff, Executive Vice President, Wintrust Commercial Banking

Globally, governments have enacted sustainability and supply chain laws holding companies responsible for the environmental impacts of their chains and the U.S. may soon follow.

Recently, companies have taken strides in unlocking the value in their environmental, social, and governance (ESG) strategies. Still, companies face challenges in adopting sustainability practices.

The evolving regulatory landscape  

• In 2023, with expansion in 2024, Germany’s new Supply Chain Due Diligence Act requires large companies to ensure social and environmental standards are observed in their supply chains.
• In February 2022, the European Commission adopted a proposal for a directive on corporate sustainabilitydue diligence.
• In March 2022, the Securities and Exchange Commission proposed new rules aiming to enhance and standardize Climate-Related Disclosures for Investors.

The proposed rules would cover both Scope 1 and 2 and require registrants to disclose information about their direct greenhouse gas (GHG) emissions and indirect emissions.

In addition, if the registrant has a GHG emissions target or goal that includes Scope 3 emissions, they will be required to disclose from upstream and downstream activities in its value chain, with smaller companies being exempt.

Value chains are being scrutinized like never before
Supply chains have long since transitioned from linear and mostly domestic to intricate and interdependent global networks.

As some countries are known to be higher risk, common practices like Low-Cost Country Sourcing (LCCS) have greatly increased the ESG risks that lay within a company’s value chain.  

Meanwhile, according to IBM, consumers select brands based on how they align with their personal values. With sustainability a deciding factor, consumers want information on sourcing, how products are made or processed, and how they’re delivered.

With increased supply chain complexity and challenges of gathering data, limited supply chain visibility beyond tier 1 remains a real threat. “Many organizations are leaving themselves exposed to potential supply chain disruption and margin erosion by having limited visibility of their supply chains beyond the first tier,” reports a Deloitte survey.

Supply chain mapping; the first step in mitigating your risks
To combat the threats of opaque supply chains and the unforeseen risks, many companies are now turning to mapping. Mapping beyond tier-1 supply chain allows for increased transparency and more effective risk mitigation.

Although it’s impossible to mitigate all your risks, today’s technology allows for improved governance. Digital solutions are empowering companies to increase supply chain transparency, and perform the due diligence customers, employees, and investors expect.