Supplier sustainability is the practice of assessing and managing the environmental, social, and economic impacts of a company's suppliers or vendors within the supply chain. The goal of supplier sustainability is to ensure that suppliers adhere to sustainable and responsible business practices that align with your company's own sustainability goals and values.
With at least eight new globally-recognised environmental reporting regulations coming into force in 2023/24, with real repercussions attached for non-compliance, businesses across the globe are recognising the need for a holistic approach to sustainability management. While companies are increasingly adopting sustainable practices within their own operations, one critical aspect that often gets overlooked is taking the same action in the value chain. In this article, we'll delve into the concept of supplier sustainability, its significance, and strategies for its effective implementation.
Supplier sustainability is the practice of assessing and managing the environmental, social, and economic impacts of a company's suppliers or vendors within the supply chain. The goal of supplier sustainability is to ensure that suppliers adhere to sustainable and responsible business practices that align with your company's own sustainability goals and values. According to a 2022 Gartner/SPP Sustainable Procurement Pulse survey, 79% of organisations are either fully committed or somewhat committed to achieving sustainable procurement goals.
Supplier sustainability management refers to the strategic process of assessing and ensuring that your suppliers' operations align with your sustainability goals and standards. In simpler terms, it involves evaluating the environmental, social, and economic impacts of your suppliers' activities to minimise adverse effects and foster sustainable practices throughout the supply chain.
The majority of our corporate sustainability challenges sit with our suppliers. From emissions, water, and biodiversity, to human rights and child labour free supply chains, it is indisputable - we cannot operate sustainably without our suppliers.
But getting an accurate picture of supplier sustainability is notoriously difficult, with lack of transparency over suppliers’ sustainability performance, unwieldy data from disclosure framework providers, and difficulty integrating this data with existing procurement platforms. This lack of centralisation and transparency makes working on improvements in collaboration with suppliers especially difficult, limiting organisations’ ability to make concrete progress on issues like scope 3, water security, sustainable raw materials, and more.
As reported in the Gartner paper "How to Evaluate Supplier Sustainability", procurement leaders have struggled to define a standard way to measure supplier sustainability performance, with 57% reporting this as one of the top three challenges they face when engaging suppliers on sustainability.
The mandatory ESG reporting landscape is evolving, with many governments implementing stricter environmental laws - some with severe consequences for non-compliance, including fines based on turnover or removal of executive bonuses. Ensuring your suppliers adhere to these regulations can safeguard your business from potential legal repercussions and fines. Moreover, staying compliant with evolving regulations is crucial to maintaining market access and international partnerships. Our ESG regulations paper is updated every time we get new information about an emerging or evolving regulation that might affect your business - click here to download the latest version now.
One of the main reasons for focusing on supplier sustainability is risk mitigation. In a rapidly and constantly changing global landscape, supply chain risks can range from natural disasters to economic crises and aforementioned environmental regulations. Companies that rely on unsustainable suppliers are at a higher risk of facing disruptions that can impact their operations and reputation. By evaluating and improving the sustainability practices of your suppliers, you can reduce these risks and ensure business continuity.
Consumers today are increasingly conscious of the ethical and environmental implications of their purchases. A robust supplier sustainability management system allows businesses to align their values with consumer expectations and convey a positive message about their commitment to sustainability. This, in turn, can boost brand reputation and attract environmentally-conscious consumers.
Sustainability isn't just about being environmentally friendly; it's also about being economically efficient. Sustainable practices often lead to reduced waste, increased energy efficiency, and cost savings in the long run. When your suppliers adopt sustainable practices, they can pass on these cost benefits to you, creating a win-win situation for both parties.
In an age of resource depletion and climate change, businesses must consider their long-term viability. By working with sustainable suppliers, you ensure a secure source of materials and reduce the risk of supply chain disruptions due to resource scarcity or environmental degradation.
Some categories are simply too carbon intensive to offer long term viable and sustainable solutions to the buying organisation, and in this case, transforming the category may be the only option. In these categories, leveraging supplier innovation is the most efficient route to sourcing new sustainable goods and services.
Once these categories have been identified, pose innovation initiatives in the form of challenge statements to the supplier ecosystem, enable the systematic collection of responses directly from the suppliers, and triage these opportunities through an innovation funnel to convert these into projects that deliver real opportunity to change.
Suppliers may not decarbonise unless you make it happen. You need to be highly interactive with your supplier engagement efforts, commit resources to the targets you set, and take control of the agenda. Identify innovation opportunities by evaluating your suppliers and identifying decarbonisation challenges within the cohort you decide to work with, communicate to them your goals for decarbonisation through innovation, facilitate ideation and co-creation, and then both refine and scale the projects that succeed.
The first step in supplier sustainability management is to assess your suppliers' current sustainability practices, and whether they’re reporting to internationally-recognised standards like CDP or the Science-Based Targets Initiative (SBTi). With Vizibl’s SBTi Supplier Engagement Framework, you can simply use raw spend data to quickly get a clear picture over where your largest scope 3 impacts are likely to sit, and from there, figure out what percentage of your suppliers are responsible for, say, 80% or 95% of your total scope 3 emissions. This assessment will help you quickly identify areas for improvement and collaboration.
Once you've assessed your suppliers, it's essential to communicate your sustainability expectations clearly. Develop a set of sustainability guidelines and policies that your suppliers must adhere to. These guidelines should be aligned with your own sustainability goals and any applicable regulations. Vizibl has a library of documentation and expert professional services teams that can help you with this.
Working collaboratively with your suppliers is key to achieving sustainable results. Rather than imposing strict rules, engage in a constructive dialogue with your suppliers using Vizibl’s full suite of supplier collaboration and innovation tools. Encourage them to share their own sustainability initiatives and seek ways to align their efforts with your objectives.
Regular monitoring and evaluation of your suppliers' sustainability performance are essential. Implement Key Performance Indicators (KPIs) that allow you to track their progress. It's crucial to maintain transparency and open communication with your suppliers throughout this process.
Recognise and reward suppliers that excel in their sustainability efforts. You can offer incentives for achieving sustainability milestones, such as reduced lead times or preferred status in the supply chain. Recognising and celebrating successes can motivate suppliers to continue their sustainability journey. Gartner’s recent paper, "Incentivize Suppliers to Advance Sustainable Procurement Goals", recommends "embedding sustainability requirements into supplier management processes, offering financial incentives such as supply chain financing and longer-term contracts, and partnering with suppliers to improve their capabilities and publicly recognizing their performance improvements."
Sustainability is an ongoing process. Encourage your suppliers to continuously improve their practices and invest in innovation to reduce their environmental footprint and social impact. Foster a culture of sustainability that permeates throughout the supply chain, and reinforces your overall commitment to sustainability - for example, net zero emissions by 2050.
Support your suppliers in their sustainability journey by providing access to educational resources and training. These resources can help them develop the knowledge and skills required to meet your sustainability standards.
Supplier sustainability management is a vital component of any business's sustainability strategy. It not only helps mitigate risks and enhance brand reputation but also contributes to a greener and more sustainable future. By assessing, engaging, and collaborating with suppliers on sustainability initiatives, businesses can create a positive impact that extends throughout the supply chain. In a world where environmental and social responsibility is increasingly valued, supplier sustainability management is an investment that pays off in multiple ways – for businesses, society, and the planet.