NEW YORK — So, it’s pretty hard to find a major public company that doesn’t have some sort of initiative to track its direct greenhouse gas emissions, aka what is known as Scope 1 of the Greenhouse Gas (GHG) Protocol Initiative.
But what about Scope 2, which is defined as indirect emissions from the electricity they purchase, or Scope 3, which focuses on emissions produced by extracting the raw materials used for their products, or to get things from point A to point B, or waste disposal? In other words, emissions created by your supply chain.
According to a panel of sustainability experts assembled by enterprise software company SAP for an event in New York City, businesses must dig deeper than you might expect into their supply chain relationships in order to have a true picture of their impact. “If you want to cover the risk, you need to go all the way down,” says Peter Graf, chief sustainability officer for SAP and executive vice president of the company’s Sustainability Solutions unit.
“Everyone needs to understand the role they play,” echoes Kevin Myette, director of product integrity for outdoor recreation equipment and apparel company REI (aka Recreational Equipment Inc.) Technically speaking, REI isn’t a public company in the SEC sense, but it IS the largest consumer cooperative in the country. That’s important, because complete supply chain transparency is necessary if you want to guarantee that you’re being completely honest to the consumer, Myette says. “Transparency is no longer option, but it needs to be business-driven, not values-driven.”
For a sense of how deep you might need to look, consider the case of printer technology company Lexmark, which was represented on the SAP panel by John Gagel, manager of sustainable practices – EH&S. Like many consumer electronics companies, Gagel says Lexmark is on the alert to ensure that it doesn’t source tin, tungsten and tantum (key components of many hardware products and gadgets) from the Congo. That’s what the whole “conflict minerals” problem is all about. In case you didn’t realize it, U.S. financial legislation signed back in July made it necessary for companies to disclose whether or not they use these materials in their products. Gagel says it can take digging down six or seven layer into your supply chain to weed this out.
SAP’s Graf says there should be three major motivators for corporate sustainability initiatives:
- Making the business/brand more attractive to consumers or potential customers
- Driving innovation — in products or business model — that can change operational economics or market potential
- Covering the company against risk (ie, if a resource isn’t available) and compliance requirements
The last of these motivators is actually the least important, according to Graf.
To those companies that struggle with how to incorporate sustainability initiatives into their day-to-day operations, Graf offers this hopeful perspective: “Driving data [for sustainability] is something you can do with the enterprise info that already is in place.” In other words, once you understand which information to study from within your existing business process applications, you can drive progress when it comes to sustainability.
“We are transitioning from [a focus on] ‘firm sustainability’ to ‘product and service sustainability’,” says Jay Golden, director of corporate sustainability for Duke University and co-founder of the Sustainability Consortium. Key to this transition will be ensuring that the next generation of managers thinks about sustainable as integral, not an afterthought. “They need to be trained in the tools of the profession,” he says.
The challenge here is that there is no consistency of language or systems today that really defines what it means to be sustainable. Not to mention the fact that the definition will vary from industry to industry. So, a components supplier who works with several major companies could find itself having to report to those companies in as many different ways. This is an untenable situation, according to the panelists. “We need to have agreement on what is in, and what is out,” say Graf.
If you happen to think that corporate sustainability will go away or that it is subject to the whims of the political climate, you may want to peak at the latest issue of Harvard Business Review, which has a whole section on how this topic applies from a supply chain point of view. The package includes an interview with Peter Senge, founder of the Society for Organization Learning and part of the faculty at the MIT Sloan School of Management.
The end game is the same: It is time for big businesses to look to their business partners for the information and cooperation to make entire supply chains more sustainable. By the way, they may also be responsible for helping bring partners up to speed — and for helping them with the tools and resources to get the job done.
Transparency is no longer an option. Trade-offs will be necessary. And trust will be at a premium if we are to succeed in fostering sustainable sustainability strategies.