Sustainability in Global Supply Chains

SUSY SCHONEBERG: Let's talk about the history of sustainability.

Since the Industrial Revolution, the growth of the human population and the use of natural resources has been accelerating at an alarming rate.

Back in 1825, the world's population doubled from 500 million to 1 billion people.

150 years later, in 1975, we quadrupled that to 4 billion people. And only 43 years later, in 2018, we've doubled that again to 8 billion people.

With this population explosion after World War II, there was conversation around overpopulation and how many people the Earth could sustainably carry. This led to sustainability becoming a wider topic of debate in the 1980s. In 1987, the UN Commission study, Our Common Future, was published. The study set out to meet the needs of the present without compromising the ability of future generations to meet their own needs.

The report laid out three dimensions of sustainability that need to be balanced, economic, social, and environmental. These three components are also commonly referred to as a company or organization's triple bottom line.

Economies and companies create income. Economies are dependent on the people in our social systems as people work for companies and consume their products.

All activity happens in the biosphere we live in. Hence, the environment is fundamental to our future.

The need for sustainable development has been recognized globally. In 2015, 193 countries agreed upon the United Nations' Sustainable Development Goals, called SDGs, that are intended to be achieved by 2030. There are 17 SDGs. And they can only be achieved if governments, companies, and other organizations work together.

Speaker 1: [MUSIC PLAYING]

Speaker 1: SUSY SCHONEBERG: Now let's talk about corporate sustainability. Why does sustainability matter for companies? Well, in order to be successful, companies have to fulfill the expectations of both internal and external stakeholders, including customers, employees, investors, suppliers, communities, and regulators.

Speaker 1: Today, sustainability is truly part of stakeholder expectations. Let's start with customers. As much as 81% of consumers expect companies to improve the environment.

Speaker 1: Those expectations are also trickling down and affect B2B businesses. Another strong driver for corporate sustainability is employee expectations.

Speaker 1: Today's workforce evaluates the purpose of the work, but also values work-life balance. Deloitte's 2022 CXO Sustainability Report found that 2/3 of leaders are feeling pressure from the employees to act more sustainably, cultivate a great place to work, but also improve company financials by supporting employee retention and productivity.

Speaker 1: Still surprising to many, investor interests go beyond financial performance. Hundreds of investors made sustainability commitments that affect how they distribute their capital.

Speaker 1: One of the reasons is risk management. For example, investors know that climate change can affect the viability of a business operation and revenue.

Speaker 1: The roles of consumer companies have evolved to include helping suppliers design and implement sustainability programs that directly support the company's own goals. Now let's look at communities and public awareness. Non-profits and NGOs need the support of private partners to solve complex issues.

Speaker 1: For example, a recent study showed that half of the nonprofits in the US can't meet the demand for their services. At the same time, companies also depend on the local perception of their business. Unsustainable business practices are heavily scrutinized publicly.

Speaker 1: Lastly, regulators and governments. Many countries have set climate goals. For example, the European Union strives to be carbon neutral by 2050. In Europe, there is also a cap and trade system for emissions.

Speaker 1: That means that if a company emits more than allowed, they have to buy carbon credits and pay for the excess emissions. Of course, this cost is intended to deter companies from emitting beyond the cap.

Speaker 2: [MUSIC PLAYING]

Speaker 1: [AUDIO LOGO]

Speaker 1: SUSY SCHONEBERG: Now, let's talk about environmental and social sustainability. How do organizations influence our ecosystems? According to the Global Reporting Initiative, the following topics might be important to a company--

Speaker 1: materials, energy, water, biodiversity, emissions, waste, and environmental compliance.

Speaker 1: Depending on an organization's product or service, some areas might be more or less material. Now to some examples.

Speaker 1: Materials are the inputs used to manufacture and packaged goods. They can be nonrenewable, such as fossil fuels, or renewable--

Speaker 1: for example, wood. And ideally, are composed of recycled input materials.

Speaker 1: The use of materials for operation of sites can impact natural habitats, and hence, influence biodiversity. According to a 2019 UN study, as many as 30% to 50% of species will go extinct by 2050.

Speaker 1: Social sustainability aims at creating processes and systems that promote the well-being of people, as well as create equitable and diverse communities. In my view, social sustainability has two subcategories--

Speaker 1: employees and communities.

Speaker 1: The employees are crucial to any company. Topics that might be relevant to companies are employment conditions and labor relations, occupational health and safety, training and education, diversity and equal opportunity, and lastly, non-discrimination.

Speaker 1: Companies influence people beyond their employees. For example, through the suppliers they work with or through the impact on the communities they operate in or sell to. That's why the following topics should be considered depending on a company's business model--

Speaker 1: child labor, forced and compulsory labor, rights of Indigenous people, impact on local communities, public policy, supplier assessment, and customer health and safety.

Speaker 2: [AUDIO LOGO]

Speaker 1: [AUDIO LOGO]

Speaker 1: SUSY SCHONEBERG: Now, let's talk about the evolution of sustainability in global supply chains. For a long time, companies only focused on what was regulated and directly in their control, like the use of certain chemicals in company on production sites. Or they focused on issues that gained a lot of public awareness, like the labor conditions at their supplier's facilities.

Speaker 1: However, changes in regulation and stakeholder expectations mean that sustainability programs have to evolve with the times. Let's look at the issue of climate change and how this is affected by transportation as an example. The danger of increased greenhouse gas emissions was first acknowledged on an international level 30 years ago.

Speaker 1: In 1992, the United Nations Framework Convention on Climate Change, an international treaty was signed.

Speaker 1: And yet many companies just recently started looking at their carbon footprint from shipping, albeit logistics being a significant contributor to climate change. The ocean freight sector alone emits more CO2 than Germany. Why didn't anyone take more action earlier?

Speaker 1: Unfortunately, international logistics wasn't explicitly addressed in any of the international climate treaties.

Speaker 1: No one debated the importance of the freight industry for reaching global climate goals, but countries simply couldn't decide on how to account for the emissions. Should the countries where the ships registered be responsible for the emissions? It was also question if decarbonization was technically possible for the shipping industry and it was highlighted that there wasn't enough data to calculate the emissions from shipping.

Speaker 1: So the topic was delegated to the UN agency governing ocean freight called IMO and the UN agency governing air freight called ICAO. In 2016, the aviation industry finally agreed to a global climate deal. And 2 years later in 2018, the IMO also agreed on an international climate strategy pledging to reduce total annual greenhouse gas emissions from international shipping by at least 50%.

Speaker 1: Now, regions and countries set their own regulations to reach the climate goals.

Speaker 1: For example, the European Union is already including some parts of the transportation sector in the EU Emissions Trading System.

Speaker 1: Airlines operating in Europe have to monitor and report their emissions. In order to incentivize a reduction of emissions, airlines receive an allowance emissions that is decreasing year over year.

Speaker 1: At the same time, sustainability reporting standards have evolved.

Speaker 1: Companies are now being asked to report on emissions that stem from activities not directly controlled by them but caused by the company as a side effect known as Scope 3 Emissions. Transportation is an example.

Speaker 1: Sustainability developed from a nice-to-have item for companies to a success factor truly becoming part of a company's bottom line. I expect that sustainability will be a critical part of every company's strategy in the not so distant future.

Speaker 2: [AUDIO LOGO]