Five sustainability risks to supply chains

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Companies face five key areas of sustainability risk as they to eliminate waste from their supply chains, according to a study by Ernst & Young.

It says that the five greatest climate change and sustainability risks to supply chain operations are:

1. Strategic
The supply chain, for many companies, increasingly provides an opportunity to improve competitive advantage and reduce cost and waste. Leading companies understand this link, particularly as stakeholders become more interested in social and environmental costs.

2. Compliance 
Organisation that are required to comply with green supplier programmes now need to track data on energy use and make the information available for audits. On the flip side, if an organisation has instituted a green supplier program, it will need new processes to track and monitor supplier compliance and to use the data to drive decision-making.

3. Financial
Supply chain issues impact an organisation’s financial strategy in multiple ways, such as: opportunities to cut costs, potential cash management and liquidity implications as a price for carbon is set in different jurisdictions, and new due diligence requirements for acquisitions. Additionally, as companies increase public disclosures in non-financial reports, CFOs and audit committees are exercising more oversight.

4. Reputational
Many companies are implementing supplier qualification programs to ensure they do business with suppliers that share their values, which helps them manage brand and reputational risk. As such, these companies may conduct regular audits of suppliers, which might include compliance with emissions, waste and safety guidelines.

5. Operational
Spare parts inventory management, manufacturing equipment utilisation, and planned maintenance are just a few areas where the level of efficiency could be improved. Other operational areas to assess include: unplanned downtime, reduction and innovative uses for manufacturing waste, transport, logistics and facilities.

Eric Olson, Ernst & Young’s climate change and sustainability supply chain leader, said: “As organisations across the public and private sector decrease their environmental footprints by focusing on supply chain operations, many find they need to influence operations that fall outside the direct control of a single business unit or enterprise.

“As a result, supply chain leaders need up-to-date sustainability information that meets the growing demand for transparency and accuracy from customers and suppliers alike. Many companies are already taking a full lifecycle approach to improve the environmental impact of their products and services.”

The report includes a number of recommended actions that supply chain operations professionals can take including:

* Assess climate change and sustainability reporting needs, including evaluating the integrity and alignment of data across the supply chain.

*Monitor and assess existing or potential government regulations on the entirety of the supply chain.

*Review the corporate risk register and risk management policies for appropriate inclusion of climate change and sustainability risks associated with the supply chain.



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