How to ensure ESG integrity across your supply chain

By Olivia Sibony, Head of Impact, Angel Investment Network

We live in an era where consumers and investors are voting with their wallets for companies who put environmental, social, and governance (ESG) considerations at the forefront. Indeed according to a recent survey of global investors, conducted by Angel Investment Network, 73% said positive impact was a big driver of investment decisions. Meanwhile a recent report by ESW, a global DTC e-commerce company of 16,000 shoppers revealed that 83% of consumers consider sustainability as a key factor in their buying decisions.

However with an increased focus on these (ESG) principles from these two key sources of business finance and income, comes the litmus test for these scaling firms: ensuring their supply chains align with their values and that they are avoiding damaging claims of ‘greenwashing’. The supply chain plays a pivotal role in determining a company’s overall impact on society and the environment. Despite good intentions, many ESG-focused companies find themselves grappling with the complexities of supply chain management, risking the integrity of their mission. Implementing a series of strategic measures can significantly enhance operational sustainability and stress test all links in the chain.

The Consequences of Neglecting Supply Chains

The urgency of addressing supply chain sustainability is underscored by several high-profile cases of greenwashing, where companies’ claims of environmental consciousness are debunked by evidence of unsustainable practices. The examples are widespread, including the likes of Ikea, FIFA, Deutsche Bank, H&M and more – and in each case it was as a result of making misleading claims linked to their supply chain.

In the UK, a new law penalises companies for greenwashing – the anti-greenwashing rule, so in addition to the reputational risk, it’s now also a legal risk – and that includes inadvertently greenwashing, so misinformed “good intention” are not a get-out clause.

From fashion brands to consumer goods manufacturers, businesses across industries have faced backlash for prioritising profit over planet. Claims of sustainability focus are naturally going to be scrutinised by investors and customers – and the further you go up the investment chain, the more sustainability credentials will matter. So the earlier companies start, the easier it will be for them as they grow.

SME Publications/ SME XPO 2024

Reimagining the Supply Chain: A Circular Approach

In a world grappling with resource scarcity and mounting environmental uncertainties, the traditional linear model of production, consumption, and disposal is no longer viable. ESG-focused companies must embrace a circular approach to their supply chains, envisioning a future where products are designed with sustainability in mind from inception to end-of-life. By considering the entire lifecycle of their products, companies can minimise waste, conserve resources, and mitigate environmental impact.

This paradigm shift, championed by organisations like the Ellen MacArthur Foundation, is essential for ushering in a new era of sustainability. If this sounds big and terrifying, it should be remembered that it is always possible to start small: is there a new product that can be tested? Or is there one component in an existing product that can be switched? This can be the foundation to then change another, and then another. If it’s in the right direction, incremental change is always preferable than a complete overhaul which presents too many risks.

Starting with the Vision: Charting a Sustainable Course

To navigate the complexities of supply chain sustainability, companies must first establish a clear vision for their future. By envisioning their role in a rapidly evolving world, business leaders can make informed decisions that steer their supply chains toward sustainability. This forward-thinking approach enables companies to align their operations with broader societal and environmental goals, ensuring that every step contributes to positive change.

This might seem like a luxury, when grappling with immediate challenges is such a struggle, but it’s a critical step to ensure the priorities you focus on now, are supporting the future you want to work towards. The team at Impact Amplified have developed a tool that helps you imagine your ideal future and then work backwards to align your immediate actions.

Comprehensive Audits: Understanding the Current Landscape

Conducting a comprehensive audit of their supply chains is a crucial first step for companies seeking to enhance sustainability. By identifying areas of weakness and opportunity, they can develop targeted strategies for improvement. Collaborating with consultants and industry peers can provide fresh perspectives and innovative solutions, fostering a culture of continuous improvement and accountability.

As ever, choosing one area to start is the best approach, and starting small within that. This could involve business leaders looking at packaging, and joining a relevant Sustainable Packaging coalition for their industry. A good starting point is the UK Research and Innovation’s (UKRI) Smart Sustainable Plastic Packaging challenge, which includes grants, access to working groups, collaborators and other opportunities.

Collaborative Partnerships: Driving Positive Change Together

Collaboration is key to transforming supply chains into engines of sustainability. Companies should prioritise suppliers with established social and environmental practices while also supporting existing partners in adopting more sustainable approaches.

The UKRI challenge mentioned above is a good place to find out more and collaborate with organisations who share the same challenges. This is a perfect example where collaboration provides a competitive age, getting companies to their sustainability goal a lot quicker than looking into this in isolation.

By working collaboratively with stakeholders at every level of the supply chain, companies can foster positive change and ensure a fair and equitable transition to sustainability.

Selecting ESG-Aligned Investors: Securing Support for Sustainable Growth

Securing investment is essential for the growth of ESG-focused companies, but not all funding sources are created equal. By aligning with investors who share their ESG values, companies can ensure long-term support for their sustainability initiatives. Rather than settling for mismatched partnerships, companies should prioritise investors who understand and appreciate the importance of sustainability in driving business success.

The journey toward supply chain sustainability is both challenging and essential for companies committed to ESG principles. By embracing a circular approach, clarifying their vision, conducting comprehensive audits, fostering collaborative partnerships, and selecting ESG-aligned investors, companies can pave the way for a more sustainable future.

In doing so, they not only mitigate environmental and social risks but can also demonstrate leadership and establish crucial best practice for those that follow in their wake.

SME Publications/ SME XPO 2024