Supply Chain and ESG: Forecasting 2023

Environmental, Social, and Governance (ESG) is not only a moral obligation in manufacturing but also impacts revenue and long-term success for supply chains. According to Supply Chain Management Review, 70% of supply chain executives have experienced or plan to experience increased revenue due to ESG initiatives within the next three years.

ESG effects range from customer satisfaction to accessibility and reputation management.

Although supply chain executives are working to meet growing ESG demands, many lack the appropriate technology to support their efforts. This limits the visibility needed in supply chain operations to promote ROI-backed ESG efforts.

Trax works to develop products and processes that align with a supply chain’s ESG demands.

We have chosen to face ESG issues head-on with our proprietary Carbon Emissions Manager.

This platform monitors and benchmarks actual carbon emissions across transportation networks and integrates with broader Environmental, Social, and Governance (ESG) reporting.

As 2022 comes to a close, many companies are turning attention to supply chain and ESG, forecasting for 2023. Read on to learn more about this year’s best-in-class players and what supply chain leaders are prioritizing for next year.

Environmental, Social, and Governance (ESG) in Supply Chain

When enterprises embark on their journey towards innovative ESG initiatives, it is helpful to look to other companies succeeding in fulfilling environmental, social, and governance commitments. The following serve as examples of enterprises that have made significant progress in ESG efforts and are transparent about the process:

AbbVie

AbbVie is a research-driven bio-pharmaceutical company. It holds as a core tenet “looking forward,” which catalyzed progress towards environmental sustainability many years ago. Now, the company stewards ESG efforts as part of corporate governance, setting clear and ambitious KPIs for ongoing improvement.

It has achieved several accolades to affirm its commitment. In 2021, the company ranked on the Dow Jones Sustainability World and North American Indices, earned the EcoVadis Corporate Social Responsibility Assessment Gold Medal, ranked on the FTSE4Good Index, ranked on the S&P 500 ESG Index, and ranked on the 2021 Purpose Power Index. As of 2021, it had surpassed its 2025 target of a 25% reduction in carbon emissions and reported that 92% of waste was diverted from landfills. These and other initiatives are commendable and represent a tireless pursuit of excellence in sustainability.

Hewlett Packard Enterprise

As a large international company, HPE has prioritized focus on climate change, security, and inequality. According to the 2021 Living Progress Report, the company has made significant strides toward meeting environmental sustainability goals, including:

Eco labels across the product portfolio
Product return, reuse, and recycling initiatives
Material composition and recyclability improvements and transparent reporting
Climate targets, including a goal of reducing absolute Scope 1 and 2 emissions by 70% by the year 2030

In-depth reports are published each year that measure the progress being made toward the company’s lofty goals.

Dell Technologies

Dell’s 2022 ESG report announces the company’s commitment to net zero greenhouse gas (GHG) emissions by 2050. In addition, Ethisphere® listed Dell Technologies as one of the World’s Most Ethical Companies® for the tenth year. The company’s ESG governance and regulatory compliance have resulted in numerous certification and alignment with eco-labeling standards, which serve the dual purpose of internal accountability and educating end users about the environmental impact of electronics.

Environmental Sustainability in the Supply Chain in 2023

Building an environmentally sustainable supply chain brings major challenges for leaders in the field. For example, there are costs associated with tracking new sustainability metrics, noncompliance, reputation management, and carrier and vendor inefficiencies.

According to Forrester, 2023 promises to be a Green Market Revolution for supply chains. They anticipate the following changes to make the largest impact:

Decarbonization: Offsets and Credits vs. Carbon Insetting

Carbon offsetting involves a company reducing its carbon footprint by paying another company that aims to reduce carbon emissions. One carbon offset equals one carbon credit, representing a ton of carbon removed from the atmosphere or prevented from entering the atmosphere.

While carbon offsets are well-known among sustainability efforts in the supply chain, a new term called “carbon insetting” is also gaining traction. Essentially, carbon insetting is the area that falls between a company’s efforts to mitigate emissions and offset those that are unavoidable. This points to reducing Scope 3 emissions within a supply chain.

While carbon offsets and credits are fine as a starting point to reducing a company's overall emissions levels, this should not be viewed as a reliable long-term solution. Actual emissions data is key in allowing companies to measure and manage carbon emissions from transportation and making real progress toward ESG goals.

New Carbon Reporting Standard

The Biden-Harris Administration proposed the Federal Supplier Climate Risks and Resilience Rule, which changes the standard for carbon reporting for major Federal suppliers. The standard applies to Federal contractors receiving over $50 million in annual contracts and requires the following:

Public disclosure of Scope 1, Scope 2, and specific Scope 3 emissions
Disclosure of climate-related financial risks
Development of emission reduction goals backed by science

Contractors with over $7.5 million but under $50 million must disclose only Scope 1 and Scope 2 emissions. Additionally, those Federal contractors under the $7.5 million threshold are exempt from the rule. However, for small businesses with over $7.5 million in annual contracts, the rule requires that they report Scope 1 and Scope 2 emissions.

The new framework aims to deliver reliable scope 1, 2, and 3 information to investors, shareholders, and customers. The new reporting standard also enables organizations to qualify for credit and lending.

Investing in Technology and Automation

Automation has been increasing quickly in the supply chain until this point. However, in 2023, Forrester predicts that companies will shift to a slower and steadier approach. Businesses investing heavily in machine-learning-based projects are pivoting to risk and resilience projects by focusing on known issues.

Other areas of focus include physical automation to fill labor gaps. Together, the increased efforts for a more rational approach to automation provide a competitive advantage for those looking to advance in the market.

As automation efforts mature, virtual machine-centered workloads become legacy systems. Cloud-native systems require DevOps teams to increase their knowledge of cybersecurity. For example, Kubernetes's policy engines enforce software supply chain security. kyverno validates, mutates, and generates configurations based on admission controls and background scans.

Public Companies: Accountability and Strategic Imperatives

Before the COVID-19 travel restrictions hit, the demand for air travel outpaced decarbonization efforts. Then, however, pandemic-related issues decreased business travel by about 54%. Now that travel is increasing again, some companies are reevaluating their current travel policies due to better carbon emission tracking.

Five Fortune Global 200 firms are implementing policies to limit travel to support sustainability efforts.

In addition, the Securities and Exchange Commission (SEC) is proposing enhancements to the Securities Act and Exchange Act which will require companies to provide climate-related information in their registration statements and annual reports. As the SEC enforces fines for misstatements and omissions of carbon emissions, this further emphasizes the need to look more closely at business travel.

Additionally, global enterprises should work with like-minded partners across their transportation network to reduce carbon emissions. When you choose carriers who are already working on clean fuel and sustainability initiatives, it becomes a mutual partnership between companies, carriers, and additional players.

Trax Supports Companies in ESG Commitments

It’s safe to predict that supply chain and ESG will continue to be a priority for global businesses in 2023. Trax helps enterprise businesses make good on ESG commitments as efforts formalize and advance.

The Trax Carbon Emissions Manager provides dashboards and advanced analytics to view carbon trends by mode, region, carrier, and more.

Contact Trax today to discover how we can support your enterprise business toward a greener, brighter future.