In the case of greenhouse gas emissions, the GHG Protocol, an initiative set up by the World Business Council for Sustainable Development and the World Resources Institute, refers to indirect emissions beyond a company’s own walls as Scope 3, with emissions from its own operations and electricity consumption referred to as Scope 1 and 2. When Kraft Foods road-tested the GHG Protocol’s standard for measuring companies’ direct and indirect emissions, it found that Scope 3 accounted for more than 90% of its total emissions. And Unilever currently calculates that its own operations make up only 2% of its total emissions, with the remaining 98% coming from Scope 3. The main contributions are from raw materials including third-party manufactured products (49%), logistics and distribution (15%), packaging materials (12%), retail (10%) and disposal of waste products and packaging (9%), it says.
Moreover, sustainability now plays a much bigger and more complex role in procurement decisions. Previously COOs might have had a list of sustainability criteria that suppliers needed to meet, alongside other conditions, but they would then choose the cheapest bidder from those meeting these basic requirements. Now there are likely to give different weightings to a range of sustainability indicators in all tenders.
And for COOs used to dealing with simple objectives such as cost and quality requirements, it is a huge headache to be faced with 17 Sustainable Development Goals and an almost impossible task to take full account of all of them in procurement decisions. While they may need to report on the impact of their operations in relation to all 17 SDGs, they will therefore often choose to give priority to the areas in which they are having most impact.
Multiple suppliers
The task is made even more daunting when companies have lots of small suppliers and the performance of all of these against a range of sustainability targets needs to be assessed. COOs are therefore crying out for services that collate all the relevant information for them, similar to the riskmethods service which provides customized real-time information to companies on risks that might affect their supply chains.
This has led to the development of certification bodies such as EcoVadis, which customers can use to check suppliers’ sustainability credentials, rather than requiring them to fill out long questionnaires. Such mechanisms can also be helpful for the suppliers themselves, particularly if they are small firms with numerous business customers all focusing on different SDGs. And separate certification systems have been developed to meet the needs of particular industries, such as the Sustainable Apparel Coalition’s Higg index, which incorporates a set of tools to assess the sustainability performance of the fashion industry.
“Sustainability in the value chain is an ecosystem. For example, in the case of agribusiness we consider the landscape and the need to preserve the biodiversity of that ecosystem,” observed Magdi Batato, Executive Vice President of Nestlé Group.
Sustainable materials in short supply
But even when all parties are committed to sustainability, achieving their objectives may not be as straightforward as first envisaged. A significant challenge facing manufacturers is how to obtain enough of the materials needed to produce sustainable goods at scale when such materials are in short supply. While bottling companies may all want to make bottles out of recycled plastic, there is simply not enough recycled plastic available to enable them to do this. And while governments are pushing for a move from fossil fuel to electric vehicles, mining group Glencore has noted that there is not enough cobalt in the world to enable everyone to switch to electric cars.