FSC /Kenya_harvesting/ Jonathan Perugia

Sustainable supply chain: Benefits for business and Earth

Sustainable supply chains support social and environmental well-being, and long-term initiatives protect organizations from social, legal, and climate risks.

September 27, 2024

Environmental, social, and governmental (ESG) responsibility pledges and infrastructure are increasingly important action items for multinational organizations. These policies aim to meet global compliance standards, appeal to value-driven stakeholders, and ultimately protect the planet and its inhabitants.

A sustainable supply chain is a particularly influential target for a multinational company’s social and environmental sustainability initiatives. The tiered-chain concept means that organizational decisions toward the top of the chain can drip down to encourage other organizations to adopt their practices, more widely benefitting environmental, social, and economic sustainability.

In fact, a well-designed sustainable supply chain model would build adoption, oversight, and analysis at every level of the chain into its procedures. These practices prioritize transparency regarding labour and human rights conditions, as well as the environmental and climate impact organization-to-organization.

There are many ways to make a supply chain more sustainable, as well as proven systems that support effective maintenance down the chain. Learn more about effective supply chain solutions for environmental and social sustainability below.

Table of Contents

What makes a supply chain sustainable?
How to make a supply chain sustainable
3 Sustainability initiatives in effect
Create a green supply chain for sustainable business

What makes a supply chain sustainable?

Improving supply chain sustainability requires first understanding what sustainability aims to accomplish. Sustainability promotes efficient and compassionate use of resources, as well as transparent and regulated processes for mutual benefit.

This breaks down into five key categories:

Environmental
Social
Economic
Governance
Continuous improvement

Environmental, social, and economic considerations are key priorities for a sustainable supply chain, but the full spectrum of initiatives support wide-scale adoption that aligns with the UN Sustainable Development Goals.

It’s also important to understand how these climate risks are associated with your business actions. Changing social and legislative expectations drive transitional risks, you can mitigate physical climate risks with strong environmental policies, and proper land and supply chain management can reduce maladaptive actions that increase climate risks.

Image identifies three key climate risks that threaten businesses and sustainable solutions to reduce the impact of each risk.

Environmental considerations

This is often the first consideration that comes to mind when we think of sustainability, and it’s more than reducing carbon emissions or recycling. Environmental sustainability in the supply chain pays mind to:

Biodiversity: Partners maintain forests and local lands to support or enhance the diversity of flora and fauna and their ecological processes.
Ecosystem services: Material harvests and manufacturing minimize their negative impacts on water resources, soil stability, and other systems that maintain the health of an ecosystem.
Chemical use: Partners avoid or reduce chemical use and waste, as well as prioritize non-chemical methods for treatments like pest control.

At the end of the day, each link in the supply chain has to commit to protecting their local environment for wildlife and local forests, as well as the people who live off of the land.

Social considerations

Care for the environment and sustainability also requires care for the local people impacted by supply chain operations. Most obviously, it requires workers’ access to safe working conditions, fair wages, and the right to organize.

The people working for a company aren’t the only ones affected by its operations. The larger community should benefit from the company’s commitment to forest management and positive working conditions.

Finally, respect for local cultures has to include rights for Indigenous peoples.

Indigenous communities have the right to access their lands and resources, and they often are the best stewards for land management and environmental sustainability. Supporting and collaborating with indigenous populations goes a long way toward social sustainability.

Economic considerations

Sustainability also considers product and business longevity. Viable operations ensure forests and lands are economically viable for long-term sustainable use. This means prioritizing efficient resource use and financial well-being without sacrificing environmental or social standards is essential.

For example, a last-minute rush order might pressure suppliers to cut corners with waste management, enforce mandatory overtime, or overharvest from local resources. All of these are economically unsustainable circumstances.

Economic sustainability works at the end of production, too. A business should facilitate market access for sustainably sourced products to expand its reach and encourage responsible purchasing practices.

Governance considerations

Most businesses aren’t experts on local ecosystems, sustainable forestry, or land management. It’s always wise to consult the professionals, which is where governance and transparency come in.

Organizations like FSC provide supply chain certification and labelling to help provide oversight of the supply chain. Labelling also communicates a business’s sustainability efforts to consumers and helps promote products from responsibly managed forests.

Stakeholders are also a valuable resource for knowledge, transparency, and accountability. Partner with a range of environmental groups, social organizations, and economic entities to help guide decision-making processes and ensure balanced, equitable outcomes.

Continuous improvement

Ensuring a sustainable supply chain consists of more than just creating the chain and policies. Truly sustainable supply chains require monitoring, reporting, and research for maintenance.

It’s essential to continue assessing the chain and ensure sustainability standards are communicated and met. This is also a chance to identify opportunities to improve, especially as climate change continues to present new challenges. An adaptable business and sustainable supply chain practices will best mitigate the impacts of climate change on businesses, local resources, and communities.

Benefits of supply chain sustainability

Investing in a sustainable supply chain sooner rather than later is a strategic business decision that hedges against the continued global impact of climate change. It’s a valuable guard against changing legislation and the physical effects of climate change on a supplier.

That’s tangible value when a 2020 report estimated $120 billion in company expenses between 2021 and 2026 caused by environmental supply chain risks. And negative climate impacts like global temperatures certainly haven’t slowed over the last four years.

Business strategy is far from the only benefit for multinational companies considering supply chain sustainability. There are also several social and environmental benefits to consider:

Marketing benefits if a product is sustainably produced and has official accreditations, like fair-trade and FSC® certifications.
Increase attraction to value-driven consumers and employees who prioritize sustainability in their lifestyle decisions.
Potential tax benefits and other government-backed incentives like grants and rebates.
Reduced nonrenewable energy use for lower carbon emissions and operational expenses.
Increased resilience to climate risks to prevent supply chain disruptions.

The sooner a company takes steps to improve its supply chain sustainability, the sooner it’ll benefit from these advantages and the more resilient it’ll be to evolving climate regulations and perceptions.

How to make a supply chain more sustainable

There are several ways to implement sustainability initiatives, and it’s helpful to break down sustainable supply chain goals considering the organization and its partners. The elements of a fully sustainable supply chain include:

Green supply chains prioritize environmental sustainability in product design, materials sourcing, and product lifecycle management.
Transparent supply chains are open about material and labour sources end-to-end to maintain ethical social and labour practices.
Circular supply chains reduce finished products to raw materials for continued manufacturing.

A mix of green, transparent, and circular supply chain commitments addresses multiple sustainability needs at once. Ideally, the business’s supply chain model incorporates each of these.

However, supply chains are complex systems that often work across different governments, climates, cultures, and industries. There are also several links in each supply chain, and each link is vulnerable to different climate risks.

Considering localized regulations and risks may impact supply chain policies, as well as the ability to influence adoption.

A supply chain model illustrates processes from material harvesting to distribution, providing examples of climate risks to each process.

Effectiveness is key, so expect to run trials, evaluate adoption and compliance, and enforce clear oversight procedures for success.

Explore the four steps that overview the process of implementing sustainable supply chain initiatives below.

1. Set clear sustainability standards

First, an organization has to identify its sustainability goals, including specific internal and external standards, as well as actionable steps to meet those goals. Don’t forget to factor in all five standards of a sustainable supply chain.

Then, objectives should be based on a specific supply chain or industry’s vulnerabilities, so consider an audit to determine:

What supply chain sustainability improvements are possible?
What practices can an organization feasibly implement for sustainability?
What practices can an organization reasonably expect of its partners?
What climate challenges do supply chain partners face?
What previous roadblocks can sustainability standards correct?
What’s the timeline to meet new supply chain objectives?
How will the organization oversee these changes and maintain compliance?

Throughout this process, organizations should consider their internal expectations of supply chain partners moving forward. It's essential to understand the specific stressors and abilities of organizations down the chain.

At the top of the chain, organizations can influence other partners’ behaviours to align with new policies to maintain their contracts.

However, if organizations higher up the chain make unreasonable production or deadline demands, lower-chain organizations might feel pressure to abandon labour and environmental policies to meet production expectations. Failure to consider true capabilities down the supply chain can leave a company vulnerable to public and legislative scrutiny, considering potential ethical and environmental violations.

After identifying initiative targets and action items, organizations should work with internal teams to finalize new policies and get buy-in from internal stakeholders.

2. Collaborate with partners

End-to-end supply chain sustainability is impossible without each organization’s commitment to compliance. Each supply chain partner needs to understand the new expectations, their implementation timeline, and how the organization will oversee compliance moving forward.

Ideally, an organization will have already considered some hurdles its partners may face, considering industry and location. It’s important to stay receptive to supplier feedback if they have reasonable concerns about how they can meet compliance or what sustainability measures are valuable.

Sustainability needs vary by climate and culture. Consider the individual partner’s needs to improve supply chain resilience to climate risks instead of solely enforcing blanket sustainability policies based on internal needs.

With global operations in multiple countries, regions, and cultures, it can be difficult to align on sustainability standards. But, many organizations in the same industry or location work together.

Multinational businesses may be able to connect with other industry and ESG leaders to organize around ethical suppliers and better identify those that aren’t committed to sustainability initiatives. This encourages compliance among current partners, as well as other organizations looking to earn a large contract within the industry.

It’s also important to connect with relevant stakeholders, including environmental and social organizations, that can help identify local needs and facilitate adoption.

Ultimately, an industry-wide shift in sustainability commitments and accountability can have some of the farthest-reaching impacts on global supply chain sustainability. So, the more organizations that collaborate to improve conditions on every tier of the supply chain, the more the pressure snowballs and influences other top-tier businesses to implement their own sustainable change.

3. Know the supply chain from top to bottom

At this stage, an organization has considered needs across the supply chain and introduced sustainable policies to partner organizations. Long-term compliance requires continued communication with these partner organizations to understand the supply chain from top to bottom.

Some supply chains are absolutely massive, and these complex supply webs make it easy for lower-tier organizations to slip off the radar.

Additionally, it’s impossible to know or always control the relationship between low-tier and mid-tier chain suppliers that might not enforce the same policies, or place unreasonable expectations on suppliers that affect their ability to comply with the organization’s standards.

It’s also vital to understand that individual workers down the supply chain are often the most impacted by physical climate risks, yet they may have fewer resources or social influence to impart meaningful change.

Full supply chain compliance requires understanding, oversight, and maintenance from the top of the chain.

Continue to work with suppliers to identify realistic targets and encourage them to set their own standards. An organization enforcing its own policies all the way down might work, but middle-tier organizations with no real buy-in may be less interested in communicating and enforcing lower-tier compliance. It’s easier to maintain sustainability if each individual link in the chain is independently committed and provides its own oversight efforts.

An internal expert assigned to engaging with suppliers is also extremely valuable. A go-to person can better build relationships with partner organizations, so they’re more likely to engage with sustainable policies and enforce compliance down the chain. This internal manager will also monitor initiatives, oversee compliance, and provide resources to maintain the supply chain so nothing slips through the cracks.

There are also organizations and supply chain certifications that can help. For example, FSC Chain-of-Custody certification traces product paths from the forest to the top of the supply chain to ensure FSC-certified materials don’t mix with non-certified materials. It requires certification and labour compliance from each organization in the supply chain.

Certifications like these can help alleviate the burden of oversight and maintenance, though that’s still a valuable part of any organization’s sustainability commitment. Of course, new technologies are also always rolling out to support initiatives.

4. Use technology to reach targets

Modern technology makes it easier than ever to connect and communicate with each link in the supply chain. New developments like AI and 3D printing also have their place in improving supply chain sustainability and compliance.

Here’s an overview of some key technologies that are improving supply chain traceability:

AI technology can automatically evaluate inventory to reduce waste, improve logistics and transport to cut emissions, track manufacturing equipment maintenance, and analyse the full product lifecycle to identify areas for improvement.
3D printing can reduce shipping and large-scale manufacturing costs and emissions by 3D-printing products locally, and plant-based and recycled filaments are available to avoid plastic waste.
Blockchain technology improves record keeping with an immutable digital ledger, and private blockchains restrict party access and connect the full scope of supply chain partners to promote accountability and prevent fraud.
Cloud enterprise resource planning (ERP) software automates end-to-end processes, and the internet-based software is faster and more flexible than on-premise ERPs to support multinational companies.

The Forest Stewardship Council® has implemented many of these with services like FSC Trace (Beta), which helps licence holders practise due diligence and compliance as global regulations evolve. Trace verifies supplier certifications, maintains traceable product claims between partners, and collects relevant raw material data to support sustainable legislation.

5. Analyse and report on the progress

A major aspect of ESG transparency is reporting on efforts and progress. This accountability reinforces an organization’s commitment to sustainability and helps it adjust the course as needed based on performance.

Start with an annual report that communicates the organization’s efforts with stakeholders and suppliers, holds supply chain organizations accountable, and guides ongoing initiatives.

Depending on the scope of its sustainable initiatives, an organization may also break findings down by target (e.g., green, transparent, circular) to showcase the range of needs its initiatives target.

Technology like blockchain records and AI audits can help organize data and recognize trends, successes, and vulnerabilities in supply chain sustainability.

These findings are also valuable in marketing materials to appeal to new consumer markets. Consider highlighting sustainability certifications on packaging or sharing some analyses on social media.

Visual breaks down environmental, social, and governance (ESG) commitments and shows how sustainable initiatives can also support ESG.

3 sustainability initiatives in effect

There are several successful initiatives in effect globally to serve as inspiration for what a sustainable supply chain looks like, how to enforce compliance, and what accountable reports might include.

Here are some examples below.

1. Certified raw materials promote sustainable harvesting

Certifications from organizations like FSC can take responsibility for evaluating each tier of the supply chain and ensuring raw materials meet sustainability and quality standards. FSC and similar certifications set the global standard so organizations can ensure compliance and protect themselves from future legislation regarding production sustainability.

Additionally, forestry experts highlight individual supplier needs to help establish truly effective climate-resilience and sustainability standards.

When companies like Crate & Barrel commit to sustainable material sourcing, they make significant strides to protect local environments, support global worker conditions, and reduce damage from unethical harvesting and production practices.

2. Supply chain audits catch violations early

Raw material harvesting and production accounts for 18 per cent of greenhouse gas emissions associated with consumption in the EU. This process often involves organizations lower on the supply chain, so oversight and enforcement of policies can be difficult.

First, regular audits and clear process expectations can prevent violations. Take IKEA, for example, which discovered a wood supplier falsifying origination documents in violation of the company’s supplier requirements. They cut ties with the manufacturer and pulled the products from their shelves, which accounted for 0.28 per cent of the company’s annual wood consumption.

The routine audits by IKEA forestry specialists prevented that 0.28 per cent loss from becoming much more significant in 2020 – a year when supply chain challenges were already exceptionally difficult.

3. Waste management to protect the environment

Manufacturing typically creates waste, including physical waste, wastewater, and emissions into the air. There are a few ways to manage this excess.

One is to find ways to reduce waste in the first place. A circular supply chain is valuable here, as it considers how to repurpose materials at the beginning of production, as well as end-of-life uses for products. Recycled materials, efficient manufacturing equipment, and mindful production procedures can all help reduce created waste.

Some waste is unavoidable. In these cases, proper disposal and treatment are essential. Especially considering waste that damages our environment, like plastics that deposit harmful PFAs and microplastics into natural water sources.

Establishing proper wastewater and air-emission treatments to reduce pollution and sustainably manage harmful waste protects the local environments of supply chain partners, which can prevent further climate risk.

Eliminating hazardous chemicals from the production process takes it a step further and improves labour conditions.

Create a green supply chain with sustainable business practices

The global effort from multinational companies to implement sustainable supply chains has far-reaching effects on the local communities that produce materials. Effective initiatives reduce damage to local environments, improving worker conditions and protecting individuals and organizations from the impact of increasing climate risks.

Understanding what initiatives can improve supply chain sustainability and collaborating with partners to identify actionable sustainability targets has clear social and environmental benefits, but it’s also a business strategy to hedge against evolving legislation.

Additional resources

The United Nations Global Compact has several reports on supply chain topics, including identifying multi-tiered supply chain challenges and a guide on continuous improvements.

Learn Extended Producer Responsibility (EPR) policies and how they impact global practices through the post-consumer stage with the OECD’s EPR report.

Explore reports on the current state of global supply chain sustainability with reports from the Council of Supply Chain Management Professionals (CSCMP) and the MIT Center for Transportation Logistics.

Get inspiration with this research on quantitative supply chain models geared toward sustainability, with assessments on where organizations can fall short of social sustainability goals.