Sustainable Procurement Hinges on Supply Chain Transparency

Consumers have long said they prefer sustainable products, and a new study shows that they've been putting their money where their mouth is. Researchers from McKinsey and NielsenIQ studied 600,000 products from 44,000 brands and conclusively found that products that make environmental, social and governance (ESG) claims experienced faster growth than products without them. This growth was especially pronounced in food and personal care items, and interestingly, it was the highest for private-label products. In 88 percent of product categories, private-label items making ESG claims achieved disproportionate sales increases.

Winning over sustainability-minded consumers isn’t as easy as just slapping a claim on a label, of course. Brands and retailers need to back up these claims with true and meaningful commitments to sustainability, as shoppers have learned to see through empty greenwashing claims. And consumers will only continue to grow better informed in the years to come. Within the next five years, for instance, we’re likely to see widespread implementation of fashion sustainability QR codes. Consumers will be able to simply scan a code on a tag and get a full account of not only the materials used and the country of origin, but also a product’s water usage and its carbon footprint. Companies that either hide or can’t provide that information will increasingly be left behind for alternatives that can.

Meanwhile, companies face even more immediate pressure from governments to reduce their social and environmental footprints. The European Union’s new Corporate Sustainability Reporting Directive, approved last fall, will require large companies to report on their environmental impact. Furthermore, under a proposal being considered by the U.S. Securities and Exchange Commission this spring, businesses would be required to report on their climate risks and account for their greenhouse gas emissions along their value chain.

These ESG targets, along with the global push to eliminate forced labor and unsafe working conditions from the supply chain, have companies increasingly prioritizing sustainable procurement — i.e., the practice of evaluating the environmental and social impact of their purchases and partnerships. Yet as brands and retailers consider sustainable procurement strategies, they’re too often working around gaps in information about their own supplier bases. As supply chains continue to grow more complex and regulations demand heightened diligence, the success of their sustainable procurement initiatives hinges on creating transparency within their supply chains.

Multi-Enterprise Platforms Enable Accurate Measurements

Businesses must now precisely calculate the actual environmental footprint of their products. In the past, these calculations relied on too many best guesses — a company might know the average water use of a cotton mill in Vietnam and then estimate their own water usage based on those numbers. However, without a full view of a company’s Nth tier supply chain network, it can’t have full confidence in those calculations.

Amid tightening global regulations, brands and retailers are turning to multi-enterprise platforms for their supply chain mapping features, which grant enterprises a fuller understanding of their environmental footprint, including where their yarns and fabrics come from, how much carbon they’re emitting, and whether they’re making progress toward reducing water and cotton consumption.

A multi-enterprise platform can create a window into an enterprise’s entire supplier base, from vendors to factories to raw material providers. It also saves retailers and brands time by automating the onboarding process for vendors and factories and ensuring that all new suppliers have read and consented to the company’s terms, including ESG benchmarks and certification requirements. This way from the very earliest stages of working with a supplier, there’s total transparency about your ESG standards and expectations.

A platform like this also enforces a company’s social and environmental standards by preventing merchandisers from booking orders with noncompliant suppliers and preventing shipping departments from booking shipments with these vendors. This technology optimizes supply chain management, allowing businesses to easily and accurately document the chain of custody of every material they use in every product they make.

Having this chain of custody documentation is essential for ensuring brands and retailers meet the requirements of recent supply chain laws like the United States’ Uyghur Forced Labor Prevention Act and Germany’s Supply Chain Due Diligence Act. It's also integral for helping companies meet their ESG targets. Through digitalization, brands and retailers can collect and manage the data they need to reduce their environmental footprint and make the most sustainable decisions during every step of sourcing. Sustainable procurement is a complicated process that the right technology can simplify.

Rejean Provost is the team lead, ESG Strategy for TradeBeyond, a company that connects retail supply chain operations from product development to delivery.