How well do you know your supply chain?

As our world becomes increasingly interconnected, ethical supply chains and procurement are becoming a strategic priority for more businesses around the world, including here in New Zealand.

Globally, a company’s supply chain creates on average 11.4 times more greenhouse gas (GHG) emissions than the company’s own operations. This means that omitting supply chain impact in disclosures or reputational considerations is no longer an option.

Supply chains provide the resources for an organisation to function, but they can also bring to life the ethical and sustainable vision of a business. Crucially, supply chains and procurement are only as resilient as their weakest link; business continuity will rely on reviewing the impact of your supply chains and procurement practices on people and the planet.

They can also be a tool to show your commitment to the UN’s Sustainable Development Goals. From protecting workers’ rights, to lowering your environmental footprint, to supporting diversity and local communities, the range of potential impact is enormous.

Understanding your footprint

In light of the climate crisis, New Zealand has seen a sharp increase in organisations stepping up their environmental ambition in the last few years. Organisations are setting challenging, science-based GHG emissions reduction targets which require an understanding of the wider, indirect (Scope 3) emissions profile in relation to Scope 1 and 2 emissions.

Engaging a third-party assurance provider and being prepared to share emissions data with key stakeholders in your supply chain are worthwhile steps. Understanding your value chain emissions will open up opportunities to reduce risk, strengthen key relationships, and prioritise suppliers that align with your values and climate ambition.

For leadership teams, it’s worth remembering that legislative and reporting requirements have helped drive this focus on the environmental impact of supply chains, such as the passing of the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act in October 2021. Thanks to this, the XRB now has a mandate to issue climate standards, as well as guidance on ESG matters.

While emissions reduction targets are critical, organisations should look beyond environmental impact to fully understand their supply chains.

People in addition to planet

Two areas receiving more attention in New Zealand are social procurement and modern slavery, both of which consider the impact of supply chains choices on people, communities, and society. Catalysts for the rise in awareness of these issues have been:

• Government Procurement Policy: in December 2020, the Government announced its aim to commit at least 5% of all procurement contracts from its approximate $42 billion annual spend to Māori businesses, mandating over 100 Government agencies to report on their procurement.
• Modern Slavery Act: in March 2021, 95 companies signed a joint letter calling on the Government to begin an inquiry into a Modern Slavery Act for New Zealand business and public sector supply chains. In June, a petition with more than 37,000 signatures was presented to Parliament, amplifying the call to Government to do its part to end modern slavery.

In both areas, the risk to business lies in apathy. With stakeholder capitalism on the rise, organisations are ever more accountable to the general public, and reputational risk or a lack of social licence to operate can be extremely damaging.

What is often forgotten in these discussions, however, is the active opportunity. Social procurement, for example, is a way for organisations to extract higher returns from every dollar spent, both financial and non-financial. Perhaps the most compelling figure comes from work done by Supply Nation in Australia, which found that for every $1 spent, the Social Return on Investment was an average of $4.41.

Where do we begin?

Embarking on a journey to understand your organisation’s supply chain can be daunting. Delaying the start, however, will only result in lost time. We’ve outlined six steps organisations can take to help build a sustainable and resilient supply chain:

1. Ethical supply chain assessment: identify potential points of failure in your environmental, social and governance (ESG) framework, and identify and prioritise solutions.
2. Visibility: achieve real-time transparency through end-to-end tracking and traceability of suppliers and products.
3. Risk landscape: investigate suppliers and assess key current and potential risks in the supply chain.
4. Optimise: transform the supply chain to determine the optimal balance of cost, cash, service, and ESG, in helping to deliver both profitability and sustainability.
5. Embed governance: perform due diligence on suppliers to measure ethical integrity and embed a robust governance framework to uphold ethical practice in the supply chain.
6. Proactive management: work collaboratively with stakeholders to go beyond just compliance and use predictive analytics to pre-empt and mitigate potential disruptions.

Ask yourself and your board: are ethical supply chains and sustainable procurement a strategic priority in our organisation?

About the authors

Mair Brooks
Partner, Consulting KPMG

Mair has over 20 years’ experience in management consulting. Mair’s background as a partner in KPMG and previously as a Partner at EY has provided her with experience of leading, directing and providing assurance around complex infrastructure portfolios and projects. 

Mair is an advocate for diversity and inclusiveness and enjoys building teams and supporting leaders to reach their full potential.

Dr Charles Ehrhart
Director, Sustainable Value KPMG

Charles has more than 20 years of professional experience working within governments, the UN, civil society and the private sector for sustainable development and an end to poverty in our world of plenty. For the past twelve years, Charles has focused on the challenges of mitigating and adapting to climate change.

His primary interests are adaptation to climate change, sustainable land use, the transformative potential of environmental entrepreneurship, the role of green economic growth in nationally determined contributions to mitigate climate change (INDCs) and public-private partnerships for climate action.