In recent years, businesses worldwide have been dogged by supply chain disruption with causes including the pandemic, global financial turmoil, and escalating geopolitical conflict.

Furthermore, the flow of international goods and services has been hampered by factors including labour shortages, depleted inventory levels, material sourcing challenges due to tightened trade regulations, shipping delays, and rising logistics costs.

Concurrently, businesses are under increasing pressure to meet net-zero emissions targets and reduce their Scope 3 greenhouse gas emissions – indirect emissions generated from activities across value chains such as embedded emissions in purchased goods and services.

Guarding against hidden risks

Suppliers and service providers help shape the environmental, social, and governance (ESG) performance of businesses. Risk management begins by setting the strategy for ESG, the risk profile of a company’s total active supplier base that is played out through the sourcing process. This is an imperative for companies to avoid being exposed to future ESG-related issues across their supply chains.

Building powerful partnerships

Businesses need to set clear expectations of suppliers in their ESG performance and to ensure their standards are in line with companies’ sustainable business objectives. 

Strategic partnerships between businesses and suppliers may increase their collective ability to achieve decarbonisation while driving innovation. A critical first step is to gain supplier buy-in by explaining the mutual benefits of these partnerships.

The newly introduced Code comprises 11 sustainability topics, representative of CLP’s responsible procurement practices. It was developed following consultation with subject matter experts at CLP, with reference to material topics recommended by the Sustainability Accounting Standards Board for different industries.

These topics range from legal compliance, business ethics, and human rights to cybersecurity, environmental management, and diversity and inclusion. For each topic, CLP highlights the requirements suppliers must comply with and the expectations of what should be worked towards.

If gaps between a supplier’s approach and the code are identified, CLP encourages the supplier to formulate and implement an enhancement plan. Further due diligence may be carried out by third-party consultants. Suppliers are also encouraged to monitor, manage, and disclose their performance according to the code and to extend similar principles to their upstream supply chains.

Mapping a way forward

Businesses require resilience and commitment to navigate supply chain challenges and adapt to evolving environments while continuing to grow. This involves improving supply chain visibility by mapping out and risk-tiering their entire supply chain and where necessary realigning supply chain diversification strategies.

To make this happen, companies need to embrace digital technology that enables access to more real-time data on procurement processes, as well as new tools to develop insight for evaluating the ESG credentials of potential and existing suppliers.

Sustainability cannot be achieved by a business in isolation. This is especially true for companies with an international supply base, as global disruption can lead to wide-scale problems beyond what one business can handle.

Without a collaborative mindset, companies are unable to access the supply needed for them to fulfil their current needs or build the foundations to overcome future ESG risks.

Procurement therefore is in the frontline of the transition to sustainable business models. It brings complex challenges, but getting procurement strategies right can help drive positive change across the global value chain.