Starting at the source; Supporting sustainability in firms’ supply chains

In the coming week, the 26th session of the Conference of the Parties (COP 26) to the United Nations Framework Convention on Climate Change (UNFCCC) will start in Glasgow, UK. The summit will bring parties together to speed action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change.

The private sector is a key player in the achievement of the Paris Agreement but more importantly, more companies are looking into the broader subject of sustainable development.

In the recent past, I have seen more and more businesses recognising the importance of sustainability matters and acting on it. There is now a move for companies to look beyond their own operations.

One way that progressive businesses such as Safaricom and KCB Group are doing is to bring aboard their suppliers into the sustainability discussions. The idea is to ensure that they have supply chain sustainability systems that are aligned with their companies’ values and ambitions.

KCB Group for instance is now expecting its first-tier suppliers to comply with a new code of suppliers, and they ask that those suppliers in turn ask for compliance from their suppliers. The aim is to create a multiplier effect of sustainable practices that flows smoothly throughout the supply chain.

The Supplier Code of Conduct (Code) provides the minimum expectations of a company’s suppliers when it comes to sustainability matters. It covers diverse sustainability-relevant topics such as integrity, ethics and conduct; conflict of interests, gifts and corporate governance; labour and human rights; health and safety; and environmental management.

KCB Group will be convening all its suppliers this week in what is to take them through the code of conduct as well as laying out expectations of the bank when it comes to the code of conduct. In addition, KCB will be providing insight to its suppliers on the benefits of sustainability as well as sharing the best practices.

Suppliers should welcome the efforts and overcome the sustainability myth that sustainability is for the old, big and cash-rich organisations. On the contrary, suppliers who adopt sustainability will accrue some benefits along the way as they implement sustainability to meet the needs of their customers.

There is no doubt that sustainability comes with a cost, but it can also lead to big savings. For instance, by a supplier reducing their waste and at the same time increasing their efficiency of buildings, vehicles and machinery, there will be a definite return on investment from the efforts.

In the 21st century, information is readily available, and the lack of sustainable supply chains will have a dent on a company’s brand reputation. It is important to protect the firm’s reputation to enhance business growth one way of doing this is by being sustainable. For instance, by ensuring fair working conditions, paying and minimising environmental impact, companies will protect their brands and become responsible businesses.

Sustainability in a supply chain is a great way of attracting partnerships. A business with a sustainable supply chain or providing sustainable products and services will become attractive to other companies looking to buy from sustainable companies. When a business’ sustainability credentials align with the values of other brands, it will likely open up potential partnership opportunities.

New partnerships will mean more business as the business proves its sustainability credentials. Companies can further support their sustainability journey through internationally recognised standards, such as UN Global Company, Net Zero Coalitions or engaging in International Standard Organisation (ISO) standards such as ISO 140001 or ISO 26000 series.

With the creation of sustainable supply chains, there will be opportunities for innovative companies.

One such chance which is gaining speed is the provision of Supply Chain Finance (SCF). It typically involves incorporating ESG criteria into the funding conditions. Primarily, suppliers are rewarded if they perform well against certain ESG goals such as better interest rates or access to the financing programmes. SCF can be an effective tool for influencing positive change as it links sustainability achievements with competitive financing.

In this case, the suppliers will be offered preferential financing rates through SCF as part of efforts to incentivise suppliers to make positive changes to their businesses while tracking performance and creating a culture of continuous improvement.

As banks engage in implementation of SCF, there is need for avoidance of sustainability washing. This will be achieved by ensuring that data on sustainability provided by suppliers is independently verified, assessed, and certified by sustainability consultants or experts.

This article was first published on Business Daily

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