On the 4th Day of Christmas my supply chain gave to me…

iStock image: tumsasedgars, disclosure under magnifying glass

…4 financial requirements

Country regulations around financial disclosure for business sustainability in climate disclosures is spreading fast. In fact, U.S. states, like California, are passing legislation ahead of federal legislation. The EU leads the world and has put business on notice that practice time is up.

A lot of required disclosure data comes from your supply chain. You’ll need to know how to handle it.

Let me break the disclosure elements into 4 parts:

Scope 1 – you control it

One of the first data sets to be collected will be around scope 1 – what are you doing to enable your business (and supply chain) to be sustainable, act sustainably, and influence partners to be sustainable. In scope 1, you have control.

And the potential innovation is exciting.

As a supply chain professional, you don’t have to go it alone to figure out how to:

  • make sure the supply chain can handle whatever variability is thrown at it. Part of sustainability often means becoming agile through processes and systems, or
  • how to reduce your carbon footprint. Design helps here by adjusting the product lifecycle, changing parameters to make it easier for procurement to use recycled/re-manufactured/re-whatever materials – or even totally different materials that are environmentally safe while still getting the job done, or
  • change what customers can see like packaging or last mile fossil fuel delivery vehicles, and
  • improve what management measures. Management wants/needs to know how sustainable changes save money and increase revenue. Research shows these happen at the same time when innovating for sustainability.

Want to see how a large global company is innovating for sustainability in ways customers appreciate?

Listen to VP of Sustainability and Social Business Innovation Jeffrey Whitford of MilliporeSigma as he relates what MilliporeSigma is doing, has accomplished, and how they got there. Start at minute 8 and have your pencil and paper ready – it’s the real deal from a real business leader. Click here for the YouTube link.

Scope 2 – do you know where your energy comes from?

Scope 2 deals with the question of “Are you choosing an energy provider that is using and growing renewable energy sources, or not?” There is often a choice, possibly including some onsite energy generation of your own.

Energy purchasing/reduction is a starting place you can work with your supply chain partners on as you work to create a more sustainable end-to-end supply chain.

BTW: scope 2 also includes how the business invests its money. Is the energy investment in fossil fuel or alternatives for power generation?

Scope 3 – this is the tough one because you don’t control it

Scope 3 includes the lifecycle of the products your supply chain delivers.

But how can you influence how the customer uses your product? That’s where design comes in to help. Your concurrent changes in the supply chain then augment design improvements as the operations areas have a chance to do things differently.

If you now accept recycled, re-manufactured, up/downcycled materials that meet spec, you’ve found more suppliers for your network. Which in turn reduces the risk of material shortages. Which in turn eliminates some of the variability in your supply chain. Which then allows the business to proceed more profitably.

Notice the interconnectedness of cross-functional integration and innovation. For sustainability, big business gains are not in the silo’d continuous improvement realm.

While electric delivery has gotten a lot of attention, that option may be too expensive for you or your partners right now. But:

  • is there a new partner who can provide delivery service in an eco-friendly way?
  • can some of the product change to software, reducing the load to be moved?
  • can you cooperatively share delivery trucks with other entities in your “neighborhood” to get better rates and eliminate repeated trips to the same approximate location for individual, small loads?

ASCM just put out a new globally recognized course on organizing sustainability initiatives. The roadmap can lead to the supply chain being certified sustainable with auditable metrics and processes. You can read more by clicking here.

Building Sustainable Supply Chains uses SCOR as a base with its metric hierarchies creating support for your financial disclosures.

Metrics present several big problems for sustainability, but using a stable framework removes many of them.

Social aspects integrated into your supply chain

It seems that social aspects would be a better fit for HR. However, your supply chain will be held responsible for many social aspects, including child labor used in lower supplier tiers, partner carbon footprints in foreign countries or your country (scope 3) that negatively affect living conditions, how waste is handled, plus more.

Here’s one that made the news recently

Employees have gone on strike in some instances due to giving up much to get the business through Covid, but now being left out of the rewards reaped by others.

Let’s briefly look at just one of the aspects: pay.

Part of the job of a Board of Directors is to study and award executive management pay. Let’s say we are looking at CEO pay. If the study only reviews other CEO pay, the board misses an opportunity to collect data on how the pay awarded to their CEO may be affecting perceptions of fairness inside the company – all the way down into the operations levels. As the auto workers strike made clear, there’s not much money being made if no one shows up to work the lines or the deliveries or the myriad of other areas in a supply chain that the business uses to make money. If you don’t have your finger on the fairness pulse of the business, you’ll miss the angst that may be building. This introduces strategic risk into the business.

Yet, if the Board of Directors is in charge of executive pay, what role do supply chains play in this fairness issue? Using a framework such as SCOR, each process is not only detailed and mapped, but so are the required skill sets that must be present or trained in to achieve successful process completion. No matter who does the job, the skill set requirements must be adhered to. Since the requirements are known and are the same no matter who has the job, it is easier to track if there is bias in pay. These skill requirements are created at all levels of supply chain – which also lets everyone know what it takes to get to a new job or rise within the organization.

Today’s disclosure requirements demand you deal with these 4 aspects. But there is no need to panic. There is training available on how to handle it all without stopping business or taking risks with your financial disclosures.

Thank you for reading my blogs

#financialdisclosure #climaterelatedfinancialdisclosure #climaterisk #Scope1 #Scope2 #Scope3 #SCOR #supplychaininnovation #ProcessandStrategy #CynthiaKalinaKaminsky

Cynthia Kalina-Kaminsky is an ASCM Master SCOR instructor and consultant, and a supply chain professional.  With you, she uses SCOR as a foundation for supply chain innovation, transformation, digital capability building, and sustainable/resilient supply chain performance you and your business can depend on. Learn more here