The largest organizations in the world, including corporations with global supply chains, financial institutions, and governments are increasingly cooperating with each other on climate change. The 2015 Paris Agreement was signed by 196 countries that shared the goal of keeping the increase in global average temperature well below 2 °C and limiting the increase to 1.5 °C, mitigating some of the worst risks of climate change.
While much progress has been made on electricity generation—and last week oil company BP’s CEO said that renewables will be the world’s main source of energy by 2040—soon enough the largest contributors to greenhouse gas (GHG) emissions will be sectors like manufacturing, transportation, and agriculture.
Pressure on these types of supply chain participants to lower GHG emissions is now coming from four sources: the emergence of environment, social, and governance (ESG) investing; consumer demand for green or sustainable products; regulations and international agreements like Paris; and the cascading effect of large corporations asking their suppliers for visibility into how green their supply chains are.
The term ‘ESG’ was coined in 2005; by 2018 ESG investors were estimated by Forbes to hold $20 trillion in assets under management. The rapid expansion of this investment philosophy can be attributed to ESG’s main difference with its predecessor, Socially Responsible Investing (SRI). Socially Responsible Investing simply based some negative screens for potential investments on ethical and moral criteria, like not investing in weapons makers or tobacco companies. ESG investing is different, because it works under the assumption that environment-social-and-governance factors are relevant to a company’s financial performance.
Consumer demand is also one of the most important drivers of green supply chains and sustainable products. A 2018 poll found that 48 percent of all millennials said that they felt most guilty about their own plastic use. Allbirds, a San Francisco-based direct-to-consumer startup making environmentally friendly shoes, raised a $50 million Series C in October 2018 that valued the company at $1.4 billion. The company says its use of merino wool allows its manufacturing processes to consume 60 percent less energy than footwear companies using synthetic materials. Shake Shack, a fast food restaurant that prides itself on animal welfare and sustainability, was founded in 2004 and went public in January 2015; SHAK now has a market cap of $1.9 billion. Clearly, companies able to differentiate themselves with transparent and sustainable supply chains can quickly become consumer favorites.
International accords like the Paris Agreement obviously pressure companies to green their supply chains because governments of the countries they operate in are setting hard limits on carbon emissions and greenhouse gases. Other organizations, like the Carbon Disclosure Project (CDP), which helps purchasers, suppliers, and cities learn about and disclose their environmental impacts, have effectively brought the supply chains of thousands of large corporations into the light. For the CDP’s annual global supply chain report, AB-InBev might ask its hops farmers about their water use, while McDonald’s might work to limit the methane emissions from the beef it buys.
According to the CDP, successful sustainable supply chain strategies require intense collaboration between partners, advanced traceability technology, realtime data sharing and analytics, efficient logistics, and supplier awards and scorecards. The old business adage that “you can’t improve what you can’t measure” is absolutely right here.
More and more brands are using their supply chain operations as points of differentiation from their competitors, whether the metric is network velocity, cost, and service levels, or minimizing food waste, recycling, or limiting GHG emissions.
One of the most important logistics innovators, the company that opened up the business community’s eyes to how supply chain performance could be a key driver of value–namely, Amazon–recently committed to radically greening its supply chain. This week, Amazon announced its new initiative Shipment Zero in a blog post. Shipment Zero has the goal of eventually making every Amazon shipment carbon neutral with half of all Amazon shipments carbon neutral by 2030. Shipment Zero follows a similar initiative announced in October 2018 by cosmetics giant L’Oreal to reduce its supply chain’s carbon emissions by 25% by 2030, primarily by shifting air cargo volumes to rail and maritime and adding sustainable transport to its criteria for suppliers.
These branding strategies rely upon the rapid collection and analysis of data, including artificially intelligent assistants that push actionable insights to human workers. New integration layers must straddle the divide between dozens of transportation management systems and enterprise resource planning applications.
“Slync’s platform lifts siloed data from disparate supply chain partners into a cloud where our machine learning algorithms and AI can automate better decision-making and make collaboration easier,” said Chris Kirchner, CEO of Slync.
In our view, Slync has the technology and flexibility to help shippers, carriers, and third-party logistics providers optimize their supply chains for any number of factors. Sustainability is just one of those factors, but it happens to be a differentiator that can unlock explosive growth for a company and separate its brand from competitors.