Supply Chain Visibility as an Emerging ESG Priority

As sustainability evolves from a niche concern to a mainstream business priority, supply chain visibility (SCV) has emerged as a critical component of corporate ESG strategies. Achieving transparency within supply chains is no longer optional. It’s necessary to meet regulatory requirements, investor expectations, and consumer demands.

Companies are increasingly held accountable not only for their direct operations but also for the environmental, social, and governance (ESG) impacts of their suppliers and partners across global supply chains.

What is Supply Chain Visibility (SCV)?

Supply Chain Visibility refers to the ability of a business to track products, components, and materials from their origin to the final customer. It involves monitoring the movement of goods, assessing environmental impacts, and ensuring compliance with social standards across all tiers of the supply chain. SCV enables companies to make data-driven decisions to optimize logistics, reduce environmental impacts, and improve overall resilience. A visible supply chain is one where every stage, from supplier to final delivery, is accessible and transparent. SCV is especially valuable for sectors like manufacturing and retail, where complex, multi-tiered supply chains are common.

Why is Supply Chain Visibility So Important?

Supply Chain Visibility is essential because it allows companies to monitor and manage the movement of goods, data, and finances in real-time, which is crucial for identifying and mitigating risks. With SCV, businesses can pinpoint inefficiencies, respond to disruptions, and enhance sustainability by tracking Scope 3 emissions, which are indirect emissions from a company’s supply chain.

Supply chains are prone to disruptions from various sources, including natural disasters, geopolitical instability, and volatile market conditions. SCV helps companies respond more effectively to these risks, ensuring that their operations remain resilient and sustainable.

As regulations evolve and consumers prioritize ethical sourcing, transparent supply chains help companies build trust and differentiate themselves in a competitive market.

Related Article: ESG Reporting in Supply Chains: Strategies, Surveys and Engagement

The Growing Demand for Scope 3 Emissions Accountability

Scope 3 emissions—those indirect emissions from a company's value chain—are now a major focus due to new regulations in regions like the EU and California. For many businesses, Scope 3 emissions represent the majority of their carbon footprint, encompassing everything from the sourcing of raw materials to the logistics of product delivery.

Reporting these emissions involves tracing a product’s lifecycle and requires robust data from suppliers. However, gathering this information can be challenging, particularly for organizations with extensive and complex supply networks.

Companies that successfully integrate emissions tracking into their operations can meet compliance more effectively and position themselves as leaders in corporate responsibility. This demand for Scope 3 accountability encourages companies to work closely with their suppliers on sustainability initiatives, as investors increasingly prioritize transparency and measurable impact in ESG metrics.

Related Article: Scope 3 Emissions: Overcoming Challenges and Implementing Effective Reporting Strategies

Ethical Sourcing and Human Rights Due Diligence

Beyond emissions, companies must address human rights issues within their supply chains. The EU’s Corporate Sustainability Due Diligence Directive (CSDDD) mandates that companies proactively prevent human rights abuses and environmental harm throughout their operations and supply chains. This regulation underscores a growing expectation that businesses hold themselves accountable for the practices of their suppliers.

For industries like electronics and textiles, where human rights issues can be prevalent, SCV is crucial. Ethical sourcing and labor standards compliance are no longer limited to voluntary codes of conduct—they are increasingly enforced through law.

Firms are expected to conduct due diligence on their suppliers, which includes assessing risks related to child labor, unsafe working conditions, and other human rights abuses. For multinational corporations, this may involve auditing factories in other countries or implementing training programs for suppliers on human rights standards.

Technology as a Key Enabler of Supply Chain Transparency

Innovative technologies such as blockchain, artificial intelligence (AI), and the Internet of Things (IoT) are becoming indispensable tools for improving supply chain visibility. Blockchain, for example, enables secure tracking of a product from its origin to its final destination. This is valuable for industries like agriculture and textiles, where provenance is essential for ensuring ethical and sustainable sourcing.

AI and IoT play critical roles in real-time monitoring.

AI can analyze large datasets to identify inefficiencies and areas of environmental impact within a supply chain, while IoT sensors can track environmental conditions—like temperature and humidity—that affect product quality and energy use during transport.

Together, these technologies not only help companies manage sustainability goals but also enhance resilience by providing greater insight into supplier performance and potential risks. By using these tools, companies can respond to disruptions quickly and ensure that their supply chains align with ESG priorities.

Related Article: The Role of AI in Shaping Global Sustainability Trends in 2024

Navigating Geopolitical and Resource Challenges

Global supply chains are increasingly affected by geopolitical events, particularly around critical resources like rare earth metals. The U.S. and EU, for example, are exploring ways to reduce dependence on materials sourced from regions with political instability or controversial labor practices. This shift toward “de-risking” supply chains aims to ensure stable access to materials essential for green technologies, such as electric vehicles and renewable energy installations.

As companies seek to mitigate these risks, they are adopting new sourcing strategies, such as nearshoring (bringing production closer to the primary market) and diversifying their supplier base. These strategies not only improve supply chain resilience but also offer opportunities to strengthen sustainability by reducing transportation emissions and supporting local economies.

Nearshoring, for example, reduces the environmental impact of transportation and creates a more secure, localized supply network.

Enhanced Reporting and Regulatory Harmonization

The global ESG regulatory landscape is complex, with each country or region adopting its own set of sustainability standards and reporting requirements. The EU has led with regulations like the Corporate Sustainability Reporting Directive (CSRD), mandating extensive disclosures from companies operating within its jurisdiction. Similarly, the U.S. Securities and Exchange Commission (SEC) is expected to publish new climate disclosure rules, adding another layer of compliance for businesses.

For companies operating internationally, harmonizing reporting practices across multiple jurisdictions is essential to avoid compliance risks and inefficiencies. The push for universal standards is growing, with organizations like the International Sustainability Standards Board (ISSB) working to establish a global baseline for ESG reporting.

Companies that proactively adopt these standards can benefit from streamlined reporting processes, better data comparability, and a stronger reputation for transparency.

What Are Some Examples of Supply Chain Visibility?

• Real-Time Shipment Tracking: Many companies use GPS and IoT devices to monitor shipment locations, enabling accurate delivery updates and faster response to delays.

• Supplier Audits and Certifications: Companies may conduct regular audits or require certifications like Fair Trade to ensure suppliers follow ethical labor practices and environmental standards.

• Blockchain for Product Traceability: Blockchain technology creates a secure, immutable record of every transaction within the supply chain, which is valuable for industries needing stringent traceability, such as pharmaceuticals.

• Carbon Footprint Analysis: Companies track emissions data from suppliers to calculate Scope 3 emissions, identifying areas for environmental improvement and regulatory compliance.

What Tools Are Used for Supply Chain Visibility?

• Blockchain Technology: Enables transparent and secure tracking of goods across the supply chain, verifying origins and sustainability claims.

• Artificial Intelligence (AI): AI analyzes supplier performance, forecasts demand, and identifies supply chain risks, helping companies improve efficiency and avoid disruptions.

• Internet of Things (IoT): IoT devices track environmental conditions like temperature and humidity in real-time, critical for sensitive products like food and medicine.

• Supply Chain Management (SCM) Software: Platforms such as SAP Ariba and Oracle SCM Cloud offer end-to-end visibility, helping businesses track orders and monitor supplier compliance.

• Environmental Data Platforms: Tools like EcoVadis and CDP provide data on supplier environmental performance, allowing companies to assess and manage sustainability impacts across the supply chain.

How Can Companies Achieve Supply Chain Visibility?

Achieving SCV involves a multi-pronged approach:

• Invest in Technology: Implementing blockchain, IoT, and AI provides real-time tracking and analytics, allowing continuous monitoring of supply chain activities and early detection of issues.

• Build Supplier Partnerships: Collaborating with suppliers and promoting data sharing increases transparency. Some companies also offer suppliers training on sustainable practices.

• Standardize Data Collection: Consistent data collection ensures accurate reporting and simplifies compliance. Many companies now align with standards from bodies like the ISSB to standardize their data.

• Conduct Regular Audits and Assessments: Regular evaluations of suppliers help identify risks related to ESG factors, ensuring compliance with both regulations and internal policies.

• Utilize Third-Party Data Providers: Organizations like EcoVadis and CDP collect verified supplier data, making it easier for companies to monitor supplier sustainability and ethical practices.

Building Sustainable Supply Chains

Achieving supply chain visibility is essential for companies committed to meeting ESG standards and building resilient, responsible businesses. By investing in technology, engaging with suppliers, and aligning with international standards, companies can enhance their sustainability and position themselves as leaders in a rapidly changing business landscape.

The future of ESG depends on the integration of ethical and sustainable practices at every level of the supply chain. Companies that embrace this challenge will be better positioned to succeed in an increasingly accountable world, building trust with stakeholders and contributing positively to society and the environment.

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