Historically, sustainability was a “nice-to-have” item for executive boards. However, in recent years, environmental, social, and governance (ESG) considerations have gained considerable momentum. ESG is now far from being mere boxes to check for compliance purposes, with topics like sustainability becoming ever prominent and essential agenda items in boardroom discussions.
A focus on ESG is imperative for organizations as it enables them to effectively manage risk, meet stakeholder expectations, drive cost savings and efficiency, and gain a competitive advantage. By integrating ESG practices into their supply chains, business leaders can navigate risk and disruption, future-proof their organizations, and create a positive impact on the environment.
Most of a company’s carbon emissions commonly stem from its supply chain, primarily through manufacturing and logistics operations. As a result, this crucial aspect of business faces mounting pressure to meet progressively ambitious sustainability goals.
This is the third article in a supply chain series that previously looked at reimagining the integrated supply chain. This article will discuss how green supply chains can help create long-term value.
ESG AND GREEN SUPPLY CHAINS
Green supply chains refer to the implementation of sustainable and environmentally responsible practices throughout the supply chain process. The process involves integrating eco-friendly initiatives into various stages — including sourcing raw materials, manufacturing, packaging, and distribution. “Green” here pertains to the environmental considerations of the supply chain, and “sustainable” covers the social and economic perspective of the business.
ESG and green concepts in the product design up to end-of-life management should also be incorporated to enhance environmental sustainability. By integrating ESG principles, companies prioritize environmental impact, social responsibility, and strong governance throughout their operations.
ESG and green supply chains are closely related, with ESG considerations forming the base of developing and implementing sustainable practices within supply chain operations. Although a green supply chain addresses only the environmental side of ESG, a sustainable supply chain encompasses the environmental, social, and governance principles of ESG. Green supply chains embody the practical implementation of ESG principles by reducing carbon emissions, minimizing waste, and adopting sustainable technologies and practices.
A key part of ESG performance is to commit and take action toward a sustainable supply chain. This starts with ensuring interconnectedness and transparency in the whole of operations as well as collaboration with suppliers in adhering to green and ethical standards. Greening the supply chain brings value not just by reducing environmental pollution and waste but also by enhancing operational performance through improved production costs and asset utilization. This also builds positive brand awareness and reputation as consumer behavior shows a preference for companies or products that value their impact on the environment and society.
The relationship between ESG and green supply chains is symbiotic. ESG provides the framework and guiding principles, and green supply chains concretize those principles within the supply chain to drive sustainable and responsible outcomes.
SUSTAINABILITY POLICIES
Since the Philippine SEC mandated sustainability reporting, companies that identify supply chains as one of their material topics are required to disclose their ESG initiatives in compliance with their reporting framework/standards used. This promotes transparency and accountability, empowering employees, customers, suppliers, investors, business partners, local communities, legislators, regulators, policymakers, and other stakeholders to make informed decisions as well as contribute to the management of companies’ economic, environmental and social impacts.
In addition, Republic Act No. 11898, also known as the Extended Producer Responsibility (EPR) Act of 2022, requires obliged enterprises to establish their own EPR programs. Obliged enterprises have been given the responsibility of managing their products throughout their lifecycles, starting with plastic packaging covered in the Act, with a potential expansion of coverage in the future. The EPR Act was covered more extensively in a previous C-Suites article titled “Understanding the implications of the EPR Law.”
The Philippines also has the Green Jobs Act of 2016, which promotes the creation of “green jobs” or employment that contributes to environmental preservation. Under RR No. 05-2019, businesses that offer green jobs are granted an additional deduction equal to 50% of the total expenses for skills training and research development. Moreover, the law provides that capital equipment that is directly and exclusively used in the promotion of green jobs may be imported free of taxes.
Treating ESG as secondary can deter organizations from meeting their strategic objectives, including the potential loss of business opportunities and investment capital. Companies can improve their operational processes and drive cost reductions by enhancing environmental sustainability and overall ESG performance across the supply chain.
KEY ESG INITIATIVES
Creating a green supply chain is a manifold process. First, assessing the materiality of sustainability issues at the outset is essential, focusing on the most pressing concerns. This systemic approach allows for a targeted way to address these issues. Second, organizations should establish their strategic objectives — aligning resources, structures, and processes to sustainability imperatives identified in the initial assessment.
Leadership buy-in and board oversight are crucial for consistent direction and support throughout the business. Management and suppliers should receive training in market practices, expanding sustainability goals beyond direct operations to encompass all levels of the supply chain.
Deploying technology can enhance accountability and transparency, allowing for better monitoring and reporting. Moreover, leveraging buying power and influence can facilitate supply chain sustainability.
Finally, organizations should consider disclosing supply chain information beyond siloed sustainability reporting mechanisms, promoting transparency, and encouraging industry-wide progress.
THE FUTURE OF SUSTAINABLE SUPPLY CHAINS
Green supply chains have emerged as a critical driver of long-term value for organizations. Companies can reap a snowball effect of benefits by prioritizing sustainability and integrating environmentally responsible practices and technologies into their supply chain operations. Internal ethical leadership and support, as well as considerations of different external drivers such as customers, suppliers, and social and regulatory requirements are vital factors in integrating sustainability in an end-to-end supply chain.
Not only do green supply chains help address disruption, mitigate risk, and enhance reputation, but they also drive operational efficiency, cost savings, and access to capital. Integrating a social and economic perspective to transition to a sustainable supply chain also contributes significantly to the competitiveness, long-term profitability, innovation, differentiation, and societal impact of companies.
By taking this holistic approach to sustainable supply chains, organizations can pave the way toward a greener, more resilient future.
The next article in this series will discuss how the Regional Comprehensive Economic Partnership (RCEP) may impact supply chains in ASEAN.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.
Benjamin N. Villacorte is a climate change and sustainability services partner and Mary Andrea T. Bacani is a Supply Chain and Operations (SCO) senior manager of SGV & Co.
