Supply Chain Sustainability Audit
Scope 3 risk: As every sustainability director knows, as much as 95% of your carbon footprint is in Scope 3: emissions outside of your direct control. As a result, it’s your suppliers who will determine how your organisation can achieve carbon neutrality and how much that journey to Net Zero costs.
Calculating your Scope 3 emissions is notoriously difficult, and we’re seeing regulatory enforcement as a result of inaccurate or misleading claims as to overall emissions. The days of reporting just Scope 1 and 2 will soon be over, and it’s only by using advanced analytics that mid-sized and larger firms will be able to manage the risk.
ESG risk: Your suppliers pose a reputational risk, and not only are you facing increased scrutiny from your customers, but businesses are facing a fiercely progressive regulatory environment which is demanding accountability of supply chains. Supply chain sustainability audits play an instrumental role in reducing Environmental, Social, and Governance (ESG) risks, by ensuring accountability and transparency in a business’s operations.
The process enables scrutiny of the environmental impacts of a company’s supply chain, from raw materials sourcing to the end product, promoting the minimisation of carbon emissions, waste generation, and inefficient use of resources. These audits enable firms to identify potential environmental hazards, thereby paving the way for implementing effective preventive measures to combat climate change risks and align their operations with the UK’s Net Zero emission targets.
Supply chain auditing plays a critical role in calculating a company’s Scope 3 emissions, which include all indirect emissions that occur in the value chain, both upstream and downstream, excluding direct emissions from owned or controlled sources and energy purchased. The key benefits are:
These emissions typically form the most significant part of a corporation’s carbon footprint, often arising from areas such as business travel, transportation, distribution, and waste disposal.
By conducting comprehensive audits, businesses can gain an accurate understanding of their environmental impact across the full supply chain, enabling them to quantify and report these indirect emissions with precision.
This granular understanding of Scope 3 emissions through supply chain auditing is vital for businesses aiming to meet their Net Zero obligations. To reduce their overall carbon footprint, companies need to identify the significant sources of emissions in their operations and implement targeted strategies to mitigate them. An audit can uncover areas of inefficiency, overconsumption, or reliance on high-emission energy sources within the supply chain, offering the opportunity for businesses to shift towards more sustainable practices such as renewable energy sourcing, efficient logistics, and waste reduction.
Furthermore, accurate Scope 3 emissions calculation and the subsequent implementation of carbon reduction measures not only support a business’s journey towards Net Zero but also enhance its reputation amongst stakeholders. Customers, investors, and regulators are increasingly concerned about environmental sustainability, and a demonstrated commitment to reducing emissions can enhance a company’s brand image, attract green investment, and ensure compliance with tightening environmental regulations. Therefore, supply chain auditing serves as a critical tool for businesses striving to fulfil their Net Zero obligations while bolstering their market position.
A robust sustainability audit of a supply chain is pivotal to managing ESG risk effectively. If this is not undertaken, a business can find itself exposed to unlimited risk across environmental, social, and governance dimensions. There are four key factors:
From an environmental perspective, unregulated supply chains can lead to excessive carbon emissions, resource wastage, and harmful waste disposal, all of which contribute to environmental degradation and climate change.
These can ultimately result in regulatory penalties, reputational damage, and increased operational costs, as the global community moves towards stringent environmental standards.
Social risks within an unmonitored supply chain are equally perilous. These may encompass issues like labour exploitation, poor working conditions, and breaches of human rights, all of which can remain unchecked without proper auditing.
Such social infringements can not only lead to legal repercussions, but they also cause substantial damage to a company’s reputation, eroding customer trust and brand value. Today, consumers and investors are more socially conscious than ever, and any negligence towards social responsibilities can result in significant financial losses.
Finally, unregulated supply chains can pose enormous governance risks. These can include corruption, lack of transparency, and non-compliance with regulations, which can be detrimental to a company’s operations and long-term sustainability.
It is through supply chain audits that businesses can identify such risks, enforce ethical standards, and ensure regulatory compliance. Neglecting to implement a sustainability audit in your supply chain management strategy exposes your business to unlimited ESG risks, potentially jeopardising your financial viability, brand reputation, and future growth.