SUSTAINABLE

SOURCING
What’s Inside

Introduction ......................................................................................................... 1 The Value of Sustainable Sourcing ............................................. 18 - 19

About This E-book ........................................................................................ 2 On the Environment
Sustainability Issue Goes Viral .......................................................... 3 On Innovation
On Accountability
Temporary Crisis, Permanent Change ..................................... 3 - 4
On Investment Decisions
The Exceptional Rise of ESG .............................................................. 4 - 5
On Consumer Behavior
What is Sustainable Sourcing? ........................................................ 5
Tips on Securing Sustainable Credentials .......................... 20
Focusing on Sustainable Procurement .................................. 6
Sustainability Tools and Tracking ................................................. 21
Back to the Essence of ESG ................................................................ 7
What’s Ahead: The Evolution of Supply Chains ............ 22
The Value of Sustainable Sourcing .............................................. 8 - 10
Taking Ownership of Sustainability ............................................ 23
ESG Can Help Boost Cash Flow
New Generations Take Over B2B Modest Actions, Huge Impact ......................................................... 24
Communities of E-shoppers In Focus: The Circular Economy .................................................... 25
E-commerce Gets a Conscience The Virtues of a Virtuous Circle ....................................................... 26
The Business Case for Sustainable Sourcing .................... 11 Net Materials Savings 
Mitigated Supply Risks
A Boon for Shareholder Value ......................................................... 12
Innovation Potential
Identifying the Good ESG Manager .......................................... 13
Job Creation
Sustainable Sourcing: Laying the Groundwork ............. 14
About Global Sources .............................................................................. 27
Matching Sustainable Sourcing and Suppliers ............... 15
Benchmarking and Securing a Buy-in ...................................... 16
Maximizing the ESG Benefits ............................................................. 17

Sustainable Sourcing
Introduction

It seems to have taken a convergence of social

movements and public crises over the past few years to
put sustainability front and center of the global economy.
From global warming to growing alarm over plastic waste
suffocating our oceans, from the #MeToo movement
to glaring gaps in terms of diversity and inclusion in
corporate and political hierarchies, from Black Lives Matter
to concerns over unfettered materialism and consumption
– these urgent issues have galvanized governments, NGOs,
ordinary citizens, celebrities and, critically, young activists.
Finally, like an existential über-emergency, COVID-19
has left entrepreneurs, investors, bosses and bankers
questioning entrenched business models, production
systems and, particularly, supply chains.

“It may well be in the long-run interest

of a corporation to devote resources to
providing amenities to [its] community
or to improving its government. That
may make it easier to attract desirable
employees, it may reduce the wage bill ...
or have other worthwhile effects.”
- Milton Friedman, New York Times Magazine,
13 September 1970

Sustainable Sourcing 1
About This E-book

Sustainable Sourcing is a deep dive

into the challenges, opportunities and
practicalities of building sustainability
into your supply chain. Written
exclusively for Global Sources, this
e-book draws on the latest research and
analysis from some of the world’s leading
business and sustainability experts to
discuss everything from the business
case for sustainable sourcing and the
factors driving demands for it, to how
you can benchmark, track and prove your
company’s green credentials, and reap
the business benefits.

Sustainable Sourcing 2
 “Now, over a year later, many of these problems have not been
resolved,” says an Ecovadis.com report from April 2021. “Many
companies are still reporting shortages of nearly everything, saying
the COVID-19 pandemic has caused supply chain breakdowns.”

Temporary Crisis, Permanent Change

While there were breakdowns in the supply chain, there has been
a remarkable shift in the importance key players give to sustainable
sourcing. Indeed, a survey by management consultants Bain &
Company in late 2020 pointed to a growing consensus among
executives regarding the importance of sustainability amid the
pandemic disruptions.

“COVID-19 has increased the importance of sustainability for

Sustainability Issue Goes Viral nearly half of those executives surveyed, with 75% expecting
“The COVID-19 pandemic has driven home the importance sustainability initiatives to
of making our global supply chains more resilient,” Ecovadis deliver permanent change,”
stated at the conclusion of its Sustain 2021 online conference writes Jenny Davis-Peccoud
in March 2021. “As factories scrambled to ramp up production and Clare Tovey in their
despite staff shortages and government lockdown measures, report “Sustainability Efforts
supply chains were exposed to even greater risks associated with Accelerating Despite
workers’ rights, child labor and modern slavery,” added the Paris- COVID-19 Disruption”,
based provider of business sustainability ratings covering more published on bain.com on
than 75,000 companies in over 160 countries. November 19, 2020.

Ecovadis noted the start of the supply shock in February 2020, “The crisis exposed weaknesses in existing operations and opened
with China feeling the pinch first, followed by the demand the door for companies to shorten supply chains and make them
shock triggered by the global economic shutdown. Caught off- more transparent, socially conscious and environmentally friendly.
guard, governments responded with temporary travel and trade So it wasn’t surprising to learn that 43% of executives plan to
restrictions, stoking public panic amid shortages of critical goods improve sustainability-related processes,” according to the Bain &
such as food, pharmaceuticals, and medical supplies. Company analysts.

Sustainable Sourcing 3
Half of all companies say Covid-19 has increased the
importance of sustainability
Did recent Covid-10 events affect the importance of sustainability
for your company?

Significantly increased 15%

Slightly increased 36%
Did not affect 34%
Slightly decreased 11% May result in sustainability
being pushed aside in
Significantly decreased 4% decision making and
strategic discussion

Source: Bain survey of global food supply chain executive, August 2020 (n=146)

Sustainability’s rising importance is being felt in

different ways
How has the change in sustainnability’s importance come into effect?

Sustainability in more significant

in overall decision making 49%
49% The Exceptional Rise of ESG
Sustainability is more in the
center of strategic discussion
Improving sustainability-related
processes 43% So what’s behind this growing commitment to sustainable sourcing amid the
Increasing investments in
sustainablity initiatives 25% COVID-19 pandemic? Simply put, it makes business sense. “Companies that
Starting new sustainablity
initiatives 21% commit to sustainability during the COVID crisis will come out stronger, with
Note: Up to two answers permitted
Source: Bain survey of global food supply chain executive, August 2020 (n=146) more solid customer and supplier relationships, enhanced corporate reputations,
and improved employee loyalty and productivity,” according to Davis-Peccoud
Most companies say sustainability will remain important and Tovey.
You expect that effect on the importance of sustainability for your company to be...

Another management consultancy giant, McKinsey & Company, echoes this

conclusion, highlighting the importance of sustainable supply chains under the
banner of ESG – investing and doing business guided by good Environmental,
Temporary Permanent Social and Governance principles.
21% 76%
“Shareholders and stakeholders do not compete in a zero-sum game. Quite the
I don’t know 3% Source: Bain survey of global food supply
chain executive, August 2020 (n=146) opposite: building a strong connection with broad elements of society creates
value, not least because it builds resilience into the business model,” McKinsey

Sustainable Sourcing 4
noted in its November 14, 2019 report, “Five ways that ESG risks, such as the apparent
creates value”. issues of supply disruption
and cost volatility, as well
“Compromising your connections with stakeholders simply to as the less obvious but
make earnings targets, on the other hand, destroys value. equally crucial matters
It’s the essence of short-termism, measurably and of compliance with
overwhelmingly harmful to most shareholders’ economic local laws and
interests,” McKinsey adds. “Businesses need to satisfy the regulations, and
needs of their customers, employees, and communities – other potential
these days, often a global community – in order to maximize pitfalls that could
value creation. Thriving businesses concerned with long-term hurt their brand
horizons fuel a virtuous cycle. They create jobs, increase tax reputation.
revenue, and raise standards of living. ESG helps generate
wealth, and wealth is not a fixed pie.” “Companies must
meet the growing
Before slicing into that pie, it may help to backtrack a little and expectations of
define sustainable sourcing as a business and production model. stakeholders (including
customers, shareholders,
What is Sustainable Sourcing? employees, NGOs, trade
Ecovadis gives a very straightforward definition: “Sustainable associations, labor unions,
sourcing is the integration of social, ethical and environmental government observers) to take responsibility for their
performance factors into the process of selecting suppliers.” supplier’s environmental, social and ethical practices,”
Ecovadis explains. “The ultimate goal of sustainable sourcing
Although stated rather differently, these three factors still is to build strong, long-term relationships with suppliers.
echo the ESG parameters highlighted by McKinsey. According Improving performance in environmental, social and ethical
to Ecovadis, sustainable sourcing has become even more issues is becoming a major part of the overall process.
important as companies – looking to cut costs and boost Working toward this has become an extension of the
production – include developing countries in their supply company’s commitment to corporate responsibility and as
chains, especially for food and clothing. In these nascent such becomes a part of the overall business structure and
economies, non-local companies could be exposed to various model.”

Sustainable Sourcing 5
Focusing on
Digging down deeper, Ecovadis zeroes in on sustainable pressures, and ability to reduce this through reductions in energy
procurement, where corporate social responsibility (CSR)  consumption and waste reduction.”
principles are integrated into procurement processes and
decisions, without ignoring the requirements of the company Crucially, outsourcing companies that take sustainable
and its stakeholders. procurement seriously can protect their brand reputation
through detailed risk management and by fixing weak areas
“Sustainable procurement is not simply about not using child that could fuel scandals and bad publicity. If done properly,
labor or illegal chemicals that can damage the environment and sustainable procurement can help companies rise above the
peoples’ health,” Ecovadis clarifies. “Commitment in sustainable competition through the development of innovative products
procurement ensures values which are core to the business are and services that are also relevant to their markets and
integrated through a company’s supply chain into the life cycle of customers. If done wrong, it can prove disastrous, because “as
its products and services… Policies and strategies for sustainable much as 90% of a company’s environmental impact may be
procurement developed by companies are based on the need to caused by the supply chain, putting people, communities, and
future-proof themselves primarily around scarcity in supply brand reputation at risk,” according to an Ecovadis.com report
and ability to cope with the demand of emerging markets, cost in April 2021.

Sustainable Sourcing 6
Back To The Essence of ESG
As far as McKinsey is concerned,
sustainable sourcing and
sustainable procurement are part
and parcel of the ESG-driven
business model. For the purpose
of this report, ESG and sustainable
sourcing are used interchangeably,
given the near universal overlap of
the two concepts.

The environmental criteria cover

energy usage, waste discharge, use
of other resources for production,
and the overall impact not just
on humanity but on every living
creature. “The Environmental
criteria encompasses carbon
emissions and climate change,”
McKinsey adds. “Every company
uses energy and resources; every
company affects, and is affected by,
the environment.”

According to McKinsey, the social criteria cover the relationships and the reputation a company has with the public and the
institutions in its host community. “This includes labor relations and diversity and inclusion. Every company operates within a
broader, diverse society,” McKinsey adds.

Finally, McKinsey defines governance as “the internal system of practices, controls, and procedures your company adopts to
govern itself, make effective decisions, comply with the law, and meet the needs of stakeholders.” In short, as a legal entity, every
company requires good governance.

Sustainable Sourcing 7
The Value of Sustainable Sourcing
So why is ESG so important to 21st century businesses? In well as by the investors and executives who realize that a strong
August 2019, the highly influential US Business Roundtable ESG proposition can safeguard a company’s long-term success.
strongly affirmed the business sector’s commitment to its The magnitude of investment flow suggests that ESG is much
various stakeholders, including customers, employees, more than a fad or a feel-good exercise.”
suppliers, communities, and, of course, shareholders – the very
parties that the ESG model aims to satisfy. Contrary to most expectations, companies that adopt ESG
principles are not hampered in their value-creation drive. In
“Of a piece with that emerging zeitgeist, ESG-oriented fact, according to McKinsey, the opposite is true, based on
investing has experienced a meteoric rise,” McKinsey reports. accumulated research. “A strong ESG proposition correlates
“Global sustainable investment now tops US$30 trillion – up with higher equity returns... Better performance in ESG also
68% since 2014 and tenfold since 2004. The acceleration corresponds with a reduction in downside risk, as evidenced,
has been driven by heightened social, governmental, and among other ways, by lower loan and credit default swap
consumer attention on the broader impact of corporations, as spreads and higher credit ratings,” it says.

Sustainable Sourcing 8
 ESG Can Help Boost Cash Flow “go green”, with more than 70% consumers surveyed (with
Many people might assume that compliance confirmed purchases in multiple industries such as the
with ESG principles could be costly. While automotive, building, electronics, and packaging categories)
that may be true in the initial stages of ESG saying they are willing to pay a 5% premium for a green
adoption, the long-term benefits to cash product that meets the same performance standards as a
flow are undeniable. In a 14 November 2019 non-green alternative.
report in the McKinsey Quarterly, the consulting giant says
ESG can have five virtuous effects on cash flow by boosting Indeed, as reported by Sustainable Brands, 85% of consumers
top-line growth, cutting costs, minimizing regulatory and legal are more likely to buy from a company with a reputation for
interventions, improving employee productivity, and ensuring sustainability than from a neutral company.
that investment and capex are optimized.
ESG adoption can also slash operating costs, such as those
“Each of these five levers should be part of a [business] for raw materials and the true cost of water or carbon – which
leader’s mental checklist when approaching ESG can affect operating profits by as much as 60%, according
opportunities,” McKinsey says. “The five links are a way to to McKinsey research. The consultancy cites the case of US
think of ESG systematically… Some are more likely to arise conglomerate 3M, which has confirmed savings of US$2.2
in certain industries or sectors; others will be more frequent billion since introducing its “pollution prevention pays”
in given geographies. Still, all five should be considered (3Ps) program, in 1975. The scheme involves reformulating
regardless of a company’s business model or location. products, improving manufacturing processes, redesigning
The potential for value creation is too great to leave any of equipment, and recycling and reusing waste from production.
them unexplored.” Another case is FedEx, which has already reduced its fuel
consumption by more than 50 million gallons – simply by
Good for Gatekeepers, Customers & Costs converting 20% of its 35,000-vehicle fleet to electric or
Good corporate reputation engendered hybrid engines. More savings are expected as FedEx aims for
by ESG adoption can also be a key tool in full conversion.
expanding businesses in situ or tapping into
new markets. “When governing authorities Inspiring Employees and Partners
trust corporate actors, they are more likely On a much more intangible level, strong
to award them the access, approvals and licenses that afford adherence to ESG principles can boost a
fresh opportunities for growth,” McKinsey says. company’s ability to “attract and retain
quality employees, enhance employee
Then there’s consumer preference. According to McKinsey, motivation by instilling a sense of purpose,
research has shown that customers are willing to pay to and increase productivity overall,” says McKinsey, pointing to

Sustainable Sourcing 9
the positive correlation between employee satisfaction and such as the gradual pull-out
shareholder returns. from oil-tanker or fossil-
fuel investments, as these
“Just as a sense of higher purpose can inspire your employees may not pay off because of
to perform better, a weaker ESG proposition can drag longer-term environmental
productivity down,” McKinsey warns. “The most glaring and regulatory issues.
examples are strikes, worker slowdowns, and other labor
actions within your organization.” “When it comes to ESG, it’s
important to bear in mind that a
Companies with inadequate ESG commitment also face do-nothing approach is usually an
various risks if they fail to check on their primary suppliers, eroding line, not a straight line,” McKinsey
purchasing agents and subcontractors. As some of these says. “Continuing to rely on energy-hungry plants and
third-party players down the supply chain can be managed equipment, for example, can drain cash going forward. While
loosely, companies that source from them can be tainted the investments required to update your operations may be
with the same scandalous brush, such as cases involving the substantial, choosing to wait it out can be the most expensive
neglect of workers’ health and safety. option of all.”

McKinsey shares that, to avoid potential damage to their brand But creating value via ESG adoption need not involve new
reputation, some companies have adopted mechanisms to initiatives. “One way to get ahead of the future curve is
ensure that their suppliers strictly comply with their ESG to consider repurposing assets right now – for instance,
pledge. For instance, Walmart monitors the working conditions converting failing parking garages into uses with higher
at their suppliers and subcontractors, including those in China, demand, such as residences or day-care facilities, a trend
using a proprietary “scorecard”. we’re beginning to see in reviving cities,” McKinsey adds.

Creating Value and the Art of Repurposing This “future-proofing” can be an insurance against adverse
According to McKinsey, companies can social reactions that can damage a company’s reputation.
enhance investment returns by adopting McKinsey estimates that negative publicity can mean
ESG principles. This can entail the smart double-digit declines in market capitalization in the short to
allocation of capital or the reassessment and medium-term following an unfavorable incident. “These days,
re-channeling of “stranded” investments. The the tail events can seem to come out of nowhere, even from
former can mean assigning capital to opportunities proven a single tweet. Playing fast and loose with ESG is playing to
to be sustainable, such as renewables, waste reduction and lose, and failure to confront downside risk forthrightly can be
scrubbers. In contrast, the latter can mean re-balancing assets, disastrous,” it says.

Sustainable Sourcing 10
A strong environmental, social, and governance (ESG) regulations). Citing the World Economic Forum’s “Beyond
proposition links to value creation in essential ways. Sustainable Procurement” report, Ecovadis says sustainable
Strong ESG proposition (examples) Weak ESG proposition (examples)
sourcing practices can boost brand value by 15% to 30%.
Top-line growth Attract B2B and B2C customers wiith more Loose customers through poor sustainability practices
sustainable products (eg, human rights, supply chain) or a perception of

Achieve better access to resources through

unsustainable/unsafe products
Finally, Ecovadis
concludes that
stronger community and government relations Lose access to resources (including from operational
shutdown) as a result of poor community and labor relations

sustainable
Cost reduction Lower energy consumption Generate unnecessary waste and pay correspondingly
Reduce water intake higher waste-disposal costs
Expand more in packaging costs
Regulatory and legal interventions Achieve greater strategic freedom through
deregulation
Suffer restrictions on advertisisng and point of sale sourcing can help
Earsn subsidies and government support
Incur fines, penalties, and enforcement actions
boost revenues
Productivity uplift Boost employee motivation Deal with “social stigma,” which restricts talent pool
through new
Investment and asset
Attarct talent through greater social credibility
Enhance investment returns by better allocating
Lose talent as a result of weak purpose
Suffer stranded assets as a result of premature write-downs
income streams
optimization capital for the long term (eg, more sustainable
plant and equipment ) Fall behind competitors that have invested to be less
“energy hungry”
from innovative
Avoid investmnets that may not pay off because
of longer-term environmental issues and eco-friendly
products and
services, price
premium, and income from recycling programs. Indeed, in its
The Business Case for Sustainable Sourcing report on the ‘circular economy’ (which goes beyond mere
According to Ecovadis, ESG or sustainable recycling), McKinsey points out: “In 2015, we demonstrated
sourcing/procurement is driven by three key business that [adoption of a circular economy] could boost Europe’s
priorities: cost reduction, insurance against risks, and revenue resource productivity by 3% by 2030, generating cost savings
growth. The first driver means cuts in total cost of ownership of €600 billion a year and €1.8 trillion more in other economic
linked to reductions in energy costs, over-specification, benefits.” (This McKinsey report is discussed in detail in the
consumption, as well as social and environmental compliance “IN FOCUS: The Circular Economy” section of this report.)
costs. Among other factors, Ecovadis says, sound sustainability
standards can lower the cost of capital, according to 90% of In summary, Ecovadis cites the various benefits of sustainable
studies on this theme as collated by Oxford/Arabesque. procurement as follows: minimized risk in business practices;
compliance with environmental and social legislation; enhanced
Meanwhile, the second driver – risk management – can consumer perception; control of costs by adopting a wider
minimize adverse effects in two areas: financial impact on approach to whole product-life costing; creating markets for new
brand value from bad supplier practices (such as child labor products and services; reduced waste and improved resource
and local pollution); and the economic cost of sourcing efficiency; bolstered competitive advantage; facilitation of access
disruptions (such as non-compliance with environmental to capital; and increased valuation.

Sustainable Sourcing 11
A Boon for Shareholder Value
ESG’s positive impact on shareholder value is confirmed by a organization’s competitive position and meeting society’s
McKinsey Global Survey (“The ESG Premium: New Perspectives expectations for good corporate behavior”.
on Value and Performance”, 12 February 2020, McKinsey
Sustainability, www.mckinsey.com). The survey found that 83% Perceptions have shifted in the past decade around how
of C-suite leaders and investment professionals expect ESG ESG programs contribute to financial performance.
programs to contribute Among respondents who say ESG programs create value, Top ways that ESG programs improve financial performance, % of
more shareholder value the share seeing short- and long-term value has grown. respondents’
Share of respondents who say goven program creates value, %
within five years. 2009 2019 Significant change from 2009
Environmental programs Social programsG overnance programs

-5 -5 -10 +9 -14 +4 +11 +8

100 100
Long-term value

Furthermore, the share

Long-term value

Long-term value
80 80
76
of respondents who say Short-term value
71
that ESG programs create 54
60 60

45
Short-term value
43
value has also grown 36 34 34
40 40
32
26 24 28
Short-term value

23
from 10 years ago – and 20 20
18
11
this finding is consistent 0
2009 2019 2009 2019 2009 2019
0 3
across various industries ‘Question was asked only of respondents who said environmental, social, and governance programs
Maintain Attract, Open new Meet society’s Improve Improve risk Strenghten the Improve
a good motivate, growth expectations operational management organization’s access to
(see following graphics).
increase shareholder value. Respondents who said “sustainability negative,” or “no effect” are not
shown; total n=136 in 2009 and n=342 in 2019. corporate and/or retain opportunities for good efficiency competitive capital
reputation talented corporate and for position?
and/or brand employees behavior decrease
Forty percent of respondents expect company equity costs
sustainability programs to generate value in the next five
years—nearly double the current share.
Share of respondents who report or expect “modest” or “significant” value There’s also a direct “Question was asked only of respondents who said environmental, social, and governance programs
correlation between ESG
created from sustainability programs, by industry,’ %
increase shareholder value. Executives were asked which ways ESG programs improve their
organizations’ financial performance. Respondents who said “other” or “don’t know” are not shown:
programs and best-practice
Electric power and natural gas

Travel, transport and logistic

total n=136 in 2009 and n=342 in 2009.
Oil and gas
management, McKinsey says.
Business, legal, and professional services
‘Not statistically significant when controlling for the different roles included in the 2009 and 2019
Financial services “Maintaining a good corporate survey samples.
reputation and attracting and
Automotive and assembly

High tech

Consumer and packaged goods

retaining talent continue to
be cited most often as ways Interestingly, the C-suite leaders and investment professionals
Reatil

Telecom

Capital projects and infrastructure

that ESG programs improve surveyed by McKinsey said they would pay as much as a
financial performance,”
Healthcare systems

Public sector 10% median premium to acquire a company with a positive

Pharmaceutical and medical products

All respondents
it says, adding that ESG’s ESG record over another with a negative one. “That’s true
“Total 7 answer choices presented “significant cost,“ “modest cost,“ “minimal to no cost or value,“ and other intangible benefits even of executives who say ESG programs have no effect on
“include strengthening the
“don’t know;“ n=2,421, Only industries that received meaningful numbers of responses are shown.

shareholder value,” McKinsey reports.

Sustainable Sourcing 12
Identifying the Good ESG Manager
Given the premium placed on companies with positive ESG an essential part of their work ethics and daily practice.
record, how does one identify a good ESG business leader?
McKinsey offers some tips from its McKinsey Global Survey • Third, effective ESG managers work with their customers
published on mckinsey.com on April 28, 2021. According to and suppliers in tackling sustainability issues and in
the consultancy giant, companies that are able to use their calibrating their product portfolios to make sure they comply
sustainability programs to generate value adhere to a unique with ESG standards. One way of doing this is to use a
set of management practices. sustainability guide when selecting and assessing suppliers.

• First, they tend to prioritize sustainability as a business • Finally, compared to other companies with weak or no ESG
strategy, complete with detailed aspirations and targets. programs in place, these ESG advocates are much more
In effect, ESG or sustainable sourcing becomes an essential likely to monitor their facilities and transportation networks
part of the company’s mission and vision statements. to make sure they strictly follow with ESG principles.

• Second, they are known to integrate sustainability into “Sustainability endeavors often make good business sense,
their corporate culture, making sure it is instilled by training promising to deliver revenue gains, cost savings, and other
their employees on how to make sustai nability principles benefits that lift enterprise value,” McKinsey concludes.

Sustainable Sourcing 13
Sustainable Sourcing: Laying the Groundwork
Notwithstanding the preceding steps to ensure suppliers comply with sustainable sourcing principles, there’s no replacing having actual
boots on the ground – that is, fieldwork and face-to-face meetings with suppliers, stakeholders and other relevant parties.

Ecovadis suggests the following front-line actions to guarantee strict compliance with ESG or sustainable sourcing principles, particularly
in the area of regulatory requirements:
• Check the fine print of the social and environmental legislation in the countries of production of prospective suppliers
• To assess and mitigate against production risks, determine the level of regulatory enforcement in these countries
• Check whether prospective suppliers qualify for independent certification of conformity with recognized social and environmental
standards
• Clearly define your expectations to your suppliers – make clear that compliance with all applicable laws is a minimum
• Explore potential risk areas with suppliers, agree on the desired level of performance and incorporate these in the contract. If necessary,
use a supplier code of conduct as a benchmark
• Regularly assess the facilities and practices of your suppliers, preferably via independent monitoring, or by organizing random or
scheduled on-site visits and worker interviews
• Find out about sectoral initiatives on assessments, and those that can help provide information and training to suppliers on responsible
business practices. For instance, suppliers can be asked to provide CSR assessment scores, or industry certificates such as for ISO 26000
• Raise awareness among your purchasing officers of the impact that their buying practices might have on production at the factory level

Sustainable Sourcing 14
 the proper vision, training and tools to guide their work and
procurement decisions. “This may include new software,
training in CSR and responsible business, and a complete
change management plan,” Ecovadis says, adding that
companies should also promote cooperation between
corporate buyers, supplier sales team and units of production
when planning schedules of production.

Fourth, Ecovadis advises companies to support and instruct

suppliers on how to set their own ESG-compliant business
Matching Sustainable Sourcing and Suppliers standards and to self-assess their performance. “Educate
Zeroing in on the important role of suppliers in ensuring that suppliers on the business and community benefits of
companies stick to their sustainability pledge, Ecovadis offers some practicing responsible business,” Ecovadis says. “This
tips on how to ascertain that supply chains are sustainable. may include productivity, quality, community support and
engagement, and improved recruiting, employee turnover
First, Ecovadis advises companies to make sure that sustainability and renewal of contracts.”
principles are properly defined and integrated into their supplier
screening processes. “Typically, the procurement leadership Fifth, companies should assess and audit the CSR performance
develops a vision that aligns with the company’s Responsible of suppliers by enlisting the help of stakeholders for a fair and
Business policy, and then adapts their procurement policies to comprehensive monitoring done over time. Ecovadis suggests
include Responsible Business in the various processes and that companies within the same industry sector can work together
criteria for supplier selection and management,” it explains. on such assessments to save on costs and ensure efficient
implementation of their monitoring programs.
Second, companies must ensure expectations are clearly set and
communicated for suppliers to avoid conflicts of interest and Finally, Ecovadis says companies should manage the
regulatory issues. Ecovadis suggests including such expectations in expectations of their shareholders and promptly report on
contracts and in a code of conduct, and the constant underscoring their work with suppliers as part of good management practice
of such requirements in all supplier interactions and to enhance their reputation. “Transparency is the final step
and communications. to building and maintaining stakeholder trust,” Ecovadis says.
“The program should produce supplier performance
Third, companies should integrate Sustainable Sourcing information that can be adapted to include in an annual 
principles into actual buying practices by providing buyers CSR reporting.”

Sustainable Sourcing 15
 To enhance teamwork and corporate reputation, companies are
enjoined to publish progress reports internally and externally
over periods of time, such as on the company’s website, along
with the relevant performance benchmarks. “Companies,
governments and public institutions are seeking tools they can
use to evaluate sustainability performance and to recognize and
reward best practices,” Ecovadis says. “Benchmarks and indices
provide frameworks and outline best practices for organizations
to follow.”

Ecovadis suggests using the UN Sustainable Development

Goals (SDGs), Global Reporting Initiative (GRI) or the Dow Jones
Sustainability Index (SDJI). “But it is also important to benchmark
yourself against your peers. This is what really helps you
understand where the market is going and what you need to do
to retain the cutting edge,” Ecovadis concludes.
Benchmarking and Securing a Buy-in
On the last point stated above, Ecovadis further suggests some
best practices on how to formulate and achieve sustainable
procurement goals, this time for the company’s internal players,
particularly those involved in procurement.

Ecovadis suggests that such goals should be clear, easy to

implement and measurable. “Show the big picture: how
sustainable procurement goals are part of bigger sustainability
goals, and how defined results add up to impact,” it adds.

Next, for easy and fast buy-in, Ecovadis says goals and key
performance indices (KPIs) could be broken down based on
program initiatives, such as “People, Planet and Profit”, with
associated KPIs or departmental initiatives.

Sustainable Sourcing 16
 Second, to avoid duplication, overreach and sprawl, McKinsey
says executives should set up accountability systems across
their organizations. This could be centered around business
unit that usually generate most of the company’s sustainability
impacts, such as product-focused teams, or functions-
based groups such as supply-chain management, or even
geographic departments.

“Unlike the central sustainability

team, these departments also
have the authority to change
day-to-day operations,”
McKinsey says. “Recognizing
this, savvy executives assign
responsibility for sustainability
initiatives to heads of functions
and divisions and give them
Maximizing the ESG Benefits performance targets. In this
On the macro level, McKinsey suggests some guidelines way, executives can hold senior managers to account for the
on how executives can focus their companies’ sustainability company’s sustainability achievements.”
efforts and maximize value creation.
Finally, McKinsey urges collaboration for maximum impact,
First, it says executives should approach sustainability since ESG challenges can span industries or regions. The
issues as business opportunities. “Leading companies consultancy cites the case of plastic waste, which affects the
develop business cases for their sustainability programs entire chemicals industry, not just one company. “To address
based on the value that they stand to create (or protect) these systemic difficulties, companies might form coalitions
through their handling of sustainability issues,” McKinsey says. with industry peers and work together on setting standards,
“They set tangible, concrete aspirations for their sustainability promoting technological innovation, or advocating for policy
programs and convert those aspirations into quantitative shifts,” it says. “Since value chains produce the majority of a
performance targets, which reflect their competitive position, company’s environmental impact, most will also benefit from
their consumers’ expectations, and their investors’ demands.” working closely with their value-chain partners.”

Sustainable Sourcing 17
The Push and Pull of Sustainability
At the opening of the “Sustain 2021” virtual conference ON INNOVATION
organized by Ecovadis in March, former US vice-president Ecovadis also noted that the business case for
Al Gore – also the founder-chairman of The Climate Reality sustainability has moved beyond business-as-
Project, a nonprofit devoted to solving the climate crisis – boldly usual factors such as cost saving, reputation, risk
declared: “The sustainability revolution is now well underway.” management and resource efficiency. “This old-
fashioned approach is not enough to address the sustainability
Gore noted that sustainability imperatives were already starting challenges we are facing today,” it says. “Innovation is now
to reshape the world, transforming relations between and among widely regarded as a core engine for long-term growth,
people, governments, businesses and the environment. For differentiation and competitive advantage. And companies
example, electric vehicles are overhauling transportation and are looking to leverage collaboration with suppliers as a
humanity’s historic dependence on fossil fuels, regenerative massive lever to scale innovation.” To support its claim,
farming approaches are shaking up agriculture, while renewables Ecovadis cites the 2018 Global 100 Most Sustainable
are rewiring energy consumption. Similar revolutionary shifts Corporations in the World index, which found that “the most
are happening in innovation, corporate governance, investment successful companies see sustainability innovation as a key
decisions, consumer behavior and legislation, all reshaped by – strategic and tactical advantage.”
and in return reshaping – sustainable sourcing.
ON ACCOUNTABILITY
ON THE ENVIRONMENT In a March 2021 article, Ecovadis.com blogger
The environmental roots and seeds of ESG have Pia Pinkawa wrote: “As sustainability becomes an
been well-explored in this report, but it probably increasingly core issue for companies, stakeholders
pays to reiterate that the supply chain accounts are demanding greater accountability from companies in
for as much as 90% of a company’s environmental terms of their social and environmental actions and the impact
impact, which means that a weak ESG program can hurt people, of their products and business activities.” Pinkawa noted a
communities and brand reputation. The risks entailed are not record increase both in number and scope of corporations
lost to executives, investors and customers, so much so that, in
committing to ambitious sustainability and climate neutrality
an April 2021 online article, Ecovadis pointed out that business
targets in 2020. “More than 10,000 companies now report their
leaders like Bill Gates and Larry Fink – the billionaire chairman
data to [the Carbon Disclosure Project], with which over 500
and CEO of BlackRock, an American multinational investment
management corporation – have kept climate action on top of major investors are affiliated,” according to Pinkawa. She cited
their corporations’ agendas. This issue has become even more Mercedes, which includes climate neutrality in its contract terms
urgent, what with the 26th United Nations Climate Change under its Ambition 2039 strategy. Mercedes’ so-called Ambition
Conference, or COP26, just on the horizon, where the Paris Letter has now become a key criterion for awarding contracts
Agreement will be renewed. to suppliers.

Sustainable Sourcing 18
 ON INVESTMENT DECISIONS who have truly incorporated sustainable procurement practices
In an Ecovadis.com report on December 10, 2020, into their product lines will be far ahead of the curve, not only in
Matteo Berger noted that investors managing terms of risk mitigation, but in building consumer confidence.”
climate-related risks and their financial impacts have
been scrutinizing the carbon reduction strategies of ON LEGISLATION
target companies before making any investment commitments. In her March 2021 piece, Pia Pinkawa said:
“Initiatives such as the Task Force on Climate-Related Financial “Financial markets and investors are already driving
Disclosures (TCFD) have shown that financial stakeholders are issues such as sustainability, human rights and
starting to demand more comprehensive greenhouse gas (GHG) decarbonization at an ever-increasing pace around
emissions data and action from corporate supply chains,” he says. the world, demanding proven performance from companies.
Berger adds that investors, lenders, insurance underwriters and However, pressure on companies is also increasing from the
other stakeholders of climate-related disclosures are keen on legislative side.”
understanding how businesses tackle climate-related issues, as
well as management’s role in assessing them. In fact, ESG-related legislation also covers the executive actions
of governments. As cited by Al Gore at the Sustain 2021 online
ON CONSUMER BEHAVIOR conference, the US has already rejoined the Paris Agreement
In an August 2020 report on its survey, the Boston while newly elected US President Joe Biden has vowed to
Consulting Group (BGC) found that 90% of budget US$2 trillion to help shift the US to a clean-energy
consumer respondents said they were equally future. Gore pointed out that China, Japan and South Korea
or more concerned about environmental issues have also made commitments to go carbon neutral within the
after the Covid19 outbreak, while about 95% believed their next few decades.
actions could help reduce waste, tackle climate change, and
protect wildlife and biodiversity – with nearly 30% noting that And at the European Union, the EU Green Deal is awaiting the
the pandemic had strengthened this belief. “Responsible green light. Using a carbon border adjustment mechanism, this
manufacturing will be a new and potent loyalty driver as will screen countries with weak climate policy “to prevent carbon
consumers become more determined to take control of their leakage and to protect economic competitiveness”. According
impact on climate change,” said the authors of the BGC report. to Gore, this will speed up the “decarbonization” of countries
doing trade with the EU. Also, EU member states have endorsed
Meanwhile, in a January 2021 article for Ecovadis, Divya a target to cut their greenhouse gas emissions by at least 55%
Demato – CEO and co-founder of GoodOps, a supply chain from 1990 levels by 2030. And human rights due diligence will
sustainability consultancy based in San Francisco – stressed soon be mandatory for all companies in the EU, thanks to a law
that: “Brands that continue to invest in their sustainability that the European Commission plans to introduce this year. Such
practices will reap the rewards as consumers become savvier legislative moves are expected to have global ramifications,
and demand evidence against marketing claims. Companies especially among companies doing business with the EU.

Sustainable Sourcing 19
 and is on the path to 100% renewable
energy by 2025.”

So how do businesses navigate in this

brave new world of Sustainability?
The basic step is to come up with
or search for an established “risk
mapping” of global suppliers, similar
to Bridgestone’s Global Sustainable
Procurement Policy.

Ecovadis also suggests the formulation

of a Supplier Sustainability Program
(SSP) strategy along the lines of
L’Occitane Group’s #NotJustSuppliers
Program, which adheres to the
guidelines enumerated in this report’s
“Matching Sustainable Sourcing and
Suppliers” section.

To ensure effective management buy-

in, sustainable procurement programs
Tips on Securing Sustainable Credentials should be actively supported by the Chief Purchasing Officer 
The global trend for sustainable sourcing is undeniable. and Chief Sustainability Officer, backed by at least one other
For instance, in an April 2021 report, Ecovadis noted that C-Level officer, such as the CEO or the CFO. For efficient
companies around the world are tapping into renewables. operations, Ecovadis suggest a fully staffed sustainable
“Only this week, Amazon announced nine new utility-scale procurement office, led by the procurement manager, which
wind and solar energy projects in the US, Canada, Spain, has the authority to override decisions involving risky suppliers.
Sweden and the UK,” Ecovadis reported. “The company now For oversight, a cross-functional steering committee should
has 206 renewable energy projects globally, generating meet regularly to review program goals and build strategy.
8.5GW… With this week’s announcement, Amazon is now the There should also be involvement from the board of directors
largest corporate purchaser of renewable energy in Europe and even the stockholders for effective governance.

Sustainable Sourcing 20
Natural Rubber Value Chain Monitoring

STEP 2
FARM TO PROCESSOR MAPPING
Rubberway assesses natural rubber supplies
back to the farm

STEP 1
NR PROCESSOR ASSESSMENTS
From 2013, major tire makers have started to assesses their immediate
natural rubber suppliers through independent third parties, such as EvoVadis.

the upstream supply chain, covering more than 36,000 players

in the sector in seven countries as of September 2020.

“The vast majority of the world’s natural rubber comes from

small rubber tree plantations sized between two to three
Sustainability Tools and Tracking hectares, operated by some six million farmers,” Seel says. “As
Once engaged, supply aggregators and contractors should a result, the industry is very prone to human rights violation,
be monitored using a tracking system that covers even the including modern slavery and child labor, with the farms being
smallest of suppliers down the chain. This tracking system can particularly exposed to risk.”
also be used to help reform or reduce the number of suppliers
identified as medium and high-risk. Rubberway works by requiring natural rubber processors to
compel their managers and suppliers – down to the small
Certain industries currently use standardized tracking systems family-owned farms – to use self-assessment tools to determine
for suppliers. One such tool is Rubberway, a mobile app their ESG practices. The submitted reports are then audited,
developed by leading tire manufacturer Michelin in 2017, oftentimes with site visits, to ensure accuracy. Paired with third-
later joined by Continental AG. In a February 2021 report for party assessments in the downstream segments of the natural
Ecovadis, Veronique Seel explains that Rubberway aims to rubber manufacturing and logistics industry, Rubberway has
provide natural rubber buyers with a risk-mapping service for been an effective tool in ensuring ESG compliance.

Sustainable Sourcing 21
What’s Ahead: The Evolution of Supply Chains
At the March 2021 Ecovadis Scientific Committee annual Chhabara acknowledges that most Asian firms remain reluctant to
meeting, several trends were identified that could further reshape go beyond ESG reporting compliance. However, more and more
and accelerate the evolution of the ESG reporting landscape – of them are producing integrated reports and are submitting to
and one of these has an important implication for Asia. the Carbon Disclosure Project much more frequently, with 29%
of global responses now coming from Asia. In fact, according to
Globally, ESG reporting is becoming even more sophisticated, Chhabara, Asian companies have even surpassed their North
requiring data-driven, high-quality KPIs. Partly due to the social- American counterparts in several Task-Force on Climate-Related
distancing imperatives of the Covid19 pandemic, digitalization Financial Disclosures reporting categories.
and other new technologies are emerging to enable remote ESG
auditing and assessment at scale. And several initiatives, such “Supply chain assessment will be particularly relevant in markets
as the Better Alignment Project, are underway to harmonize the like Singapore, which is home to a large number of multinational
sprawl of existing ESG reporting standards and frameworks.  companies with complex supply chains and ambitious
sustainability agendas. The Philippines, which is beginning to
Crucially for Asia, CSR Works International managing director mandate ESG disclosure for certain companies, also represents
Rajesh Chhabara has noted a remarkable growth in ESG an emerging growth market for assessment,” Chhabara says.
reporting by the region’s businesses, thanks in large part to “These developments, combined with the emergence of green
state regulators, as well as ESG-oriented multinational customers bonds and carbon taxes, will continue to drive supply chain
and investors. sustainability in the region.”

Sustainable Sourcing 22
Taking Ownership of Sustainability
Once Sustainability pledges, strategies and tools are in place, of ownership and connection across their organization and to
what’s next? How can Sustainability be sustained in a corporate the external world,” Bhattacharya writes. “Challenged with the
world where various priorities jostle for executive attention? existential crisis of our times, corporate leaders must avoid
inertia and take ownership of sustainability… When you take
For McKinsey, the solution is simple enough. “Value creation ownership of sustainability, you bring to life a new leadership
should be the CEO’s core message. Anything else could mandate for you and your top team.”
sound off-key. Managers, especially more senior ones, are
usually assessed based on performance targets. Under those Bhattacharya continues: “Through a journey of personal
conditions, top-down ESG pronouncements can seem transformation, many leaders today are re-imagining their
distracting or too vague – ‘Save The Planet’ won’t cut it. To get company’s corporate purpose and the role of business in
everyone on board, make the case that your company’s ESG society and reinforcing the sense of sustainability ownership
priorities do link to value, and show leaders how – ideally with through a course of action both internally and externally that
hard metrics that feed into the business model (for example, benefits not only people and planet but also profit.”
output per baseline electricity use, waste cost in a given plant
or location per employee, or revenue per calorie
for a food-and-beverage business).”

In a 12 May 2020 article for McKinsey Quarterly,

CB Bhattacharya – author and the H. J. Zoffer
Chair in Sustainability at the University of
Pittsburgh’s Katz Graduate School of Business –
posits the idea of “ownership” as a critical step in
institutionalizing ESG practices.

“Senior leaders making real progress on the

sustainability front are those who tackle it with
what organizational psychologists refer to as an
ownership mentality. Simply put, they ‘own’ the
problem and then extend and infuse the feelings

Sustainable Sourcing 23
 at LC Packaging, maker and distributor of
flexible packaging solutions. In a February
2021 guest blog post for Ecovadis,
Mastwijk says: “Every year we understand
more about our impact. All colleagues
are involved now one way or another. By
actively conducting our awareness training
sessions. By helping local communities
and initiating sustainable innovations. By
selecting production partners who share
our values. By helping us work in the cloud
and communicate via Microsoft Teams
so we do not have to jump on a plane as
Modest Actions, Huge Impact much. By always paying our production partners on time and
Indeed, testimonials from some of the world’s leading business upfront if needed and by supporting them in difficult times.
leaders point to this sense of “personal transformation”. By explaining to our customer the importance of reusing and
recycling our packaging. By speaking out against misconduct. By
In a May 2020 interview with McKinsey Quarterly, former Coca- treating each other well and by turning off our screens when we
Cola Enterprises CEO John Brock describes his evolution of go home.”
thinking, from simply focusing on “making good decisions for
the future of the planet” to incorporating social issues such as And Francesco Starace, chief executive of Enel, a company
gender and ethnic diversity, as well as community service and transformed under his leadership from a large, traditional electric
well-being. “Being responsible and relevant to the communities utility into a renewable-energy powerhouse, tells McKinsey
in which we operate. And working with them to help understand Quarterly in a May 2020 report: “It’s not because we want to
what we can do and they can do together,” Brock says. “If you change things that we do it; we do it because it is the only thing
have the personal commitment but aren’t willing to invest the we can do going forward – there is no other alternative.”
time, money, and resources, it’s not going to happen. And if you
don’t have the personal commitment, even if you invest the time, Indeed, as Ecovadis has noted in a May 2021 online article,
money and resources, it won’t happen.” sustainable sourcing has moved from an isolated procurement
action to an organizational driver of brand protection, risk
Simple but meaningful ESG-oriented actions are also key to management, and innovation over the past two decades.
Lotte Mastwijk, manager of communications and sustainability “Sustainability is a marathon, not a sprint,” it says.

Sustainable Sourcing 24
IN FOCUS: The Circular Economy
Oftentimes, when assessing their sustainability performance, “Using more sustainable methods may cost slightly more, but
most consumer companies focus on their own operations. In doing so can also spur innovation, guard against supply-chain
fact, according to a June 2017 report by McKinsey Quarterly, shocks such as drought conditions, and enhance corporate
supply chains typically represent the largest opportunities reputations,” McKinsey says. “We estimate that more than half
for environmental improvement, accounting for 80% of a of the enterprise value of the top 50 consumer companies
consumer business’s greenhouse-gas emissions and more than depends on their projected growth, which is vulnerable to
90% of its impact on air, land, water, and biodiversity. issues such as drought, government limits on greenhouse-
gas emissions, and reputational damage from insufficient
Most of the environmental impact associated with the
attention to pollution and safety.”
consumer sector is embedded in supply chains.
Impact by source on natural capital resources
(eg. air, soil, or water) for selected industries
One paramount way of mitigating against environmental
Supply chain impact Direct impact
scandals while realizing huge savings is by adopting what
0 25 50 75
Impact:
100 Supply chain vs McKinsey calls the circular economy. The consultancy cites six
key ideas:
direct operations
Food and
beverage 24.0x
Personal and • Regenerate: Shifting to renewable energy and materials
household
goods
19.0x • Share: Promoting product sharing or prolonging product
Retail 11.5x
life spans via design and maintenance
• Optimize: Improving product efficiency and removing
Greenhouse-gas emissions
for 4 industries studied waste from supply chains
Share of Companies that engage • Loop: Keeping components and materials in “closed loops”
emissions their suppliers to address
by source embedded emissions via remanufacturing and recycling
• Virtualize: Delivering goods and services virtually
All
others Yes • Exchange: Replacing old materials with renewables or
applying new tech such as 3-D printing
25%

As already cited in this report, a 2015 study by McKinsey and

Supply chains No
80%

the Ellen MacArthur Foundation showed that adoption of a

Note: Supply chains are defined here as all organizations, including energy providers, involve in circular economy could boost Europe’s resource productivity
producing and distributing consumer goods. Greenhouse-gas-emissions data are for electronics and
electrical equipment, food, manufacturing, and textile, apparel, and shoes.
by 3% by 2030, for potential cost savings of €600 billion a
Source: Camegie Melton University; CDP (formerly the Carbon Disclosure Project); McKinsey analysis year and another €1.8 trillion in other economic benefits.

Sustainable Sourcing 25
The Virtues of a Virtuous Circle
The circular economy can indeed deliver a virtuous circle of biggest benefits could be notched up in the automotive industry (US$200
responsible production and consumption. In a November 2020 billion a year), followed by machinery and equipment.
article for Ecovadis, Elizabeth Lo explains: “At the heart of our
MITIGATED SUPPLY RISKS
current economy lies a linear ‘take, make, waste’ model. This Demand-driven volatility could also be reduced – such as
involves the extraction of non-renewable resources, production, for steel consumption in the automotive, machining and
manufacturing, followed by product use and disposal. In transport sectors, as a circular economy could mean global
contrast, a circular economy looks beyond this linear model net materials savings of 110 million to 170 million metric tons
and is restorative or regenerative by intention and design… of iron ore a year in 2025.
Waste and pollution are minimized, materials stay within the INNOVATION POTENTIAL
natural environment, and operational activities such as repair, The need to redesign materials, systems, and products
refurbishing, remanufacturing and recycling keep materials in under a circular economy can be a huge business and profit
use indefinitely.” opportunity for companies, even for those involved in
so-called traditional crafts, such as the carpet industry.
McKinsey flags the urgency of ideas such as the circular
JOB CREATION 
economy given the various critical pressures on the planet’s McKinsey estimates that the remanufacturing and recycling
resources, including the fact that about three billion consumers industries already account for about one million jobs in
from developing countries will enter the middle class by 2030. Europe and the US. “We see signs that a circular economy
“The unprecedented size and impact of this shift is squeezing would – under the right circumstances – increase local
companies between rising and less predictable commodity employment, especially in entry-level and semi-skilled jobs,
thus addressing a serious issue facing many developed
prices, on the one hand, and blistering competition and countries,” it adds.
unpredictable demand, on the other hand,” it adds.
In the fast-moving consumer-goods industry, it is quite a shock
Way back in 2014, in its “Remaking the Industrial Economy” to learn that about 80% of the US$3.2 trillion worth of materials
report, McKinsey had already cited the concrete benefits of a used each year is not recovered, as highlighted by McKinsey.
circular economy: “In addition to the implicit environmental benefits that a circular
economy would bring, there is a significant economic impact,”
NET MATERIALS SAVINGS 
McKinse y sees net savings from materials of around US$1 the consultancy giant says. “In fact, our research suggests that…
trillion a year on a global scale by 2025. For the EU, annual under the right conditions, a circular economy could become a
savings of US$630 billion could be realized for durable tangible driver of global industrial innovation, job creation, and
products with moderate lifespans. In terms of sectors, the growth for the 21st century.”

Sustainable Sourcing 26
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SUSTAINABLE
SOURCING