A supply chain in commerce encompasses the entire process of creating and delivering a product to end consumers. It involves a diverse group of participants, including suppliers of raw materials, manufacturers of parts and components, producers of the final product, transportation service providers, and retailers.

Tracking and monitoring sustainability performance in the vast network of supply chain participants and their intricate relationships is a challenging task. Every step in the supply chain can significantly impact the sustainability of the final product. Therefore, any successful effort to achieve a sustainable supply chain requires a shared commitment to sustainability.

Let’s take an apparel manufacturing/retailing firm as an example. The firm’s tier 1 suppliers include suppliers for knit and woven fabrics who, in turn, have their own suppliers of cotton, raw silk, dyes, and other materials. These latter suppliers are referred to as subtier 1 suppliers. Supply chains can contain thousands of subtier 1 suppliers (Kashmanian & Moore, 2014), and these subtier 1 suppliers also have many suppliers of their own, and so on.

What can a firm do to engage with its suppliers and ensure that each supplier tier maintains the same sustainability standards as the firm’s direct suppliers? Companies use various tools to engage with their suppliers.  Lee and Kashmanian (2013) identified the use of:

• Supplier codes of conduct. Many companies have developed supplier codes of conduct to specify their expectations for suppliers, who are then expected to require their own suppliers to acknowledge and implement the codes (Kashmanian and Moore, 2014).
  
  
• Supplier audit/monitoring. Many companies use audit and monitoring mechanisms to determine whether their suppliers are conforming to their codes of conduct. A company may conduct audits themselves or hire a third-party organization to conduct the audit.
  
  
• Supplier sustainability performance scorecards. As a complement to the audit/monitoring mechanism, a performance scorecard can be used to track the sustainability performance of suppliers over time.
  
  

The Sustainability Accounting Standards Board (SASB) Standards

The SASB identifies financially relevant environmental, social, and governance (ESG) issues for 77 industries and offers a framework for organizations to disclose industry-based sustainability information about these issues.

Recognized by investors and practitioners around the world, the SASB standards have been consolidated into the materials of the International Financial Reporting Standards (IFRS) Foundation as implementation guidance. SASB Standards for disclosing financially material ESG information are not mandatory, but several regulatory bodies have suggested or are considering suggesting their use. 

For many industries, supply chain management is one of the most important sustainability disclosure topics required by the SASB standards. Companies in these industries are required to disclose, according to the SASB standards, the proportion of tier 1 supplier facilities audited, the percentage of nonconformities, and the rate of corrective action in response to nonconformities.

Readers who are interested can find detailed information about the SASB standards for each industry on the SASB website: https://www.sasb.org/standards/download/?lang=en-us

 

References:

Lee, T., & R. Kashmanian, 2013. Supply chain sustainability: Compliance- and performance-based tools. Environmental Quality Management 22(4): 1–23.

Kashmanian, R. M., & J. R. Moore, 2014. Building Greater Sustainability in Supply Chains. Environmental Quality Management 23(4):13-37.

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