Beyond Annual Reports: Three Ways to Leverage Supplier Sustainability Information for Your Business

In recent years, companies have come under increasing scrutiny from customers, employees, investors, governments, and NGOs. What do they want? For companies to demonstrate environmental stewardship and get proactive on social issues.

As this scrutiny mounts, companies and countries worldwide are making tremendous strides to tackle the sustainability agenda, with organizations such as the Science Based Targets initiative (SBTi) and industry-accepted pledges like the Paris Accord providing much needed frameworks and leadership.

As the world strives to meet these targets, many companies are using annual sustainability reports as the primary mechanism of communicating their achievements. These reports highlight a company’s strong points and low points and can be useful summaries of sustainability progress overall. However, sustainability reports aren’t enough in and of themselves.

In this blog we outline some ideas on how organizations can utilize supplier sustainability information beyond annual reports to the advantage of their business.

The Sustainability Reporting Problem

With so many companies producing annual reports, it’s almost endemic; it’s a corporate sustainability practice that has existed ever since the drive for sustainability began. Ninety percent of companies in the S&P 500 produce corporate sustainability reports, as well as 65% of the Russell 1000 index.

For two decades, leading voices in industry and organizations have been pressuring companies to become more transparent—and, subsequently, responsible—about the damage they’re doing to the ecosystems they work within. Kenneth Pucker, a senior lecturer at Tufts University, suggests that endorsers of annual reports believed that four key things would happen if companies publicly reported their sustainability performance statistics:

1. The ESG performance of individual companies would improve.
2. Gradually, the corporate world would see that better sustainability performance equates to better returns.
3. Companies with stronger sustainability performance would see their revenue rise due to both consumers and investors choosing their products and services, putting pressure on those that are slow on the uptake of sustainable norms.
4. The corporate world would accept the evolving efforts to monitor companies’ social and environmental impact, leading to more rigorous and accurate practices.

Unfortunately, the results are mixed, and the assumed results of annual reports were pretty far off the mark.

Pucker suggests that the idea of reporting has been oversold by the powers that be. When it comes to corporate sustainability reporting, the world as a whole has confused output with impact, and the evidence is clear. Across the two decades, Scope 1-3 GHG emissions have risen, our impact on the environment has worsened, social inequality is on the rise—even in the supposedly “leading” western nations—and the wealth disparity between western and eastern countries has grown exponentially.

Evidently, reporting is not representative of progress when it comes to sustainability.

Even in the companies that seem most impressively sustainable, the case is often the opposite. Unfortunately, greenwashing is rampant in annual reports, and companies tend only to share what they want people to hear. The fashion industry is an excellent example of this. Fashion houses are quick to highlight their recycled materials, vegan-friendly “leathers,” and eco-friendly tendencies but choose to omit the manufacturing and shipping process they depend on to produce the apparel, where more than 87% of GHG emissions come from.

Unfortunately, any good marketing effort will, in some way, exploit the sentimentality of others. In the case of the fashion industry, companies highlight their efforts to use more sustainable materials because it will resonate strongly with consumers. However, that removes focus from the manufacturing side of the industry and doesn’t hold the industry accountable for its use of fossil fuels across global supply chains.

“Measurement is often nonstandard, incomplete, imprecise, and misleading. And headlines touting new milestones in disclosure and socially responsible investment are often just fanciful “greenwishing” (in the coinage of Duncan Austin, a former ESG investment manager). Worse yet, the focus on reporting may actually be an obstacle to progress—consuming bandwidth, exaggerating gains, and distracting from the very real need for changes in mindsets, regulation, and corporate behavior.” ─ Kenneth P. Pucker

 

So, understanding that reports can’t be an end in and of themselves, what should a company be doing with supplier sustainability information? Shifting the focus from reporting to action is the best way forward.

Three Actionable Ways to Leverage Supplier Sustainability Information

While annual reports might be a great way to put a bow on your sustainability work across the year, consider implementing these strategies as a way to get more mileage out of your data.

1. Build authentic product positioning centered around supply chain sustainability

• Start including supplier sustainability stories as components of your brand storytelling. This is a great way to build authenticity into your products, showcasing exactly how your company is driving genuine impact and therefore taking action where it counts—the supply chain.
• Include updates on supply chain sustainability and supplier shout-outs in your promotional materials to communicate why supply chain sustainability is important, how your company is doing, and your ambitions.
• Share your transparency story online to show your customers where your products come from.

For example, Ford Motor Company has long been labeled one of America’s most iconic employers – and polluters. Ford pivoted to include sustainability as part of their brand story, utilizing paint fumes as fuel and using sustainable fabrics in its vehicles. By 2035, Ford expects to power all of its plants on renewable energy.

2. To drive improvement with your suppliers

• Create supplier benchmarking reports and share them back with suppliers. Remember that supplier engagement is not a one-way street—giving your suppliers something valuable encourages more participation and motivates improvement.
• Host seminars with your suppliers to share what you’ve found in a collaborative environment.
• Use data to find new engagement opportunities – does a high emitting supplier need support to reduce their carbon footprint? Does a supplier with inadequate policies around labor need hands-on assistance to update their policies? Find the highest impact opportunities to partner with suppliers and execute on them.

Nike is a good example of a company bringing visibility to sub-tier suppliers and their practices. After coming under fire in the ‘90s, Nike has focused on achieving gender equity, worker wellbeing in factories, and scrutinizing and improving environmental responsibility.

3. Integrate supplier sustainability into your procurement processes

• Include supplier scorecard data in performance reviews and contracts.
• Consider giving high-scoring suppliers more favorable terms—treat it as a reward for meeting your standards.
• Use supplier data in your procurement processes to help normalize responsible sourcing. It can also help support an authentically sustainable brand and culture.

Since as early as 2013 Best Buy has been integrating sustainability into its procurement processes. Best Buy is continuously ranked in the top list of sustainable companies and now operates America’s largest e-recycling program.

Wrapping It Up

When it comes to high-leverage interventions that can seriously make a difference, it’s a hard ask for most companies. A lot of the necessary changes would involve changes to the governance of companies and the rules by which the corporate world plays.

That said, by aligning your company with science-based goals, you’re on the promising path of improvement. However, if companies and nations truly intend to meet targets set out by SBTi, the Paris Accord, and the United Nations, the corporate world will have to step up its game and take a much more aggressive approach to sustainability.

Annual reports are a great way to summarize work, but the tendency for them to gloss over problems and only focus on the positive is highly problematic. Companies need to start including more action-oriented approaches to sustainability, rather than sharing just for the sake of sharing.