Sustainability in the Digitised Supply Chain

Sustainability is everywhere in the media

Reusable or bio-based packaging solutions, biofuels and on-demand 3D printing using recycled materials to reduce carbon emissions, water conservation programmes, supplier requirements in the areas of child labour, animal welfare, environmental impact and/or workers’ rights, partnerships with environmental NGOs or refugee support organisations, employment initiatives for people excluded from the mainstream labour market, stakeholder advisory panels, sustainability boards and so on. Xavier’s presentation covered a vast range of examples. If anyone still needs convincing: the topic of sustainability is all over the news, with organisations large and small seeking to promote their efforts and achievements – from household names such as Walmart, Unilever, Carlsberg and Ikea to less well-known local brands.

… And under increasing scrutiny

Environmental, social and governance or ESG issues are increasingly important to an organisation’s reputation and how it is perceived by all of its stakeholders. But paying lip service to ESG is one thing, walking the talk is another. Xavier warned that as stakeholder pressure for ESG compliance mounts, so does the risk or perception of greenwashing. Now consumers don’t take kindly to being, or feeling, misled, as South Korean cosmetics brand Innisfree discovered when it had to explain that its bottles labelled “Hello, I’m Paper Bottle” were actually plastic bottles wrapped in paper. And so did Nike, when it came under fire in 2021 for giving its headquarters’ staff a paid week off to recover from the stress of the COVID-19 pandemic and announcing a share buyback programme worth 18 billion dollars, while leaving its Asian garment workers, who had lost their livelihoods due to cancelled orders, to fend for themselves. Consumers want companies to put their money where their mouth is.

But failure to balance ESG and financial goals also gets punished. For example, Danone’s CEO was forced to step down by investors who felt he had put too much emphasis on environmental and social sustainability at the expense of financial performance.

Laggard, leader or middle of the pack?

“The consensus seems to be that we cannot continue the path we are on today, where companies’ social and environmental actions are after-the-fact interventions disconnected from strategy and decision-making”, said Xavier, quoting Professor Tensie Whelan, Director of the NYU Stern Center for Sustainable Business. Sustainability needs to become embedded in every business decision. Some organisations are more advanced than others.  

Just as there are levels of digital maturity, there are levels of sustainability maturity. Xavier distinguishes four.

At one end of the spectrum are the Laggards, who consider sustainability to be a cost and therefore approach it with reservations. In response to increasing external pressure to address ESG issues, they may revert to greenwashing and/or occasional philanthropy to mitigate any negative impact on their reputation. At the other end are the Leaders – organisations for which sustainability is part of their identity with sustainability permeating their entire value chain. In between these extremes are the Prospectors and the Proponents, who both recognise the growing importance of sustainability. But while Prospectors still value sustainability mainly from a risk perspective, Proponents already see it as a driver of business performance.

In his maturity assessment Xavier not only looks at an organisation’s values and believes on sustainability, but also at its business strategy for sustainability, target setting, stakeholder engagement and sustainability requirements in the supply chain.

Time to reduce the supply chain footprint

In line with the Centre's mission, Ann's presentation zoomed in on sustainability in the supply chain. Sustainability has social, environmental, and financial dimensions with the three P's - people, planet, and profit - being equally important. But Ann’s presentation focused on the planet aspect of sustainability, and for good reason. The supply chain accounts for almost half of all human-made greenhouse gas emissions, making it a significant contributor to climate change, which is having a devastating impact on communities worldwide. Entire populations are being affected by events such as flooding and extreme droughts. Unfortunately, these and other natural disasters are becoming more frequent, resulting in significant human and economic costs due to supply chain disruptions. It's not surprising that various stakeholders, including consumers (particularly the younger generation), downstream supply chain customers, investors, and regulators, are mounting pressure to drastically reduce the carbon footprint of our supply chains.

Eco-efficiency versus circularity

Ann explained that there are two ways to reduce supply chain footprints. One approach is to enhance the eco-efficiency of the existing supply chain by improving every step and connection, reducing waste, water, and energy consumption. This results in a smaller footprint of the individual steps and connections, ultimately reducing the ecological impact of the entire supply chain. Ann believes that strengthening the links between supply chain partners can result in significant gains in eco-efficiency. But she also warns that the task of connecting the dots can be challenging despite the potential for substantial improvements.

Another approach is to fundamentally rethink supply chains, changing their structure from the linear take-make-dispose scheme to the circular make-use-recycle model by implementing the principles of the circular economy. This means not only reducing the use of materials, water and energy, but also reusing, recycling and repurposing these resources. The idea of recycling, and therefore producing less, could be seen as a threat to a company's profitability. But circularity can also be viewed as an opportunity for growth as it encourages businesses to develop new, recyclable products, to explore new modes of production and transport, and to optimise the supply chain from both a cost and environmental impact perspective. By embracing circularity, companies can explore new business models that not only transform the way they work, but also open up opportunities for growth in new markets.

Synchromodality makes the supply chain more eco-efficient

It’s not about a sustainability strategy but rather about a sustainable strategy. This is the motto of H.Essers, a leading European transport and logistics services provider, aiming for economic, social and ecological sustainability. Linde Van Vlasselaer, Global Industry Lead Pharma, testified how recent supply chain disruptions caused by Brexit, the COVID-19 pandemic, the blockage of the Suez Canal, driver shortages and the energy crisis have acted as accelerators to not only build greater logistical resilience, but also to improve eco-efficiency.

To achieve its goal of carbon neutrality, the company's sustainable transport strategy is based on four pillars: (1) improve, i.e. using new technologies to improve the eco-efficiency of its fleet and buildings, (2) avoid, i.e. avoiding CO₂ emissions by optimising loading and routing, (3) shift, i.e. contributing to the modal shift by optimising the use of rail and inland waterways, and (4) inset, i.e. directly compensating fossil fuel transports with biofuels.

H.Essers' flagship initiative is synchromodality, i.e. the optimal combination of road, rail and water transport to achieve the most economical, efficient and sustainable transport solutions. The combination is determined on a case-by-case basis, taking into account lead times, customer priorities and budget. The ability to make adjustments in real time improves logistical resilience. Equally important, synchromodal transport significantly reduces the carbon footprint. Calculations by H.Essers show that a shift from road to road and rail, while adding 3% to the cost of the journey, results in an 80% reduction in CO₂. Shifting from road to road and rail using biofuels (insetting) adds 8% to the cost but allows a 90% reduction in CO₂.

Advanced recycling enables circular solutions

ExxonMobil is one of the world's largest integrated refiners, marketers of petroleum products and chemical manufacturers. Colja Bönnemann, Digital Transformation Lead EMEAF, explained how the company is taking steps towards circularity. Rather than looking for alternatives to plastic, ExxonMobil is focussing its efforts on reducing plastic waste. To achieve this, the company, in collaboration with other value chain partners, is pursuing four strategies: (1) doing more with less, (2) designing for recyclability, (3) incorporating recycled content and (4) advanced recycling.

While mechanical recycling is a proven method for processing certain types of plastic waste, advanced recycling effectively converts plastic waste into the raw materials used in the production of virgin plastic and other valuable products. ExxonMobil has recently partnered with Ahold Delhaize USA and Sealed Air (SEE) on an advanced recycling initiative. The project involves recycling flexible plastics from the food supply chain and reprocessing them into new, certified, food-grade circular packaging. Flexible plastics will be designed to be collected, recycled and reused in new food packaging. A more circular economy requires not only innovation, but also collaboration between all partners in the supply chain. This initiative is a great example.

Employee engagement is the key to sustainability success

The third and final speaker was Joris De Vulder, Director of Digital & IT at Volvo Group. The theme of his presentation echoed that of the employee engagement workshop held in December 2022.^[1] Volvo’s sustainability framework is centred around climate, resources and people: the Group aims to be climate positive, i.e. it wants to remove more carbon from the atmosphere than it emits. It also aims to turn waste into resources, to promote recycling and circularity. Finally, Volvo believes in involving its employees in its sustainability journey to make it happen.

But raising awareness, instilling pride and encouraging participation among 5000 employees is a challenge. That is why the Group also emphasises local sustainability initiatives. Volvo Trucks’ Ghent plant, for example, has set up working groups in which interested employees can participate and which have already resulted in several successful initiatives to improve the site’s green credentials. To name but two: the site infrastructure and personnel policy have been adapted to encourage employees to use sustainable mobility (electric vehicles, bicycles) and the company has planted a forest, both on the site and, with the help of employees and their families, in the Gentbrugse Meersen. In 2007, the Ghent site was the first site to become carbon neutral. This was achieved by investing in renewable energy and this investment continues. It is now on track to become the first climate-positive site by the end of 2023. At Volvo Trucks, every employee is part of the solution.

^[1] Article ‘Employee engagement in a digital environment’ available here.