November 21, 2023 Sustainable Supply Chains: The Clock is Ticking

U.S. firms of all sizes and across industries will need to provide detailed reporting on everything from emissions to labor practices.

By Laurie Hoose, senior manager, ESG at Plante Moran; Alejandro Rodriguez, partner, global services at Plante Moran; and Matt Stekier, principal, supply chain at Plante Moran

U.S. businesses, including small and mid-market companies, are increasingly being asked to report on everything from emissions to labor practices as the larger companies they do business with endeavor to comply with emerging domestic environmental, social and governance (ESG) guidelines, evolving European regulations, and the more immediate market-driven demand that partners and vendors exhibit complimentary values.

This important shift, seen in the growing number of RFPs received by small- and medium-sized businesses that ask respondents to demonstrate their commitment to everything from sustainable supply chains to ethical sourcing practices, represents a singular opportunity: companies that take even the most rudimentary steps to create their own ESG programs and reporting capabilities have the opportunity to rapidly distinguish themselves among large enterprises – industry leaders that want to partner with suppliers that help them comply with the market’s preferences and new rules, including: 

• California’s Climate Corporate Data Accountability Act: Signed into law on October 7, 2023, it requires any U.S. company that does business in the state with annual revenues of $1 billion or more to disclose their direct and indirect emissions, as well as for companies in their supply chains to report scope 1 and 2 emissions, a requirement that will go into effect in 2027;
• The Corporate Sustainability Reporting Directive (CSRD): Part of the European Green Deal that endeavors for the EU to have no net emissions of greenhouse gasses by 2050, it went into effect on January 5, 2023. The directive strengthens sustainability reporting rules and extends them to more companies, including those in the U.S. that have at least one subsidiary or branch in the EU and revenues of $168 million or more over two consecutive years. Thousands of American companies will need to comply by 2025; and
• The SEC’s climate disclosure rule: Still being finalized, it is expected to require publicly-traded companies to provide in-depth reporting, disclose their climate-related risks and its material impact on their business, provide details on their governance practices and metrics and include information on how climate change will impact the company’s performance in financial statements.

These requirements do not exist in a vacuum. Most mid-market U.S. companies are impacted. The larger companies they do business with increasingly require partners and suppliers to provide the same information so they can comply with detailed reporting requirements. Large global organizations that have subsidiaries and offices in the U.S. are also following suit, making a sustainable supply chain the cost of doing business in many cases. In addition, consumers and investors are also increasingly considering companies’ sustainability practices, a fact readily apparent in the green marketing efforts of leading brands.

All of this can be overwhelming for U.S. supply chain leaders. Fortunately, there are several steps they can and should take now:

• Keep an eye on regulations. Environmental regulations impacting the supply chain continually evolve;
• Determine your organization’s unique materiality. It is crucial to determine what aspects of the supply chain directly influence financial performance, present the greatest opportunities and create the most exposure to risk. In turn, it must be determined how they influence and are influenced by emissions, water usage, labor practices – among them child labor and modern slavery – and myriad other parameters and strategies that require long-term planning and evaluation, such as when facilities can be near-shored or on-shored to shorten the value chain and lower the emissions associated with transportation;
• Identify stakeholders. Who are the biggest customers and the ones most likely to make net zero commitments or that pose the biggest risk for labor practices or other ESG metrics? Just as importantly, who will be reviewing reported data? This includes federal, EU or state regulators, as well as investors;
• Assign someone to own new sustainable supply chain guidelines, metrics and reporting. Ideally, this can be accompanied by training and assistance from a respected third party. Now might also be the time for businesses to consider employing a Chief Sustainability Officer with deep expertise in sustainability best practices; and
• Start doing something now. Don’t wait for the regulatory bodies to finalize their plans to begin. Start learning about what to measure, how to do it and what to report in order to be prepared when compliance requirements go live. It is important also to consider the resources available to your organization, both material and technological, and how they might be deployed to help bring your business into this newly regulated environment.

Ultimately, the ability to create more sustainable, environmentally-friendly supply chains provides businesses with another way to be more competitive, to thrive in RFPs and to differentiate their products and services from other suppliers and partners – in many cases while simultaneously mitigating their risks and lowering their operational costs by reducing power usage and embracing more efficient methodologies and practices. When viewed as an opportunity – an opportunity that equates to better business and better outcomes – the benefits are clear.

Laurie Hoose, senior manager, leads Plante Moran’s ESG practice. A 16-year veteran of the firm, she specializes in helping organizations align their nonfinancial disclosures with their strategic goals while reducing investor risk through actionable, measurable and continuous improvements. Laurie received her bachelor’s in computer science from the University of Michigan and a master’s in international business from Brandeis University. She also earned a minor in corporate environmental guidance from Copenhagen Business School and is a Fundamentals of Sustainability Accounting (FSA) credential holder.    

Matt Stekier, principal, supply chain, serves clients by quickly identifying improvement opportunities that deliver tangible results and lower costs in a variety of industries, including the medical device, food and beverage, footwear and apparel, military vehicle and automotive manufacturing sectors. Matt earned his bachelor’s in supply chain management from Central Michigan University and a master’s in business administration from Wayne State University. A 10-year veteran of Plante Moran, he previously served in supply chain roles at Mercedes-Benz Technology and Ford Motor Company.

Alejandro Rodriguez, partner, global services, specializes in helping clients, from innovative startups to industry-leading multi-national corporations, to explore, establish, launch and operate highly successful business ventures in new markets and beyond the borders of their country of origin. A 15-year veteran of Plante Moran, he opened the Monterrey, Mexico office where he works closely with colleagues from the firm’s operations in Shanghai, China; Mumbai, India; and Tokyo, Japan. He received his bachelor’s in mechanical engineering with a minor in business administration after attending Monterrey Tech in Monterrey, Mexico and Colorado State University in Fort Collins, Colorado.

www.plantemoran.com

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