Analyst Insight: In the past year, the global economy and supply chains were tested by a series of new and existing challenges, including a rise in disruptions caused by climate change, stalled progress on reducing global poverty, and a surge in modern slavery. In addition, Russia’s invasion of Ukraine created a humanitarian crisis and contributed to inflation, energy volatility and sluggish economic growth.
Complex sustainability challenges such as these cannot be addressed in isolation. The private sector is being urged to work together and take advantage of global supply chain interconnectivity, to drive sustainable change at scale.
More companies are answering this call, but not without difficulties. Despite a third of the world’s largest corporations announcing plans to achieve net-zero carbon emissions by 2050, fewer than one in 10 are currently on track to achieve this goal.
This year’s Network Impact Report looks at companies whose work may help to reverse this trend. Whether they’re leaders or just starting out on their sustainability journey, companies are taking action to increase transparency and accountability through ongoing evaluation, improvement and reporting. By doing so, they can prepare for stringent ESG regulations, such as the EU’s upcoming Corporate Sustainability Reporting Directive and the U.S. Securities and Exchange Commission’s proposed climate disclosure rule.
The report reveals the following insights and data on how companies are driving real improvement, and measuring the positive outcomes of their sustainability journeys.
Adopting Best Practices
More than 100,000 companies analyzed in the Network Impact Report are following a due-diligence framework to help adopt and manage sustainable best practices. This framework includes a supplier ratings system, along with disclosure and reporting components that align with ESG laws and regulations. The ratings system incorporates a scoring scale spanning five sustainability performance levels: Outstanding (score 85-100), Advanced (65-84), Good (45-64), Partial (25-44), and Insufficient (0-24).
The report shows that companies in the network continue to improve their sustainability performance. In 2022, half of all companies rated for the first time fell into the Partial category, and fewer than 5% attained the Advanced performance level. However, among the small but growing subset of companies with seven assessments under their belt, 64% have built an Advanced sustainability management system, and 4% have reached Outstanding.
The acceleration of these positive actions shows that companies are extending beyond their risk and compliance foundations to make progress toward positively impacting society and the planet. Selected best practices that companies adopted for the first time in 2022 include:
Health & Safety:
Diversity, Equity and Inclusion:
Carbon (based on 23,000 carbon maturity scorecards generated in 2022):
*Comparison not available due to new or expanded aggregation of figures in the prior year.
Driving Positive Impact at Scale
The score increases show that improvement in the performance of management systems is a foundational. The next step for companies to create long-term resilience is to drive positive impact at scale.
Collaboration at the industry level is one of the most effective levers to achieve far greater impact. For example, companies can align with industry peers to use a common ESG rating system and platform for collaborating with trading partners on sustainability. This can reduce redundancy, simplify interactions, expand transparency and create a richer pool of peers to collaborate with on improvements. This serves to accelerate the scaling up of positive impact across supply chains. The process involves organizations first inviting their trading partners to be rated, and using the insights to embed sustainability into their procurement strategies. Then, rated companies use their score results to benchmark, track, report and improve their ESG management systems and adopt sustainable best practices.
Joining forces is sustainable supply chain transformation. Scarcity of critical materials or services, low spend concentration, and an absence of strong buyer-supplier relationships can serve as disincentives for suppliers to engage. If, on the other hand, suppliers receive a common message from multiple key customers, the sum total of those requests creates the necessary incentive for them to participate and drive transparency.
By engaging trading partners on a sustainability journey, organizations can cascade the expansion of sustainable business practices throughout the supply base. With some of the greatest opportunities for environmental and social impact occurring upstream in the supply chain, companies and suppliers need to work together to implement sustainable practices and measure their performance year over year. In doing so, they can realize opportunities to create measurable value, drive positive impact and exceed stakeholder demands.
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