Kareem Mohamednur, partner with PwC, outlines the challenges that companies face in complying with a raft of environmental, social and governance (ESG) requirements, while controlling both cost and supply chain risk.

As they strive to comply with ESG mandates, companies are facing “a confluence of headwinds,” including inflation, geopolitical developments, new regulations and tight labor markets, Mohamednur says. He describes three main challenges arising from that state of affairs. One is struggling to balance the “holy trinity” of cost management, risk and resilience, and the need for sustainability. “They don’t always go in the same direction,” he says.

A second challenge is acquiring end-to-end visibility and transparency in the supply chain, especially when it comes to measuring and reducing Scope 3 carbon emissions — those generated by supply chain partners over which the purchasing company has no direct control. Getting all the way down to the “N” tier of a multi-tier supply chain is “incredibly challenging.”

Third, once companies have achieved that level of transparency, they face the challenge of engaging and mobilizing the supply base. From a collection of many thousands of suppliers, they must determine where each one is on its “maturation journey,” then take action to improve sustainability performance.

There’s a general awareness among companies of the need to achieve these goals, but making progress in that direction is another matter. Many organizations are struggling with how to prioritize short- and long-term needs. They might have set ambitious targets for improvement, but one recent study suggests that 93% of surveyed companies will miss their Scope 3 commitments “unless they double the pace of their emissions reductions by 2030.” 

Nevertheless, Mohamednur is optimistic that supply chains will meet ESG mandates. New technologies are making it possible to acquire more data and analyze it so that action can be taken. What’s more, “we’re continuing to see more pressure from key stakeholders — customers, investors, regulators and employees.”