Analyst Insight: The tide certainly seems to have turned on sustainability and ESG commitment in the U.S., with President Donald Trump leaving the Paris Agreement and revoking an executive order requiring federal agencies to assess climate-related risks to the country's economy.

Possibly in reaction to this shift, the U.S. Department of Defense, National Aeronautics and Space Administration and General Services Administration withdrew their proposal requiring that major federal suppliers publicly disclose greenhouse gas emissions and climate-related financial risk, along with setting science-based GHG reduction targets.

This is not, however, the first time there has been a retrenchment in the pursuit of sustainability. The U.S. has left and rejoined the Paris Agreement before, and various states have either joined California in adopting climate disclosure rules for larger businesses, or are considering doing so. Sustainability needs to remain at the top of the supply chain manager’s agenda to continue driving a range of benefits that spans far beyond mere compliance. In fact, sustainability can help drive innovation, cost reduction, brand image, and sales.  

Anticipate and Mitigate Risk

Collaboration with suppliers on sustainability and sourcing issues is key to helping businesses anticipate changes in the supply chain and mitigate any associated risk. By having open lines of communication with suppliers and operating in transparency, businesses can pivot in time and look for alternative suppliers, stockpile inventory, or apply other risk-control mechanisms to avoid a halt in production. By accessing shared data, companies can predict sustainability risks such as environmental impacts, geopolitical issues, labor violations and governance issues. 

Ensure that communication channels are automated and user-friendly. They should offer artificial intelligence-driven insights and recommendations, along with the capability to implement automated action plans.

Build Accountability and Trust

Thanks to technology that provides dashboards with easy-to-interpret data, it’s possible to enhance transparency and traceability across the supply chain. ESG claims need to be verifiable and trustworthy, and provide crucial visibility to where organizations might have emissions hot spots. This fosters greater accountability and trust among stakeholders. Setting up a collaborative process for information sharing that’s streamlined and doesn’t create an additional hurdle for suppliers is key to achieving this.

Stay Compliant and Meet International Standards

While compliance isn’t the sole driver for collaboration over sustainability metrics, businesses that want to remain competitive need to keep up to date with changes in regulation, and  monitor sources across the supply chain to ensure they remain ethical and sustainable in accordance with international requirements.

In the U.S., the Uyghur Forced Labor Prevention Act (UFLPA) was designed to protect the market from purchasing textiles that might have been produced under forced-labor conditions.  The act also covers textiles imported from other countries that have purchased cotton from China’s Xinjiang province. As the region accounts for 20% of the world’s supply, the impact on the supply chain is significant. In addition to federal laws, companies doing business in California are required to disclose greenhouse gas emissions data and climate-related financial risk reports.

Businesses trading with the EU will have to comply with the region’s Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and EU Regulation on Deforestation-free Products (EUDR). They’ll also need to take into account the EU’s Carbon Border Adjustment Mechanism (CBAM) , which puts a price tag on emissions embodied in certain imported products, including iron and steel, aluminum, cement, fertilizers, electricity and hydrogen.

Growing global regulations require businesses to gather, track, and actively manage how they calculate the embodied emissions of imported goods. This helps them understand their carbon baseline, assess emission-reduction strategies, minimize the carbon footprint of sourced materials, and collect and verify the data needed for compliance.

Drive Innovation

One of the primary ways procurement can make more sustainable choices is through the selection of eco-friendly materials, products and services. By selecting renewable resources, recyclable materials, and energy-efficient products, procurement can reduce overall GHG emissions from across the supply chain, impacting Scope 3 emissions as well as Scope 1 and 2. Greater collaboration with suppliers is key to driving sustainability — suppliers can propose more eco-friendly materials, processes, and innovations, while procurement can encourage transparency in sourcing, demand better water conservation, or require improved waste management practices. Additionally, by working closely with suppliers, procurement can help foster the development of sustainable innovations that create long-term environmental and business value.

Reduce Costs

Sustainable choices need not be more expensive ones. By communicating more openly across the supply chain, businesses can discover unexpected efficiencies such as lower transportation and energy costs that also reduce emissions through nearshoring, use of renewable energy, and introduction of innovative products.

Smaller businesses and start-ups everywhere are bringing innovative solutions to market, offering technologies and products that draw on renewable energy and carbon capture and storage. 

The benefits of collaboration with suppliers are manifold. In addition to improving compliance and aligning with changing consumer preferences, transparency can help improve competitiveness and drive future growth.