Environmental, social and governance (ESG) compliance isn’t only a moral obligation for manufacturers. It impacts revenue and the long-term success of supply chains. 

The effects of ESG are felt everywhere, from customer satisfaction to accessibility and reputation management. But while supply chain executives are working to meet growing ESG demands, many lack the appropriate technology to achieve that goal. And they’re unable to demonstrate a clear return on investment for their efforts.

Among the obstacles that supply chain leaders face in building environmentally sustainable supply chains is the cost of tracking new sustainability metrics, non-compliance, reputation management, and carrier and vendor inefficiencies.

According to Forrester, 2023 promises to be a “Green Market Revolution” for supply chains. It predicts that the following changes will have the biggest impact:

Decarbonization. Carbon offsetting involves a business reducing its carbon footprint by paying another company that aims to reduce its own carbon emissions. One carbon offset equals one carbon credit.

While carbon offsets are a well-known method of boosting sustainability in the supply chain, a newer term called “carbon insetting” is also gaining familiarity. It falls between a company’s efforts to mitigate its own emissions and offset those that are unavoidable — in the latter case, Scope 3 emissions generated by supply chain partners.

While carbon offsets and credits are fine as a starting point for reducing a company's overall emissions levels, they should not be viewed as a reliable long-term solution. Actual emissions data is key in allowing companies to measure and manage carbon emissions from transportation, and make real progress toward ESG goals.

A new carbon reporting standard. The Biden Administration has proposed the Federal Supplier Climate Risks and Resilience Rule, which changes the standard for carbon reporting for major federal suppliers. It applies to federal contractors receiving over $50 million in annual contracts and requires the following:

• Public disclosure of Scope 1, Scope 2, and specific Scope 3 emissions;
• Disclosure of climate-related financial risks, and
• Development of emission reduction goals backed by science.

Contractors with over $7.5 million but under $50 million in annual contracts must disclose only Scope 1 and Scope 2 emissions. And federal contractors that fall below the $7.5-million threshold are exempt from the rule. However, for small businesses with more than $7.5 million in annual contracts, the rule requires that they report Scope 1 and Scope 2 emissions.

The framework aims to deliver reliable Scope 1, 2, and 3 information to investors, shareholders and customers. The new reporting standard also enables organizations to qualify for credit and lending.

New investments in technology and automation. Automation has been increasing rapidly in the supply chain. However, in 2023, Forrester predicts that companies will shift to a slower and steadier approach. Businesses investing heavily in machine-learning-based projects are pivoting to risk and resilience projects by focusing on known issues. 

Other areas of focus include physical automation to fill labor gaps. Together, the increased efforts for a more rational approach to automation provide a competitive advantage for those looking to advance in the market.

As automation efforts mature, virtual machine-centered workloads become legacy systems. Cloud-native systems require DevOps teams to increase their knowledge of cybersecurity.

Before the COVID-19 travel restrictions hit, the demand for air travel outpaced decarbonization efforts. Pandemic-related issues decreased business travel by about 54%. Now that travel is on the rise again, some companies are reevaluating their current travel policies due to better carbon emission tracking. Five Fortune Global 200 firms are implementing policies to limit travel in order to support sustainability efforts. 

In addition, the U.S. Securities and Exchange Commission is proposing enhancements to the Securities Act and Exchange Act that would require public companies to provide climate-related information in their registration statements and annual reports. As the SEC enforces fines for misstatements and omissions of carbon emissions, this further emphasizes the need to look more closely at business travel.

Additionally, global enterprises should work with like-minded partners across their transportation networks to reduce carbon emissions. When you choose carriers that are already working on clean fuel and sustainability initiatives, it becomes a mutual partnership between companies, carriers and additional players in the supply chain.

Josh Bouk is president of Trax Technologies.