Ewa Palarczyk and Iwona Chrzanowska, the authors of the text in the Rzeczpospolita supplement once again – “ESG in practice”;

Sustainable supply chain

One of the significant changes in ESG reporting brought into force by the CSRD directive (Corporate Sustainability Reporting Directive) and ESRS reporting standards (European Sustainability Reporting Standards) is to get companies to think and act through this prism value chain. Following Annex No. 2 to the ESRS regulation, we can define it as the full range of activities, resources and relationships an entity uses and relies on to create its products or services from conception to implementation, consumption and end-of-life. It covers two types of entities, i.e. entities on:

• Higher levels of the value chain (upstream) are, for example, suppliers who provide products or services that are then used to develop the entity’s products or services, 
• Lower levels of the value chain (downstream) are distributors or customers who receive products or services from the entity. 

The legislator’s solution —clever and admirable, by the way—imposes mutual responsibility for the implementation of sustainable activities by all important entities in the value chain. What does this mean? Entities obliged to report, and as we know, there will be more and more of them every year, will force their business partners to introduce sustainable practices instead of socially or environmentally harmful solutions. Those who do not adapt will be excluded from the chain and replaced by entities that care about sustainable development. 

A sustainable supply chain assumes responsibility for a product or service throughout its entire life cycle, from obtaining raw materials to disposal, by the “cradle to grave” principle. From a broader perspective, the aim is to implement a “cradle to cradle” model, where waste becomes new raw materials. 

How does it work?

We can take the perspective of the supplier and/or recipient of products or services when looking at the value chain.
Here, we will look at the perspective of the customer subject to the obligation to report on sustainability. Let’s imagine that
a large furniture manufacturer buys certain products from us. If our client is interested in reducing their carbon footprint, they will start with:

• collecting data and calculating the carbon footprint of scopes 1 and 2 in your company,
• looking at existing assets and low-cost opportunities to improve their productivity and reduce emissions,
• identification of important suppliers and calculation of the footprint in scope 3,
• Take into account the level of carbon footprint when making your purchasing decisions.

The first actions will usually be simple, but unfortunately, these “low-hanging fruits” will be quickly consumed, and it will be necessary to find less obvious solutions, requiring more significant expenditure, but also often more innovative. These are difficult to achieve without cooperation and building commitment throughout the supply chain. And this is what our client will ask us directly as a supplier. Of course, a sustainable supply chain is not only about decarbonization, as the results of the dual relevance assessment and our customers’ expectations may point to other important issues. It’s a domino effect, where in dialogue with chain entities we have to address our customers’ needs. While the first step is often to ask suppliers for declarations on applying sustainable development principles, compliance with ESG principles is also achieved through ESG audits of suppliers and manufacturers. 

Some companies use pilot solutions to “test” new approaches and solutions with selected suppliers. If they prove successful, full implementation is quickly followed by the rest. Implementing sustainable development also means education and internal and external communication about what we do. It also means incorporating ESG issues into processes and procedures and working with suppliers and competitors to share good practices and jointly seek solutions. It is also worth taking some actions on the downstream side, such as ​​educating customers about why and how we want to change. After all, it is customer attitudes and expectations that shape demand.