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Guest blog: In the race to zero, is your supply chain a ball and chain?

Guest blog by Andrew Carter, Managing Associate, Addleshaw Goddard LLP
 

75% of businesses believe that a sustainability focus gives them a competitive edge. This was just one of the insights revealed by recent research conducted by Addleshaw Goddard[1]. Their strong heritage of mutuality means that that building societies are perhaps more naturally aligned than most businesses to effecting the transition to a more sustainable future. Reassuringly, the research also revealed that 95% of business leaders said that sustainability initiatives had been either cost neutral or a net gain in 2020. But beyond making available green mortgages, where else should societies focus their attention?

Most businesses, whatever their nature, find that the majority of their carbon footprint sits within their supply chain. Not only does their supply chain have an environmental impact but often it will also have a societal impact too – something close to the heart of mutual organisations. Increasingly these considerations are also a key focus for regulators, investors and customers.

Addleshaw Goddard's research revealed that almost half of businesses (49%) plan to invest in supply chain transparency in the next 12 months. 64% don't believe that their supply chain lives up to their environmental standards and 66% say that their supply chain is not doing enough to mitigate social risk.

Building societies typically have complex supply chains - for example from office cleaners, to the suppliers of energy, to the suppliers of equipment and office supplies, to the operation of data centres and other platforms. The scale and nature of the sustainability risk will vary materially from supplier to supplier.

The starting point should be to undertake an audit of your firm's supply chain, existing due diligence practices and contractual protections. This will enable the identification of high risk areas, any existing issues and current performance standards which can then be used to create an initial action plan and to benchmark future improvements. Whilst carrying out this initial audit, we recommend conducting internal activities to raise awareness of sustainability issues at board level, among procurement teams and with employees. This might take the form of rolling out policies and training but it could also be more informal. As well as contributing to greater sustainability, undertaking a detailed review of your firm's supply chain will also help you to prepare for the new focus on operational resilience from regulators.

Once the initial audit is complete, the next step is to improve performance through enhanced supplier due diligence, the introduction of sustainability-focussed KPIs into supplier contracts and joint training initiatives between your procurement teams and your suppliers. This is all easy to say but can be more difficult to achieve in practice, particularly where the suppliers have greater commercial bargaining power. By way of example, that might be the case if a society obtains clearing and settlement services from a major bank. Societies might usefully consider to what extent they can collaborate to articulate and apply sector wide codes of conduct. Strength in numbers could be the key to both ensuring compliance by suppliers great and small as well as providing the industry with a more accurate picture of its sustainability footprint and where the key risks lie.

 

[1] Survey conducted in late 2020 and early 2021 under the ethical research guidelines set by both the MRS (Market Research Society) and ESOMAR (European Society for Opinion and Market Research). The sample included 550 senior business leaders and 450 finance leaders (including investors, banks and insurers) based in the UK, Germany, the Netherlands and France.

 

The views, opinions and positions expressed within guest blogs are those of the authors and do not necessarily represent those of the BSA.

Posted by Andrew Carter on 21 June 2021