Bridging the ESG gap in supply chain management: From ambition to action

In today’s rapidly evolving business world, environmental, social, and governance (ESG) factors have emerged as essential pillars of effective supply chain management. Yet, despite widespread acknowledgment of their significance, many companies struggle to translate ESG ambition into tangible actions within their operations. A recent global survey of 166 supply chain leaders conducted by the Digital Supply Chain Institute (DSCI) and the American Productivity & Quality Center (APQC) sheds light on the prevailing realities and opportunities within the ESG landscape, emphasizing the critical need to bridge the gap between aspiration and implementation.

The current ESG landscape: Recognizing importance vs. integration

According to the survey findings, a notable 62% of organizations globally acknowledge the “extreme” or “very high importance” of ESG factors in supply chain management. However, this recognition often fails to translate into concrete actions, with only 43% of firms incorporating ESG performance metrics when selecting suppliers. Such discrepancies underscore the significant potential for companies to align their practices with their professed values and priorities.

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An alarming revelation from the research is the lack of prioritization of ESG by 60% of companies in their supply chain management practices. This highlights the need for the development of industry-wide frameworks and strategies aimed at seamlessly integrating ESG principles into core operations.

The Execution gap: From planning to implementation

Despite widespread awareness, only a mere 19% of respondents have successfully integrated ESG considerations into their daily operations. This execution gap underscores the challenge of translating ESG discourse from planning stages to practical implementation.

Moreover, a staggering 76% of participants acknowledge substantial knowledge gaps among their staff regarding the effective execution of ESG strategies. This underscores the imperative for organizations to invest in comprehensive training and education initiatives to equip employees with the requisite skills and knowledge for successful ESG implementation.

Driving forces and hurdles: Market demands and regulatory mandates

Customer demands and regulatory mandates emerge as primary drivers behind ESG strategies, highlighting the interconnectedness of market expectations, risk mitigation, and compliance. Notably, regulatory pressures have prompted 62% of organizations to modify their approaches in response to heightened stakeholder expectations.

Interestingly, while environmental goals remain significant, social- and governance-related objectives, such as ethical business practices and social inclusion, take precedence. This indicates a need for a broader understanding of ESG that encompasses societal issues beyond environmental concerns.

Challenges and opportunities: Addressing data gaps and cost implications

Challenges such as the lack of reliable data from suppliers and cost implications pose significant hurdles to ESG integration. However, despite these obstacles, only 25% of respondents perceive ESG implementation as a revenue-generating opportunity, highlighting the need to shift narratives toward viewing ESG as a source of value creation and market differentiation.

Emerging technologies, including AI and blockchain, hold promise for enhancing transparency and traceability within supply chains, thereby facilitating ESG objectives. However, the survey indicates that just 30% of firms believe they can rely on trustworthy ESG data, underscoring the need for technological and process innovations to enhance data accuracy and availability.

Moving forward: Bridging the gap between ambition and reality

To bridge the chasm between ESG aspiration and implementation, businesses must refine their focus on the ESG agenda to clearly define the importance of environmental, social, and governance factors within organizational policies and strategies, with a focus on execution.

Furthermore, leveraging emerging technologies can play a pivotal role in overcoming existing challenges, enabling businesses to enhance transparency, traceability, and accountability within their supply chains. Additionally, fostering a company culture that values and understands the significance of ESG is paramount, necessitating investments in employee education and training initiatives.

While the journey toward fully integrating ESG into supply chain operations poses numerous challenges, the insights gleaned from the DSCI/APQC survey offer valuable guidance for navigating this complex terrain. By fostering collaboration and concerted efforts across industries, organizations can effectively bridge the gap between ESG ambition and reality, thereby driving sustainable value creation and societal impact.

About the authors:

Vivek Ghelani is the director of research at the Digital Supply Chain Institute (DSCI), focusing on enhancing supply chain efficiency and ESG integration through emerging technologies. 

Marisa Brown is the senior principal research lead for Supply Chain Management at APQC, dedicated to advancing ESG priorities and best practices in global supply chains.

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