WSJ Panel Promotes Sustainable Solutions for Supply Chain Challenges

The complexity of global supply chains can challenge the best of enterprise sustainability initiatives.

At a recent session of the WSJ Pro Sustainable Business Forum, WSJ reporter Jennifer Smith cited a McKinsey study that found the operations, transport, and logistics associated with supply chains account for as much as 80 percent of the world’s carbon emissions.  Also, those supply chain emissions are, on average, 11 times higher than a company’s operational emissions.

Despite any one company’s commitment to sound environmental policies, their supply chains are typically outside their control and therefore tough to evaluate and tricky to influence, Smith observed in a discussion with Oracle Chief Sustainability Officer Jon Chorley and PepsiCo Beverages North America CSO Jason Blake.

Chorley, who also serves as Oracle group vice president of product strategy for supply chain management (SCM) applications, sees large companies’ influence over supplier practices as one of the greatest opportunities to reduce greenhouse gas emissions. It’s just a matter of asserting control over the supply chain by setting expectations and imposing clear standards, he told Smith.

How to Avoid Greenwashing

That starts with clarifying two basic facts about the business: what are the areas of growth and how do they impact sustainability metrics. “When those two things come together, then you can have initiatives that really make a difference,” Chorley said.

Companies that clearly assess these factors are less likely to put forward “greenwashing” initiatives—sustainability plans that might sound good on paper, but don’t deliver tangible progress.

For Oracle, that analysis was somewhat obvious—the business was headed to cloud computing, and energy consumption was the most important environmental impact associated with that shift. “From there, it’s a matter of ensuring those insights are monitored, measured, and driven into the overall goals of the business,” Chorley said.

This analysis resulted in increasing the share of renewable energy used in its computing infrastructure, and then setting the goal of having all operations—data centers and office facilities—entirely powered by clean energy sources by 2025.

Material Facts, Not Mushy Metrics

Smith noted, particularly when it comes to supply chains, that the “metrics are mushy.” And the difficulties in measuring progress can encourage skeptics to question whether a given company’s efforts are even worth it; if they really “make a dent.”

A few years ago, the skeptics might have been right, Chorley replied. The claims of CEOs had to be taken with a grain of salt. Despite lofty words, it was hard to know if they were truly measuring progress and had real programs in place to achieve it.

“I do think we’ve kind of moved beyond that now,” Chorley said, noting the sustainability figures many businesses, especially those in the Fortune 500, report these days get externally audited.

Such facts have become material, he explained, and a consensus is forming on how to measure them. In that way, sustainability reporting has become more like financial reporting: with material facts, clear metrics, and audits helping ensure accountability.

“If you report a fact that is unsubstantiated in sustainability, it’s similar to reporting a similar fact in finance, and as such can have impact on your business,” he said.

The corporate world has been standardizing these metrics, instilling more confidence in the information being shared. And standards development continues—reducing the noise in the exchange of information and increasing trust to a level almost comparable to financials.

Engaging Suppliers

But what about the sticky matter of “layers of subcontractors?” Smith asked. After all, Oracle can set goals for energy consumption and hardware recycling, but how can the company extend those expectations beyond its own organization and measure suppliers’ commitment to sustainability?

Chorley acknowledged that’s a challenge for a company with some 30,000 indirect suppliers, and relatively fewer, though still a lot, of direct ones, including the companies helping build its computer hardware.

“The key word is engagement here,” Chorley told her. Engaging suppliers is key to decarbonizing the supply chain, driving out hazardous materials, and supporting good labor practices. For that reason, Oracle operates a program that helps its suppliers develop and implement their own sustainability policies.

If there are issues along the way on that front, Oracle can always “exert some encouragement,” he said. And those companies know they are going to have to comply if they want to maintain the business relationship, as Oracle has set the goal of 100 percent of its suppliers having environmental programs in place by 2025.

But most are eager participants, Chorley noted, with 75 percent already having achieved that goal to date.

“Our general impression is they’re on this journey too and they want to work with us to get to where we want to go because they want to get there as well,” Chorley observed.

It’s important to remember that most companies, especially those that care about their brands, understand they must own this problem—and that short-term decision will have long-term impacts.

“If you don’t have a sustainable supply chain, you probably don’t have a brand,” he said.

From the Back Office to the Dining Room

Chorley told the WSJ Pro audience that it’s no accident he holds the dual portfolio of sustainability and supply chain management—supply chains are where the rubber hits the road as far as good climate and sustainability policy. And the subject has certainly become prominent with the current supply chain backlog that has limited the flow of goods in the country amid the COVID-19 pandemic.

“The supply chain has moved from the back office to the front office to the board room to the dining room,” Chorley said.

While the current crisis has highlighted structural deficiencies in United States supply chains (capacity issues, labor issues, inefficiencies, lack of investment, and poor information sharing), COVID-19 could merely be a dress rehearsal for worse impacts down the road.

“The kind of shock to the supply chain may well get repeated due to climate change issues,” Chorley said. To guard against an even more-severe scenario, companies must begin to think more seriously about how they invest in infrastructure and business-to-business processes that make distribution channels more resilient.

But before getting too glum, it’s important to remember there are also positive developments. Cloud computing is one of them.

The shift toward services-based delivery of computing capacity allows for a more circular supply chain, he said, rather than a linear one “where you sell a product and may lose track of it.”

By delivering cloud services, “we’re much more able to control the full lifecycle of the product,” Chorley said.