Woman in warehouse


A sustainable business needs a sustainable supply chain

To get closer to net zero and convince all stakeholders, especially customers, they are part of the solution, businesses in the Americas need to look closer into their supply chains. 

Businesses across the Americas are trying to be transparent about their sustainability performance, but their supply chains could be letting them down, according to new research commissioned by Smurfit Kappa and conducted by FT Longitude. As they try to accelerate their sustainability efforts, they will have to improve transparency and collaboration across the entire value chain — from suppliers to customers.

In the survey of business leaders from retail and consumer companies, sixty-seven per cent of respondents in the Americas say they have complete transparency around key sustainability decisions. That high proportion could be a result of increased political impetus. In the US, for instance, the 2022 Inflation Reduction Act (IRA) is prompting businesses to rethink their approach to sustainability and could be having a knock-on effect on neighbouring nations.

Sixty-seven per cent of retail and consumer companies in the Americas say they have complete transparency around key sustainability decisions

Other countries in the Americas are using sustainable finance taxonomies that identify activities that contribute to environmental targets. In 2022, Colombia became the first country in the western hemisphere to adopt a national green taxonomy, and taxonomies are also being developed in Mexico, the Dominican Republic and Peru.

Stakeholder pressure forces businesses to get vocal

Many businesses are also seeing a significant increase in stakeholder interest in sustainability, including from investors. “Two years ago, we were not talking about sustainability in our annual results,” says Claudia Campillo Velásquez, vice president corporate affairs and secretary-general at retailer Grupo Éxito. “Then we noticed an increasing number of questions being raised, which pushed us to include what we are doing from a sustainability perspective in our annual results.”

Wider communication with consumers is also crucial. Grupo Éxito, for instance, aims to bring its sustainability agenda to life on social media and in stores. “We have to be very vocal in all the things that we are doing,” says Velásquez.

“We noticed an increasing number of questions being raised, which pushed us to include what we are doing from a sustainability perspective in our annual results.”

This is a point echoed by Silvia Dávila, regional president for Latin America at Danone and Co-Chair for The Consumer Goods Forum in Latin America. “Today, our customers, consumers and stakeholders demand to know what companies are doing,” she says. “It helps them make final decisions about what products to buy.”

The supply chain is a stumbling block

Yet even as businesses use their external communications to publicise what they are doing on sustainability, many still face significant operational constraints. Supply chain transparency is a particular challenge: 45 per cent of Smurfit Kappa’s survey respondents in the Americas say that it is undermining the credibility of their sustainability efforts. 

“Our supply chain is very complex because of the number of products we stock,” says Velásquez. “We have more than 3,000 commercial suppliers and another 2,000 for goods and services, so we are talking about thousands of suppliers in the entire value chain, and we need to review what each is doing in its own supply chain.”

Scope 3 emissions are a work in progress

This complexity is particularly debilitating as businesses attempt to cut carbon emissions. More than half of the Americas respondents in Smurfit Kappa’s research (55 per cent) say their ability to measure Scope 3 emissions, which are emitted up and down the value chain, is limited. Data access is another issue, identified by 43 per cent of the respondents in the Americas.

Garrett Quinn, chief sustainability officer at Smurfit Kappa, says that even businesses with advanced capabilities for calculating Scope 1 and 2 emissions are wrestling with the complexity of Scope 3 emissions: “Most global corporates are dealing with tens of thousands of suppliers, so how do you collect that data? How do you verify it?” 

Smurfit Kappa’s own initial estimate is that Scope 3 emissions account for about 35 per cent of its total carbon footprint. It has been reporting carbon emissions for over ten years, but measuring Scope 3 emissions, and working closely with supply chain partners to identify cuts, remains a “work in progress”, according to Quinn.

“The more you get into capturing your Scope 3 emissions inventory, the more questions you tend to have,” he explains. “It’s about asking, ‘How comfortable am I with my scope 3 data, and then how can influence and reduce my Scope 3 emissions?’’

What’s the difference between Scope 1, 2 and 3? 

Scope 1 emissions:
Emissions from sources that a company owns and controls directly (e.g. onsite building energy use, company vehicle fuel).

Scope 2 emissions:
Emissions that a company causes indirectly when the energy it uses is produced (e.g. purchased electricity).

Scope 3 emissions:
All indirect emissions that occur in the value chain of a company, either upstream or downstream (e.g. employee commuting, investments, waste generated in operations).

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