In response to growing pressures from their stakeholders, Canadian companies are re-evaluating their entire supply chain to determine the human, environmental, and socioeconomic impacts of their products or services, finds recent KPMG in Canada research.
Almost two-thirds (64 per cent) of small- and medium-sized Canadian companies surveyed by KPMG say they currently factor environmental, social and governance (ESG) principles including climate change into their supply chain management. Similarly, 63 per cent also said that they have hired, or plan to hire, an “ethical sourcing manager” to ensure their suppliers are aligned to their ESG values in principle and practice. Such a role also entails monitoring supplier non-conformance and helping suppliers become compliant.
“The push in recent years from multinationals and governments to weave ESG into their procurement requirements is having an impact, as more and more suppliers, large and small, are striving to adhere to social and environmental standards,” says Jean-François Letarte, Partner, Supply Chain Advisory, Management Consulting, KPMG in Canada.
“The global COVID-19 pandemic and Russia-Ukraine conflict exposed the vulnerabilities in supply chains and brought ESG to the forefront of the corporate agenda. The supply chain is no longer a back-office function. The public, consumers, investors, and increasingly, regulators around the world today expect companies to pay more than lip service to ESG.”
Mr. Letarte, KPMG’s national subject matter adviser in procurement transformation, says it’s no longer enough to know what your Tier 1 supplier is doing. Business executives are expected to have visibility upstream, that is, on all materials, people, and environmental factors that go into the product or service, and even influence their supply chain beyond the first tier to the second, third and so on. Mature organizations in the area of procurement convey their expectations and standards to their supplier base and build programs to monitor, measure, and influence their suppliers through their procurement requirements and in their critical supply contracts, he says.
ESG in supply chain toolkit
Mr. Letarte points out that most companies find it challenging to follow through on their ESG policies. “Once they’ve reported on their normal state of affairs, a lot of companies then struggle to show tangible progress against their ESG goals,” he says.
When asked to identify the challenges or barriers to delivering on their ESG goals, small- and medium-sized Canadian businesses surveyed by KPMG highlighted increased or frequently changing regulations, not having the appropriate technology and tools to effectively measure and track their ESG initiatives and lacking the skills and expertise to implement solutions. This can be especially difficult if you lack proper ESG measures with your suppliers, adds Mr. Letarte.
As a result, most companies find it difficult to clearly communicate their commitments and demonstrate progress. Six in ten (59 per cent) small- and medium-sized businesses acknowledged that they “struggle to articulate a compelling ESG story” and 61 per cent struggle to overcome stakeholder skepticism, or the perception of greenwashing. A similar percentage (61 per cent) say they expect to rely increasingly on external assurance or validation of their ESG data.
Accessibility and reliability of supplier data, both from internal systems and external sources, has shown to be one of the core capabilities that sets mature organizations apart, he says. Supplier data from third party sources coupled with transactional data of corporate information systems can derive highly valuable insights and lead to simulation and essential predictive supply chain capabilities. Data can and should inform and lead to better business decisions and it is no different with ESG, says Mr. Letarte
KPMG in Canada surveyed business owners and C-suite executives at 503 small- and medium-sized Canadian companies from August 16 to Sept. 1, 2022, using Schlesinger Group’s Methodify online research platform. 32 per cent of the companies reported annual gross revenue of over $500 million, 26 per cent between $300–$499 million, 18 per cent between $200–299 million, 16 per cent between $100-$199 million, and 8 per cent below $50 million. The vast majority (85 per cent) are privately held companies and the remaining 15 per cent are publicly traded. 57 per cent are family-owned businesses.