Growing the links in sustainable supply chains
How are organisations making their supply chains future-fit on the pathway to a more sustainable future? A recent Women in Sustainable Finance panel event at Westpac’s Melbourne HQ uncovered some innovative ideas.
Supply chains are emerging as the new frontier for social and environmental sustainability. With stakeholders demanding greater transparency and performance, how can you build a business case for improving supply chain sustainability? And what are the emerging trends?
These were just some of the questions raised at a recent Women in Sustainable Finance (WISF) panel discussion, hosted by Westpac at its Melbourne headquarters. An industry initiative backed by the Clean Energy Finance Corporation, WISF aims to promote and support women in the sector through a range of networking, educational and leadership opportunities for industry participants.
Moderated by Westpac Institutional Bank’s Director of Sustainable Finance Kirsty McCartney, the discussion included insights from corporate and industry sustainability experts and investors: Jessica Storer, Sustainability & External Affairs Manager at renewable energy generator Pacific Blue; Sonya Rand, Head of Sustainability at retailer Bunnings; Andrea Makris, Head of Business Engagement, Infrastructure Sustainability Council; and Daniela Jaramillo, Head of Sustainable Investing – Australia for global investment and asset manager, Fidelity International.
Each shared their thoughts on the opportunities and challenges across supply chains.
Exploring the supply chain
The event kicked off with Storer, Rand and Makris discussing supply chain sustainability in their roles and how they address the most material areas.
Storer explained that while the renewables industry is quite progressive, Pacific Blue’s workforce of engineers, accountants and lawyers tends to be conservative and risk averse.
“So, what has worked for us is trying to back-solve those sustainability issues by framing them through a lens that resonates with our business and key stakeholders, which is cost control, risk mitigation, efficiency and good governance,” she said.
For Bunnings, the supply chain is a significant part of its overall sustainability strategy.
“We look at supply chain through two different lenses,” Rand explained. “The parts that would impact the performance of our business, and the parts that would make an impact either on people or the natural or physical environment.”
Bunnings has a mature modern slavery and ethical sourcing program in its supply chain, which is largely driven by stakeholder expectations and regulatory controls, Rand observed.
“We’ve evolved beyond what you'd call compliance-focused to more of a people-centred or worker-centred focus. We support a number of programs in addition to compliance audits, monitoring and supplier assessments, to engage directly with the workforce in their own language, especially for international suppliers. Programs are administered in a way to scale that impact as well.”
Rand added that Bunnings is also seeking ways to improve the circular economy. “We're looking at the design of products from the very start working directly with our suppliers, and we think right through to the end of life for those products.
“We're also looking at the impacts of climate change and energy emissions in the production of goods that we buy,” she said. “We've got a lot of experience in managing the emissions intensity of our own operations, and that's a good opportunity for us to engage with our suppliers and share information on how best to reduce emissions as an industry.”
“Given the scale of the number of products we buy, the number of suppliers we have and where they're located, it's quite a significant challenge to try and grapple with that. But we need to face into it because it's part of our business.”
Makris explained the Infrastructure Sustainability Council’s role in connecting project teams with more sustainable options.
“We want to see infrastructure project teams get to a point of measuring and improving on their baseline, or achieving net impact, or even leaving a positive legacy through the way that they engage suppliers,” she said.
The decarbonisation challenge
The conversation moved to decarbonisation, with Jaramillo addressing its intersection with supply chain sustainability.
“Fidelity International is a global asset manager and this positions us in a very privileged place, because we're able to think about every company we invest in and how they fit in the value chain,” she said. “When it becomes really interesting is when we're able to identify companies that we hold who are suppliers to other companies that we hold.
“We really try to take a systemic look at all our holdings, whether it’s when we're thinking about investments or our stewardship activities”
Rand outlined the challenges in measuring decarbonisation risks and opportunities in Bunnings’ supply chain. While the business has a good understanding of emissions associated with the goods and services it purchases, the way customers use its products also impacts its decarbonisation efforts.
“That was a significant light bulb moment for us,” reported Rand. “Yes, we need to focus on decarbonising our logistics supply chain – the shipping, the trucks, the transport, all of those things – but our product range [also] is dictating our emissions profile due to customer use.”
Pacific Blue’s Storer added that as the renewable generator’s Scope 1 and 2 emissions are low, Australia’s impending mandatory climate reporting will ensure a greater focus on its Scope 3 emissions.
“It’s a good thing, and it's going to be highly complex,” she said. “I do think that data integrity around Scope 3 emissions is something that we all have to wrap our heads around.”
Makris touched on the significance of infrastructure’s embodied carbon and the challenge of reducing carbon emissions “when an asset is already built and you're operating it”.
“That's when you have the least opportunity to do anything,” she pointed out. “The greatest opportunity exists in the planning stage. We encourage the industry to experiment with low-carbon materials and, when alternatives are not possible and you can't completely decarbonise, then think about offsets.”
Jaramillo turned to the importance of investing in future technologies and inputs that support decarbonisation.
“The demand for critical minerals is not only going to increase, it will be transformational for some minerals and metals, this is because the metal intensity for clean technologies is much higher for low carbon technologies,” she said. “For example, an internal combustion vehicle has six times less the amount of minerals requirements than an EV. To produce the same amount of energy at the utility level from gas it takes 11 times less minerals than with a wind turbine”.
“Looking at this data, there can be important opportunities here as there is structural demand. The challenge is understanding which are the minerals that are likely to benefit from this transformation. This involves not only understanding demand and supply dynamics in this cyclical industry, but also understanding new technologies, permitting and social license risks, as well as geopolitics and different regulatory regimes.
The business case for supply chain sustainability
As the panel discussion moved on, McCartney turned the conversation towards positive business outcomes and the importance of being able to make arguments internally and to stakeholders about the positive impact on a business from improving supply chain sustainability.
“For example, are you looking at managing risk? Is it cost optimisation? Or is it something completely different?” she asked the panel.
Rand noted that while Bunnings has seen cost optimisation and commercial efficiency gains since it set its procurement target for 100 per cent renewable electricity, it also considers risk management and mitigation, as well as broader opportunities, such as customer loyalty, brand reputation, employee retention and the culture of the organisation.
“When you make commitments around an initiative for a range of reasons, not just because it's going to save you money, it's seen as a value proposition for the long term. When cost optimisations are done, they’re done, so you need something to sustain it beyond that, and that's why we look for other indicators.”
Jaramillo added that the business case for supply chain sustainability is not always obvious.
“It’s not always a win-win,” she said. “And in those situations, it's important for regulatory bodies to step up. An example of this is with the EU Battery Legislation where the onus is not only on battery producers but also industries like the automotive to look down their supply chain and ensure proper due diligence on ESG issues such as carbon intensity and human rights.
“From my perspective, it's great if we can find the business case, but there is a really important role for regulators and industry voices to help set where the floors and minimum expectations are.”
Social inclusion and wider wellbeing
The importance of social procurement and stakeholder expectation was also raised, with Makris pointing to the Federal Government's Measuring What Matters Statement, which is the first iteration of Australia's national wellbeing framework.
“It’s important that organisations look to that framework for guidance, but the beneficiaries of social value are local communities. Where infrastructure development is investor-led and policy driven, the beneficiaries are very much the local people.”
Storer added that local communities should also represent much of the workforce for renewable projects, but this can present challenges.
“The challenge we have found in trying to set targets around minimum workforce from local communities is the availability, capability and capacity of that community to feed into the project,” she noted.
Priorities for future focus
McCartney concluded the discussion with a question about the next area of focus for supply chain sustainability.
Jaramillo hopes to see green or ethical premiums materialising, that way the business case for sustainable supply chains is strengthened. For Storer, decarbonisation will be a key focus for Pacific Blue as energy demand increases.
The circular economy is top of mind for Makris. “If you’re building something, what’s going to happen at the end of it? Think about that before you start.”
For Rand, biodiversity and natural systems are growing in focus for the retail sector. “We've already got our heads around mandatory climate-based reporting and I think it's quite inevitable that nature as a focus will follow quite swiftly – but that’s not the only reason that we should be thinking about it,” she insisted.
“We're reliant on natural systems in a lot of our organisations and a lot of the lifestyles that we enjoy. So, I really see nature as the next big piece.”
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