What is a Sustainable Supply Chain?

A company’s sustainability performance is now inseparable from its supply chain. Emissions from the supply chain play a large role in a company’s scope 3, or indirect, emissions, which is generally the largest and most complex emissions category. At Salesforce, scope 3 emissions make up 80% of our total emissions, with suppliers accounting for 74% of that. Supply chain management helps improve the efficiency of a company to help lower operational costs and increase profits.

It’s estimated that 80% to 90% of the environmental and social footprint lies in the supply chain in most industries. Without the right tools, including ESG software, tracking supply chain emissions data is particularly difficult. As a result, supply chain professionals play a major role in driving the strategy and execution of a sustainable supply chain and other ESG initiatives.

• What is a sustainable supply chain?
• Why do businesses need a sustainable supply chain now?
• Three steps to improve supply chain sustainability
• It’s time for supply chain sustainability

A sustainable supply chain refers to the integration of environmental and social initiatives into a company’s supply chain to keep both people and the planet at the forefront.

A company’s ESG performance is now inseparable from its supply chain. Companies must work together with their suppliers and customers to integrate sustainability into all aspects of the value chain. This will bring the next wave of decarbonization and progress toward net zero emissions.

Stakeholders now expect companies to provide transparency in their reporting and actively engage in values-driven work. According to a 2024 report by the MIT Center for Transportation & Logistics, commercial interests, from sustainability-driven investors to sales opportunities, have represented the fastest growing pressure to boost supply chain sustainability.

Businesses also need to comply with growing ESG regulations worldwide, from the EU’s Corporate Sustainability Reporting Directive (CSRD) to U.S.-based laws such as California’s climate disclosure rules. Both of these regulations require scope 3 reporting and are expected to impact approximately 50,000 and 5,000 companies, respectively.

Accurately measuring, monitoring, and reporting on carbon emissions remains a challenge. Companies want solutions that bring together carbon emissions data from energy usage, company travel, purchased goods, and more on a single platform. This can inform both reporting and strategic decision-making when building sustainable supplier relationships.

A sustainable supply chain makes good business sense. There are several benefits to working with suppliers that adhere to environmental and social standards, including:

• Controlling costs - By building sustainable methods and transparency into your processes from the start, you’re able to increase efficiency, decrease waste, and innovate proactively. Planning ahead enables you to streamline workflows, consider raw materials, and reuse and recycle in ways that ultimately reduce your bottom line.
• Building brand loyalty and reputation - Customers are increasingly considering a company’s commitment to sustainability and ethics. By demonstrating your commitment to environmental and social responsibility through a sustainable supply chain, companies can gain the trust and loyalty of their customers.
• Minimizing risk and vulnerability - Supply chain transparency ensures a level of scrutiny over suppliers that ultimately protects businesses from issues that could cause reputational damage, or worse. When you scrutinize your suppliers up front, you’re saving yourself from a potential headache down the line.
  
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To be considered a sustainable supply chain, these three notable components should be addressed:

• Green supply chain: In this case, the activities that go into creating and delivering something to a customer (think: sourcing, production, shipping, distribution, and disposal) follow environmentally responsible principles. A green supply chain looks within the supply chain to review these activities from a sustainability lens. Identifying potential risks and opportunities early on is a great way to minimize waste, improve efficiency, and grow profits.
• Transparent supply chain: By ensuring visibility and accountability from start to finish, a transparent supply chain discloses information about sourcing, labor practices, and other operations from end to end. While this can be tricky to accomplish perfectly, new technological innovations are making transparency more realistic to achieve.
• Circular supply chain: The intent of a circular system is to reduce waste by promoting the recycling and reuse of materials. The goal is to be as efficient as possible and prevent the excess use of raw materials. Circular product design principles are helping companies build lean products that weave minimal waste into the very core of their output. Ideally, by reconstituting products, businesses can recoup costs along the way.
  
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Making supply chains sustainable relies ‌on the ability to collect data that consistently monitors and enforces environmental impact and ethical labor practices. Not only is this a challenge for businesses to do internally, but it often requires vigilance throughout their entire supply chain of every one of their suppliers from all over the world.

A few other challenges include:

• Cost implications - A barrier to adoption that’s especially difficult for smaller companies to afford, is the upfront cost of implementing sustainable practices.
• Lack of sustainable options - There's limited availability of sustainable materials or components available that also maintain product quality. Also, many companies inherit supply chains, and it can be next to impossible to ensure that all suppliers will adhere to sustainability standards.
• Customer interest and regulatory compliance - Ensuring customer buy-in and meeting legal requirements can also pose challenges. First, consumers need to be educated about sustainable practices before we can expect them to prioritize demanding environmentally conscious products. Additionally, being able to measure and report on environmental and ethical practices is heavily time consuming and complex.

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These steps can help you drive sustainability in the supply chain and reduce scope 3 emissions.

1. Make sustainability part of the supplier relationship from day one

Companies should integrate a personalized supply chain strategy into their sustainability strategy. The best way to do that is to ask yourself: Does my supplier know that climate action is important to my company? When developing supplier relationships, sustainability needs to be embedded as a priority within every step of the procurement process.

“We can’t just count spend; we have to truly count impact,” said Jennifer Browne, SVP, Chief Procurement Officer at Salesforce. “It’s a business imperative to integrate sustainability into our decision-making, and it’s a risk to companies who don’t protect their businesses against future shocks coming from climate change.”

Begin with a request for proposal, making sure to incorporate standard sustainability questions into it. These questions are up to you, but generally should center around sustainability initiatives and commitments, climate targets, and sustainability performance monitoring.

You should also include industry-specific questions when relevant, such as LEED questions for a general contractor or average fleet miles per gallon for a ground transportation company. This information will help you understand where a supplier is in their sustainability journey, how to work with them, and when to choose one supplier over another. Once you understand where the supplier is starting, you can also ask them to commit to climate targets. At Salesforce, we aim to serve as an example for our suppliers when it comes to bold climate action.

Take, for example, Salesforce’s Sustainability Exhibit, where we’ve made climate action contractual. We ask suppliers to set science-based targets for reducing carbon emissions in alignment with the 1.5-degrees target (just as we have done at Salesforce), require emissions reporting, and deliver their products on a carbon-neutral basis. It’s all about working with suppliers and finding the right sustainable plan together, prioritizing data-driven climate action. Collaboration at scale is critical to keeping global temperatures below 1.5 degrees Celsius compared to pre-industrial levels to avoid increased catastrophic natural disasters.

Enabling suppliers and meeting them on their journey is critical to the success of the Sustainability Exhibit and overall decarbonization progress. This is why we also released the Supplier Net Zero Toolkit, a hub for suppliers looking to advance their own decarbonization journeys.

Meaningful supplier partnerships are what influence greater impact in your supply chain sustainability strategy. This is how Net Zero Cloud customer Breitling thinks about their approach.

“A partnership mindset is essential to drive meaningful action across the supply chain,” said Aurelia Figueroa, Global Director of Sustainability at Breitling. “This has been a key aspect in industry-leading supply chain transformations that are underway at Breitling, from the sourcing of artisanal and small-scale gold and lab-grown diamonds to dedicated supplier support along the way, including financial support from our Carbon Fund.”

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2. Consider alliances and the entire supply chain

It’s also important to consider developing new alliances and analyzing your business’s impact in the supply chain, all the way down from suppliers to sold products.

At Salesforce, we focus on a mutual interest in doing good and alignment with our goals for both Salesforce and the planet. Sustainability is a journey that looks different for every company, and our suppliers know their businesses best. The Sustainability Exhibit is designed to be adaptable to a supplier’s unique situation (industry, size, geography, etc.) while maintaining its integrity and ambition. We put significant consideration into the intent behind each provision, and we’ve aligned the consequences of non-compliance with our objective of ensuring a more sustainable future than business as usual.

Sustainability is and always has been built into the very fabric of MillerKnoll. From the initial philosophies of Herman Miller’s founder on environmental stewardship to the development of innovative materials, designs, and efficiencies available today, the MillerKnoll collective of brands share the vision of a more sustainable future without compromising quality.

Recognizing that this is a shared effort, MillerKnoll partners with members of their supply chain to develop sustainable solutions to improve and mitigate environmental impacts in ways that provide value to global stakeholders. After being invited by its customer Dell, MillerKnoll became a founding member of NextWave Plastics, an organization of multinational companies developing the first global network of ocean-bound plastics supply chains.

NextWave Plastics is building an entire economy around decreasing plastic litter in the ocean through strategic alliances and collaboration across industries. We urge you to look at ways to do the same.

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3. Drive clarity and transparency with high-quality, supplier-provided data

Getting accurate and actionable data on scope 3 emissions can be a major roadblock to achieving and accurately recognizing emissions reductions.

At Salesforce, we established five key steps for integrating our supplier data into a scope 3 inventory:

1. Collect data - We request supplier-specific emissions data through CDP Supply Chain.
2. Allocate emissions - Our allocated emissions may be provided by the supplier or calculated by Salesforce using the revenue intensity values collected using CDP Supply Chain.
3. Review data quality - We review the data to ensure it is of sufficient quality to use in place of existing methods, which includes quality tests, scores, and gates.
4. Incorporate supplier-specific emissions - We substitute spend-based data with hybrid method data if hybrid method quality score supersedes spend-based quality score.
5. Adjust prior years - We update base-year emissions using percent difference to spend-based method.
   
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We recognize that while we have seen some early success with this methodology, its implementation is a journey requiring additional refinement and data availability from a wide array of suppliers and partners.

Using ESG software like Net Zero Cloud to help track your supply chain emissions data can provide clarity on what changes need to be made to achieve carbon neutrality. You can also use your ESG management platform to increase transparency for key stakeholders. For every goal post you set, determine your metrics and measure that success. Showing progress will be a great way to keep the momentum and change going.

Building sustainability into the supply chain and customer relationships is one of the most effective ways to reduce carbon emissions and meet aggressive carbon reduction targets, but you can’t do it alone. It requires building trust and reputation with your suppliers, making it clear that sustainability is a top priority, and holding your company and your suppliers accountable.

Promoting sustainability through innovative practices

• Innovation: Through new technologies, models that reduce environmental impact, and sustainable design strategies — can help make supply chains more sustainable. A few innovative approaches include:
• Circular economy: As mentioned earlier, making sure products are designed so that the product and its components can be reused, recycled, and repurposed is what makes a circular economy. Part of creating a circular economy also involves manufacturing goods that will have a longer lifespan and generate less waste.
• Data-driven supply chains: A data-driven supply chain is one that leans heavily on data from various sources and stages of the supply chain to inform decisions that improve operations and efficiency. Information like sales, inventory, production, logistics, and supplier data all help drive data collection and analysis, which offers real-time visibility that allows for incremental adjustments and leads to better overall performance. Examples of Net Zero Cloud and supplier, subsidiary, and value chain data.
• Technological innovation: As technology evolves, it’s important to vigilantly look for ways to put it to use. Investing in electric vehicles, implementing energy efficiency, using renewable energy sources, developing sustainable packaging, and finding new ways to reduce waste are all examples of how advancements in technology can make a difference. Also, advanced technologies like using AI to monitor resources, finding new ways to operate more efficiently, and analyzing data to measure impact can also promote sustainability over time.

Get started by having a conversation with suppliers on how to commit to sustainable business practices. Form essential partnerships in your supply chain and with other companies who are aligned with your mission. Integrate supplier data to measure the impact together. This way, we can all create a sustainable supply chain that will have positive environmental and social returns.