Environmental risks are everywhere in the supply chain – from discovery of improper hazardous waste management to factory electrical fires which can impact a company’s reputation, disrupt production and affect overall performance of the business. Companies can implement a variety of strategies to manage supply chain environmental risks utilizing operational and strategic levers. To help, UL has outlined four easy steps to managing environmental risks in the supply chain:
STEP 1 – Define what “environment” means to your company
Environmental risks can take a variety of forms:
- Health and safety: personal protective equipment, fire safety, chemicals management, waste and wastewater management, etc.
- Environmental compliance: hazardous waste, wastewater effluent, air emissions, nuisances, etc.
- Sustainability: extreme weather events (floods, droughts, forest fires, etc.), biodiversity, watershed management, land use, etc.
Defining “environment” for your company’s supply chain program will provide direction for your strategy to managing environmental risks.
STEP 2 – Assess the environmental risks in your supply chain
Knowing your company’s supply chain is key to developing the scope for managing environmental risks. Identify the most significant environmental challenges through a supply chain risk assessment to prioritize suppliers you should engage with and to what extent. There may be “hot spots” in your supply chain, which need immediate attention due to the high probability of risk. It is also an excellent opportunity to identify broader opportunities for environmental improvement.
STEP 3 – Implement a robust supplier engagement program
By implementing a robust supplier engagement program, companies gain stronger visibility into their supply chain to identify environmental risks.
Begin with translating your expectations into a clear set of guidelines, such as supplier codes of conduct that establish minimum standards of environmental performance. Then directly engage with suppliers to assess environmental performance via index questionnaires and following up with audits and training. The use of indices also allows facilities to identify the areas for greatest improvement, and scoring systems provide a benchmark of performance to track progress. Existing tools to help with this include:
- Global Social Compliance Program’s (GSCP) Environmental Reference Requirements
- Sedex’s Member Ethical Trade Audit (SMETA) 4-Pillar Audit
- Sustainable Apparel Coalition’s (SAC) Higg Index 2.0
UL has conducted audits based on the GSCP program for various facilities and can confirm that major opportunities for improvement do exist within most. All this considered, key to driving performance improvement is holding supply chain actors accountable and addressing systemic risks.
However, the challenge for a lot of companies and their suppliers is often that environment related issues tend to require technical skills and expertise that facilities often lack. This is where investment in training and education programs to help suppliers learn how to identify root causes and manage a range of environmental issues, from wastewater management to fire safety, can provide valuable returns for both suppliers and the company.
STEP 4 – Align corporate and supply chain environmental risk management goals
To successfully manage environmental risks, supply chain strategies need to be coordinated with business strategies. Tensions can manifest when there are different objectives between the business managers and the supply chain managers. Identify potential negative impacts across all departments and develop improved business processes for cross-functional coordination to respond to supply chain disruptions.
The level of awareness of environmental risks and the capability to respond are the greatest preventative actions that a company can take to safeguard against a potential environment related supply chain disruption. By implementing these 4 easy steps, you can begin to manage the environmental risks in your supply chain, identify solutions to mitigate those risks, and realize improved business performance.
UL’s Responsible Sourcing group has been a trusted advisor to companies concerned with identifying and mitigating environmental risks. In addition to a wide portfolio of auditing services, UL offers advisory services to help companies develop and improve their responsible sourcing practices. For more information about innovative solutions for risk management, supply chain monitoring, research, and program development, contact UL’s Responsible Sourcing group by clicking on the “Contact UL” button on the top right corner.
Contribution by Loretta Tam and Sarina Tounian
Loretta Tam is a Program Manager, Environmental Responsibility with UL’s Responsible Sourcing group Sarina Tounian is a Program Specialist, Environmental Responsibility with UL’s Responsible Sourcing group