Sustainable supply chains through supplier illumination

Regulations like the EU’s Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB) from the International Financial Reporting Standards (IFRS) Foundation will make sustainability reporting mandatory and increase the focus on companies’ carbon emission disclosures. Understanding, measuring, managing and reporting carbon emissions, especially those related to the supply chain (Scope 3), can significantly decrease a company’s risk and be a source of competitive advantage.

The previous articles highlighted the complexity of tracking, measuring, planning and reporting Scope 3 emissions, and the need for technology enablers. The market offers various technological solutions. Each of them comes with a different set of functionalities and limitations that are not always clear to the decision-makers in organisations. In general, technology enablers should meet customer and business requirements while being scalable and accomplishing the organisation’s vision. The previous article introduced technologies on the basis of three different categories:

• Footprint Tech: Handles input data and produces a traceable ledger/customer interface;
• Model Tech: Manages both the infrastructure for ESG-related model-building and the data required to validate the output of these models and;
• Governance Tech: Ensures that the output of ESG-related models can be integrated with downstream systems, such as finance and reporting for compliance and regulation.

In this article we are going to focus on Footprint Tech: owning quality input data, orchestrating different workflows and possessing a traceable ledger (output) and customer interface for ease of usability.

Why Footprint Tech?

The Carbon or CO2 footprint is often understood as the amount of carbon (dioxide) generated throughout the supply chain. However, the visibility of raw materials’ journey is also an integral element in a firm’s footprint. To establish a comprehensive view across complex supply chains, Footprint Tech plays an essential role in the first step in evaluating the current sustainability position of an organisation: enabling data collection. Gaining access to sustainability-relevant datasets in the right formats and frequency paves the way for Model Tech solutions, like predictions and models, and Governance Tech solutions that influence an organisation’s core operating model as well as improving its reporting capabilities – details of which will be provided in following articles.

Footprint Tech solutions have gained popularity over time due to increasing regulatory requirements and end-consumer pressure. Organisations vary in their pace of adoption of this technology, depending on their supply chain maturity and priorities.

In general, organisations fall into three categories in this area:

• “Reactors” react to regulations and look to meet the industry average with their supply chain technology roadmap, utilising footprint tech to achieve the visibility required to meet industry benchmarks
• “Seekers” want to adopt industry best practices and supporting footprint technology to further illuminate their supply chain and drive improvement
•  “Innovators” attempt to create new supply chain management practices and disrupt existing norms using cutting-edge technologies.

In our review of potential solutions and software providers, we focus on technologies enabling “Seekers” and “Innovators”. These solutions are a few examples of the vast technology landscape and are neither exhaustive nor a recommendation from our side.

Circulor – supply chain traceability based on blockchain technology

Circulor’s software is a private, permission-based system built on distributed ledger technology (blockchain), coupled with traditional databases and machine learning algorithms. It maps an organisation’s supply chains and collects data at key points in the processes and chain of custody, from raw material through to finished product, delivering an immutable record of provenance, activity, compliance and identified anomalies.

Circulor proves that sourcing is sustainable and responsible through its use of the following components:

• Material and supplier data collection via user-friendly mobile apps, desktop apps or automated API
• Blockchain and data management technology that helps verify and establish provenance and track the chain of custody, including CO2e emissions and ESG performance
• Reporting and dashboards for authorised stakeholders to monitor activity, identity anomalies and manage risks, including Activity, reporting & alerts, Material traceability, Attributed CO2e footprint and ESG Disclosures & Reporting.

In a pilot project a leading German car manufacturer leveraged Circulor’s platform to ensure their electric vehicle batteries are free of child labour and rely on ethically sourced raw materials. Using a barcode tracker, cobalt was traced through the key stages of its journey and its ethical sourcing and regulatory compliance were proven. Similarly, by understanding practices across suppliers in detail, BMW could ensure that its batteries are sourced ethically and without child labour, following Amnesty International’s guidelines.

TransparencyOne’s solution enhances supply chain transparency by offering real-time monitoring, analytics and compliance management capabilities.

Their customers benefit from a responsible sourcing network solution, primarily for consumer goods (food, clothing) industries. Relying on external frameworks and targets, combined with real-time analytics and customisation solutions which use a range of data integration possibilities, customers can build dashboards that allow for prioritisation and continuous monitoring of emissions and performance across multi-tier supply chains.
Core capabilities of the TransparencyOne software are:

• Supply Chain Transparency & Traceability: Map and track suppliers, facilities, and products from raw material to finished good
•  CSR & Compliance Management: Capture certifications, documents, and assessments at any tier in the supply chain
•  Real-Time Monitoring & Analytics: Analyse supplier compliance, sustainability KPIs, and supply chain risks.

Among TransparencyOne’s customers, a leading consumer goods company has leveraged the solution to achieve end-to-end transparency in their regenerative agriculture initiatives, whereas a leading Swiss retail company integrated the platform into their daily operations in retail and wholesale.

Deloitte’s Illuminate capability provides visibility on multi-tier supply networks beyond Tier 1 thereby enabling visibility and risk sensing across all tiers.

Using open-source intelligence and augmented machine learning and through data visualisation, users can assess their supply chain networks against over thirty thousand data points. Organisations can then autonomously and rapidly model their multi-tier supply networks which are built using historical and current data.

Through the multi-tier network map created, suppliers are then evaluated for different types of risk sensing exposures. One such exposure is ESG risks. Multi-tier visibility enables tracking and monitoring of a product or service’s ESG risks across multiple levels of the supply chain. Suppliers at lower tier levels that are otherwise not directly visible to an organisation can be identified and analysed. Deloitte Illuminate therefore enables data collection and can provide data that is crucial for companies to develop effective emission reduction strategies and measure sustainability performance. In addition to ESG, Illuminate can assess risk across categories such as operational, foreign influence and governance and regulation.

The Deloitte Illuminate solution follows a three-step methodology to support customers in the following core areas:

• Illuminating the multi-tier supplier network
• Sensing risks and insights across the network
• Acting on focused actionable insights for effective risk mitigation.

Conclusion

In this article we have touched upon footprint technologies. In summary, these technologies help customers isolate data to validate their supply chains and suppliers, enabling greater supply chain transparency, traceability, and visibility across their supplier networks.

Scope 3 emissions are often beyond organisations’ direct control. Footprint technologies can become key differentiators through collecting data, validating supply chain activity and strengthening supplier and partner relationships. Access to reliable data across the full supply chain, including Tier N suppliers, enables leaders to take action-based decisions.

Organizations often need advisory support to implement and interpret data analysis. Before deciding on a footprint technology solution, companies first need to align their strategy and requirements to outline what functionality they require to measure and assess their KPIs. Then one can assess the technology landscape to identify a solution that will live up to the company’s strategic and compliance requirements.

As already mentioned in this series, it is important to emphasise that footprint technology alone cannot produce optimal results for sustainable improvement. Further integration with two other important pillars – Model Tech and Governance Tech – is required. The next article will therefore focus on Model Tech solutions that manage both the infrastructure for ESG-related model-building and the data required to validate the output of these models.

This article has been authored by Hana Shiraz, Dennis Schulz, Meg Alderman and Marco Cioffi.