What Sustainability Reports can tell us about a Competitor’s Value Chain

Corporate social responsibility (CSR) reports reflect the philosophy that corporations have a variety of stakeholders – investors, employees, suppliers, customers, and the broader society – and that to attempt to meet the needs of some stakeholders at the expense of others can be both irresponsible and financially short sighted.

I’ve been reading the sustainability reports of the world’s largest companies.  I’ve formed opinions on what characterizes a good report, how you can look at these reports and separate progressive companies from those that are engaged in at least some degree of “greenwashing”, and what supply chain professionals can learn about their competitors by reading these reports.

Progressive companies follow the Global Reporting Initiative (GRI) reporting format.  This makes it possible for readers to more easily compare how different companies are doing in CSR.  It also provides a standard approach to how corporate social responsibility is defined.  The GRI reporting format includes information about an organization’s economic, environmental, and social impacts.

GRIcategories

In terms of how you can look at these reports and separate progressive companies from those that are engaged in at least some degree of “greenwashing”, one thing I look for is the scope of reporting around greenhouse gas (GHG) emissions.  A company’s GHG emissions can be classified into three ‘scopes’. Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions from the generation of purchased energy. Scope 3 emissions measures the emissions along a company’s extended value chain including both upstream and downstream emissions.  Without Scope 3 reporting, companies can make it appear that they are lowering emissions by outsourcing parts of their operations to contract manufacturers or third party logistics companies.

Most of the largest companies in the world now account and report on the emissions from their direct operations (scopes 1 and 2).

In addition to doing value chain emissions reporting (scope 3), the companies that are most commendable have significant targets for reducing emissions, water usage, and waste streams in both the long term and over the next few years.  Finally, the most commendable companies are showing year on year progress in meeting these goals.

New CSR investments in things like energy efficiency can reduce a multinational’s cost structure, although these investments may have longer payback periods than traditional capital investments.  “Investments” in other sustainability areas have ROIs that are difficult to calculate in the short term and can be viewed as increasing a company’s cost structure.  These investments, however, can help to protect a company’s brand, lead to increased sales among progressive and millennial customer segments, and improve the ability of a company to attract young talent.

But supply chain professionals can also learn important information about their competitors by reading these reports.

In my reading of these reports I’ve gotten glimpses into how efficiently companies use energy to produce their products and transport them to market, the names of critical suppliers and supply chain partners, new lifecycle approaches to product development, the processes used to onboard new suppliers and manage those relationships, practices followed to make supply chains more efficient, and supply chain risk management practices.

Supply chain executives have long read the financial reports of their leading competitors.  It is time to add their competitor’s sustainability reports to their reading list.