What Does Covid-19 Mean for Supply Chain Sustainability?
Companies are rethinking their supply chain priorities as they chart their paths through the Covid-19 crisis and beyond. Prior to the pandemic, we recognized that corporate interest in supply chain sustainability was rising dramatically. At MIT, and in response to this trend, we launched the first global State of Supply Chain Sustainability research effort in 2019 together with CSCMP. But as the pandemic severely disrupted supply chains, it also forced our research into a much different direction.
Our first State of Supply Chain Sustainability report, published in July, showed that in 2019 some companies were undertaking substantial efforts to improve supply chain sustainability: launching more sustainable products, setting ambitious goals and commitments, and engaging closely with their suppliers. Then, in what may well prove to be a massive turning point, Covid-19 hit. As companies focus on recovering from the pandemic, many have argued that sustainability will be put on the back burner. We have seen some indications that this is in fact not the case. Our research for the second annual report, being conducted this fall, aims to address this question.
Will sustainability programs be harnessed to help companies manage risks created by the pandemic crisis? Will there be a higher reputational risk for companies as worker welfare and safety issues attract more attention? Do sustainability safeguards and policies also double as ways to help mitigate disruptions? Or will sustainability be sidelined until companies are back up to their full 2019 strength? We believe we’re about to find out.
Pre-Covid-19 support for supply chain sustainability
In 2019 and early 2020, high-profile events such as the burning of Amazon Rainforest, China’s ban on imported plastic waste, and global climate strikes fueled increasing concern over environmental degradation. Labor violations domestically and internationally across supply chains kept social issues in the headlines.
Conscientious companies responded with products aligned with sustainability goals. For example, the number of products labeled “fair trade” and “ethically sourced” reached a record high in 2019. The Business Roundtable claimed an end to a commitment exclusively to shareholder values but that a company’s guiding purposes should be the values of all stakeholders. Corporate commitments to emissions reductions, regenerative systems, and cleantech were big and newsworthy.
Additionally, environmental campaigners were far from the only stakeholders pressuring companies to toe a sustainable line. This is one of the major findings of the inaugural State of Supply Chain Sustainability report, that surveyed over 1,100 supply chain professionals in 71 countries. A little under half of the companies questioned were under pressure to drive supply chain sustainability initiatives from a range of stakeholders including government, mass media, executives, and consumers.
However, the report also found that while companies often broadcast big sustainability goals socially and environmentally, their level of investment in those goals often lagged behind their stated commitment thereto — especially for social sustainability goals such as forced or child labor.
The report also highlights how companies were devoting time and resources to making these programs accountable to customers and markets through disclosures. Some 55% of respondents in the survey confirmed that their organizations disclose supply chain sustainability practices or planned to make such disclosures public.
Changing face of sustainability in supply chain management
While the imperatives of sustainability are as relevant now as they were last year, related programs may be overshadowed by the coronavirus pandemic. While perspectives stemming from past recessions may indicate that the pandemic may put the brakes on sustainability programs while companies focus on survival, our initial research has not shown this to be true. Supply chain sustainability is still very much on corporate agendas — but it is evolving in response to pandemic-related impacts and is industry-specific.
We expect to see more emphasis on social and labor issues. This is evident even as the pandemic rages: The crisis has served to highlight the importance of workplace safety and the impact of labor-related disputes on global supply chains. For example, in April 2020, spikes in coronavirus infections among meat processing workers owing to close and unsanitary conditions led to shutdowns of meat processing plants, causing severe disruptions of meat supply. The controversy publicized the dangerous lack of social distancing practices in many close-knit industrial environments such as production lines and posed a significant reputational risk for the companies involved.
Labor-related problems in supply chains remain heavily unaddressed despite massive public outcry. For instance, the Uighur forced-labor violations in China have implicated virtually every apparel company. Major providers of cloth masks have been linked to using forced labor to produce millions of masks distributed globally.
And as social unrest roils globally, but especially in the United States, a greater focus is being placed on how inclusive workforces are as well as supply chains. Our investigation will likely uncover an uptick in commitment to supplier diversity, equity, and inclusion and that longstanding programs will be expanded.
Another way in which supply chain sustainability is being reoriented by the pandemic relates to its role in risk mitigation.
The Covid-19 crisis has disrupted supply chains in many ways, and such disruptions are likely to continue even as the pandemic subsides. Companies also face a host of risks that threatened the integrity of supply chains before the coronavirus erupted. Examples include extreme weather events associated with climate change and political instability due to social unrest.
Given that the road ahead is risky, there will be more emphasis on sustainability as a component of risk management. Practices such as upstream supply chain visibility and transparency, close supplier relationships, conscientious labor management, stakeholder engagement, and supply chain circularity also help to reduce risk in some cases. As certain practices have proven to minimize disruption and increase resiliency, those have moved out of being categorized as “nice to have” to critical strategies.
In some respects, the pressure to pursue sustainability in supply chains will not change because of the pandemic. For example, companies still have to comply with regulations such as California’s cap-and-trade program, the UK Modern Slavery Act, and other existing social and environmental regulations. Companies are apprehensive about the repercussions from the EU Due Diligence Law currently being drafted, which will require companies operating in the EU to comply with certain environmental and social standards and could go live in 2021.
Also, some industries such as high tech, e-tailers, and consumer electronics, have experienced substantial growth during the pandemic, and for these sectors, sustainability is more relevant than ever. Some companies are even doubling down on their supply chain sustainability efforts. One example is Apple, which has reaffirmed its goal to reach carbon neutrality in its supply chains and product lines by 2030. In 2020, Amazon released its first “Climate Pledge Friendly” list of certifications to drive consumers toward “green products.”
What will 2020 reveal about sustainability?
Based on our findings, we predict that Covid-19 will reshape the supply chain sustainability trajectory over the next few years. The pandemic-related disruptions that are rippling through global supply chains are forcing a pivot toward response and mitigation. We anticipate that in 2021 and 2022, companies will focus on redesigning and re-evaluating their supply chains — and, by extension, their sustainability strategies. This will not only include the environmental and social issues that were on the horizon in 2019, but a doubling down of efforts that reduced risk and enabled resiliency during Covid-19 disruptions.
For now, companies need to review their sustainability efforts with an eye to post-pandemic demands. A more detailed picture of the future of supply chain sustainability will emerge when the second report in this annual series is complete. Data collection for the 2021 report is under way through Nov. 1, and we invite all professionals to participate in the study by completing a brief survey. Your input will inform this important work at perhaps the most pivotal moment in the history of supply chains.
The 2021 State of Supply Chain Sustainability survey can be accessed here.
The State of Supply Chain Sustainability is an annual study published jointly by the MIT Center for Transportation & Logistics and the Council for Supply Chain Management Professionals.
The full 2020 State of Supply Chain Sustainability Report can be accessed here.
