Supply chain management is a key factor for many companies — growing in sophistication and scrutiny. I recently used AlphaSense to look at supply chain in context with ESG (Environmental, Social and Governance) / Sustainability, in order to identify how companies and investors may be connecting the dots between these operations and investor communications positioning.
What immediately struck me minutes into my AlphaSense queries, is what I’ll call the interconnected 3 C’s of Sustainability and Supply Chain: Commerce, Compliance and Capital Investors.
The results of this exploration lead me to conclude that there is enough evidence to suggest that practically every company executive leadership team should be actively looking at sustainability and supply chain in context with broader company competitive positioning.
I used AlphaSense to guide my exploration, and my results are broken down below by competitive positioning and approach, to provide a snapshot of current trends and support of this conclusion.
Before sharing my AlphaSense query process, let’s look at a few examples of developments in the ESG / Sustainability field important to companies across the 3 C’s competitive positioning considerations.
Commerce and Compliance
For the purposes of this blog, I will divide commerce into two pieces: B2B (including government) and B2C, and focus on the former.
The trend in corporate purchasing expectations of suppliers to demonstrate ESG / Sustainability practices continues to expand.
Early leaders well known for ESG / Sustainability expectations and compliance by their suppliers include:
- Wal-Mart’s supplier Sustainability Index
- Unilever’s supplier benchmarks for ESG / Sustainability
A few examples to show that the trend spans across sectors include: Munich Re ($ETR: MUV2), Mars (Private), ConocoPhillips ($COP), Lockheed Martin ($LMT), Johnson & Johnson ($JNJ), Cisco ($CSCO) and Westpac ($WBK).
- Munich Re – “As a globally operating Group, Munich Re assumes corporate responsibility along the entire value added chain. ESG (environment, social and governance) criteria play a crucial role for us in the procurement of goods and services. We therefore hold our suppliers responsible for ensuring they operate sustainably too.”
- Conoco Philips – “Sustainability is integral to our procurement processes and supplier engagement. We have identified Environmental, Social, and Governance (ESG) questions to be used in bids and performance indicators, and will continue to enhance processes to identify and manage risks, foster supplier inclusion and increase productivity and efficiency within the supply chain.”
On the government supplier side, federal mandates for government departments and agencies to include ESG / Sustainability evaluation of suppliers have worked their way into various pieces of legislation and by Executive Orders (EO), such as EO #13514, “Federal Leadership in Environmental, Energy and Economic Performance,” in October 2009, which was superseded in March 2015 by EO #13693, “New Sustainability Goals Across Federal Supply Chain.”
As I indicated in a previous blog post, there is growing evidence of attention to ESG / Sustainability in mainstream investing and discussions are finding their way into company earnings calls and related disclosure.
Since then, back-to-back announcements by two key suppliers in the investment world, Morningstar and MSCI, are bound to accelerate this trend and lead to increased investor expectations to include supply chain in these discussions.
- March 1, 2016 – Morningstar announced the launch of its new ratings:
“Morningstar Introduces Industry’s First Sustainability Rating for 20,000 Funds Globally, Giving Investors New Way to Evaluate Investments Based on Environmental, Social, and Governance (ESG) Factors.”
- March 8, 2016 – MSCI launched its ESG funds ratings:
“MSCI has launched its ratings service to measure the environmental, social and governance focus of portfolio holdings.”
A “supply chain” of sorts has been developing across the investment management and asset owner world for ESG / Sustainability investment considerations, from institutional through retail investor levels, which I will save for another blog.
I predict there will be a growing trend in the number of company executives who will be managing Supply Chain in context with ESG / Sustainability, as they realize it is to the company’s competitive advantage across the board (including with Investors) — time will tell!
I took a three-step query approach: AlphaSense – Google – AlphaSense
First, I made a simple query in AlphaSense — “Supply Chain and ESG” and “Supply Chain and Sustainability” for one year, garnering 27 results and over 1,000 results, respectively. Among the ESG search results was a particularly interesting find:
- The annual list of Top 25 Supply Chain companies, published by Gartner, recently added a corporate social responsibility (CSR) scoring component to the Supply Chain Top 25 program (Gartner has been publishing a Top 25 list for 12 years). Gartner made a point of connecting supply chain with Investor Relations (IR) and how strategy leaders can use the insights to consider how to address CSR in the end-to-end value network and contribute to CSR goals.“Mainstream institutional investors are paying greater attention to a company’s nonfinancial performance indicators, including its handling of environmental, social and governance (ESG) factors,” said Mr. Aronow. “Supply chain executives should expect their organizations to become a bigger part of their company’s investor relations story as these stakeholders expand their awareness of ESG issues.”
Second, I conducted Google searches on “Supply Chain + ESG,” “Supply Chain + Sustainability,” “Supply Chain + ESG / Sustainability.” There were a lot of results, so I will highlight just one result from each search (in order above):
- “… I evaluate all the sectors covered by our Equity Research Divisions to assess how different environmental, social and governance (ESG) factors might impact company valuations, either positively or negatively. Under this ESG perspective, we consider topics such as … supply chain management … We believe that this approach can provide investors with an additional layer of analysis to ultimately enhance investment decisions. // Institutional investors are increasingly adopting sustainable investing practices, whether this be through specific thematic funds or ESG integration across all assets under management.”
– Jessica Alsford, Executive Director and Head of Morgan Stanley’s Sustainable + Responsible Investment Research Team
- “Sustainability is evolving from a nice-to-have to a business imperative, and businesses are beginning to recognize that what is good for the environment can also be good for revenues and help drive business growth.”
– Ian Liftshitz, “Sustainable Supply Chains and Bottom Lines – The Two Are No Longer Mutually Exclusive,” Supply & Demand Chain Executive (SDC), January 2016. Ian is Sustainability Director for the Americas for Asia Pulp & Paper Group (APP).
- “The Trend – The public disclosure of sustainability performance information is dramatically increasing and coming from all types of organizations, and not just corporations. The key words here are public disclosure — not supplier disclosure, which is generally locked up in a proprietary database only accessible by those gathering the data, or for a fee.”
– Mike Wallace, “Shift Happens – Sustainable Supply Chains: The New Information Highway,” Green Biz, January 2016. Mike is Managing Director for Brown Flynn.
Third, I returned to AlphaSense to quickly check whether the Top 25 Supply Chain companies, as rated by Gartner from 2012 – 2016, include supply chain in context with ESG / Sustainability in communications aimed at the investment community. I excluded proxy statements from the outcome using the search filter, as references in this communications forum are often instigated by activist shareholder items.
- This Alpha Sense search found that 40% of companies, many of which were on the Top 25 list multiple years, recently discussed supply chain in context with ESG / Sustainability. After that, I quickly confirmed whether these same companies have a company website section for Sustainability and if they produce Sustainability reports – the answer was yes for every one of the companies, except Amazon.com [$AMZN].“Unlike most big companies, Amazon has never published a sustainability report. Recent hires suggest that may be about to change — but will the retailer play ball?” Marc Gunther, The Guardian, Feb 2016.
Very likely, if we run this same check a year from now, the Alpha Sense search results will be much higher.
Pamela Styles is principal of Next Level Investor Relations LLC, an Investor Relations consultancy with dual IR and ESG / Sustainability specialties.
1. Walmart: Sustainability Index Leaders
2. Unilever: Sustainable Sourcing for Suppliers
3. Mars: Our Strategy and Priorities
4. Lockheed Martin: Sustainable Supply Chain Management
5. Johnson & Johnson: Supply Chain Management
6. Cisco: Focus Area: Supply Chain – Multiplying impact by setting high standards for suppliers
7. Westpac: Sustainable Supply Chain
8. Munich RE: Sharing responsibility with suppliers
9. ConocoPhillips: Supply Chain Sustainability
10. Federal Leadership in Environmental, Energy, and Economic Performance
11. Taft/: President’s Executive Order Announces New Sustainability Goals Across Federal Supply Chain
12. ESG / Sustainability — Is the Topic Coming up on Earnings Calls? Pam Styles, AlphaSense blog November 18, 2015
13. Eco-Business: Mainstreaming sustainable investing
14. Fund Strategy: MSCI launches ESG fund ratings
15. Gartner: Introducing a Score for CSR and Sustainability Performance to the Gartner Supply Chain Top 25
16. Gartner: Gartner Announces Rankings of the 2016 Supply Chain Top 25
17. Morgan Stanley: Jessica Alsford – Head of Sustainable and Responsible Investment Research
18. Supply & Demand Chain Executive: Sustainable Supply Chains and Bottom Lines—The Two Are No Longer Mutually Exclusive
19. GreenBiz: Sustainable supply chains – The new information highway
20. the Guardian: Can Amazon’s new ‘dream team’ fix the company’s sustainability reputation?