Six reasons why supply chain and finance must collaborate on ESG

Six reasons why supply chain and finance leaders should collaborate to support ESG planning and reporting

Collaboration between supply chain and finance leaders is critical in ESG planning and reporting as it enables comprehensive data collection, informed decision-making, performance tracking, risk management, stakeholder engagement, and long-term value creation.

Six reasons why collaboration between supply chain and finance leaders is essential when it comes to ESG planning and reporting:

1. Comprehensive ESG Data Collection: Supply chain leaders have access to valuable data and insights regarding the environmental and social impact of supply chain operations. By collaborating with finance, they can work together to establish a robust data collection and reporting framework. Finance leaders can provide guidance on data requirements, financial metrics, and reporting standards, ensuring that ESG data collection is aligned with financial reporting needs.
2. Cost Analysis and Investment Decisions: Finance leaders possess expertise in cost analysis and investment evaluation. In collaboration with supply chain leaders, they can help assess the financial implications of ESG initiatives, such as implementing sustainable practices, investing in renewable energy sources, or adopting ethical sourcing strategies. This collaboration enables informed decision-making by considering both the ESG and financial aspects of initiatives, ensuring optimal allocation of resources.
3. Performance Tracking and Reporting: Finance teams are responsible for tracking and reporting key financial metrics and performance indicators. When collaborating with supply chain leaders, they can help define and measure relevant ESG metrics and incorporate them into financial reports. By aligning ESG performance tracking with financial reporting, organisations can provide stakeholders with a holistic view of their ESG efforts and their financial implications.
4. Risk Management and Compliance: Supply chain operations are subject to various ESG-related risks, including regulatory compliance, reputation risks, and supply chain disruptions due to environmental or social issues. Collaborating with finance allows supply chain leaders to leverage the financial expertise in assessing and managing these risks. Finance leaders can help identify financial implications associated with ESG risks, develop risk mitigation strategies, and ensure compliance with ESG-related regulations.
5. Investor Relations and Stakeholder Engagement: ESG considerations have become increasingly important for investors, shareholders, and other stakeholders. Collaboration between supply chain and finance leaders enables the development of a coherent ESG strategy that aligns with financial goals and stakeholder expectations. By working together, organisations can enhance investor relations, attract socially responsible investors, and maintain transparency in ESG reporting.
6. Long-Term Value Creation: Collaboration between supply chain and finance leaders is crucial for driving long-term value creation through sustainable and responsible practices. By integrating ESG considerations into supply chain planning and financial decision-making, organisations can enhance operational efficiency, reduce costs, strengthen brand reputation, and mitigate ESG-related risks. This collaboration ensures that ESG initiatives are aligned with the organisation’s financial goals and contribute to its long-term success.

By leveraging their respective expertise, these leaders can drive sustainable and responsible practices throughout the organisation’s supply chain while considering the financial implications and aligning with financial reporting requirements.

ESG (environmental, social, governance) reporting is a key component of a supply chain plan.

As the ESG disclosure landscape is evolving so rapidly, it is key for organisations to have an inventory of what metrics are being disclosed, where they are being disclosed, any relevant criteria and whether applicable controls and policies are in place .

The key to effective ESG data and reporting:

• Remain agile when new regulations are put into place, or existing regulations are updated.
• Automate disclosure requirements.
• Control, validate and accurately report on ESG data.
• Monitor and measure ESG KPIs for internal use or external reporting requirements.
• Monitor the impact of ESG initiatives, with a view to improving future ESG planning or initiatives.

As ESG reporting is a cross-functional undertaking, it is best practice that all data is housed on a single platform, to support different internal reports as well as any external reporting requirements. Businesses should take advantage of automation with the goal of carrying out real-time reporting without much manual input.

By automating the process, it will help the organisation develop parameters against which to measure the milestones, as well as help leaders to identify risks and opportunities, including financial statement impacts.

Organisations should consider being upfront and disclosing progress, both positive and negative, as this builds trust with stakeholders (not just shareholders). And, by disclosing methodologies alongside results, companies can contribute to a communal knowledge of best practices as reporting standards and measurement practices evolve.

In fact, the NYSE suggests that ESG disclosure is most compelling when the organisation explains:

• Why you have focused on the issues that you have (stakeholder engagement, materiality)
• What your company is doing about those issues (strategy, measurement, targets)
• What oversight your company has in place to make sure you stay on track (governance)
• The best report is not the longest one but the one that demonstrates focus and understanding of the issues.

Sustainability reporting regulations can be confusing at the best of times. But it cannot be denied, there is a trend towards more active regulation with increasingly granular requirements, underpinned by accurate and robust disclosure. And it continues to evolve.

Globally, guidelines are being agreed that will harmonise corporate environmental regulatory disclosures. EU law already requires listed & large companies to disclose information on their risks and opportunities arising from social and environmental issues, as well as the impact of their activities.

Additionally, moving forward, ESG related disclosures will likely be subject to the same kind of scrutiny and rigor as financial statements, and potentially independent assurance. This means that systems will need to be developed, processes created, controls implemented and governance to be applied to ensure high quality disclosures.

Consider planning tools to support ESG decision-making and reporting.

Organisations are on a seemingly never-ending quest to get the right product to the consumer when, where, and how they want. As such, the supply chain of the future will be much more dynamic – able to predict and respond to rapidly evolving demand, continually changing product/channel mix as well as navigate business disruptions, while remaining sustainable.

A successful, efficient supply chain relies on access to real-time data and analytics to ensure data-driven decision-making to enable swift responses when necessary.

1. Most businesses use a combination of systems to manage their supply chain operations, including an ERP system and spreadsheets, but that can be a costly mistake.
2. While spreadsheets offer many benefits, it is important to note that they also have limitations. Spreadsheets can be prone to errors, lack version control, and become complex and unwieldy as the size and complexity of financial models increase.
3. As organisations grow and financial processes become more sophisticated, they may consider adopting dedicated budgeting and forecasting software that offers enhanced features, automation, integration with other systems, and improved data integrity and control.
4. Technologies such as analytics tools and machine learning will play a significant role, but to be truly effective they must be supported by new processes, talent, and governance. It also requires a change of mindset, from the top, with risk, agility, and sustainability KPIs considered alongside the traditional measures of cost, capital usage, service, and quality.
5. While many organisations have been making investments in their planning tools, the best-in-class planning relies on cross-functional integration, short planning cycles and advanced-analytics enablement supported by a high degree of automation.

In the next decade, organisations that rely on traditional planning methods will struggle to keep pace. In the current market, supply chains will be called to deliver even more performance, requiring an end-to-end transformation in planning.

For more information on supply chain planning for ESG, download our best practice whitepaper or our scenario planning for ESG here