Unlocking competitive advantage through strategic data sharing

Editor’s note: This is the third article in a four-part series on actions supply chain leaders can take to improve cross-functional collaboration and create new more flexible and resilient supply chain models. Parts four will appear on July 13. You can read part one here and part two here.

Much has been written about using environmental, social, and governance (ESG) as a measure of a company’s material, non-financial risks in the desire to have a more complete understanding of the long-term growth and sustainability of a company. To improve their standing in this area, companies have made commitments and pledges, published disclosures and reports, and made appointments of ESG or sustainability leaders.

Making public commitments has proven to be much easier than achieving the stated goals. Regulators and the public expect companies to take reasonable steps to meet ESG goals or face charges of “green washing” and the possibility of fines and the loss of customers.

The first step to achieving ESG goals is to ensure alignment with the business strategy and the overall enterprise risk management (ERM) process. The supply chain is central to both. Too often companies set ESG goals in a silo or without the processes, data, or buy-in to achieve them. Supply chain leaders must play a critical role in shaping the ESG goals because supply chain plays an essential role in meeting the goals.

ESG is a very broad topic. Each of the three ESG pillars contain numerous issues that are important to certain stakeholders and each pillar contains issues that are increasingly regulated. Some issues may be central to your supply chain while others are ancillary. It is imperative that each company identify which issues to prioritize in the E, S and G pillars. The prioritization must take corporate strategy, risk management, materiality assessment and stakeholder feedback into account. Equally important, the prioritization of issues must consider your ability to gain supplier support and access needed data. Here are just a few of many examples of issues in each pillar:

• Environment: Carbon output. Energy consumption. Water consumption.

• Social: Labor practices. Diversity, equity & inclusion. Workplace wellness.

• Governance: Data privacy. Corruption. Information security.

Supply chain is involved in every aspect of helping your company achieve ESG goals by influencing suppliers to participate in helping to meet the goals. There is shared risk and shared responsibility among supply chain partners in virtually every aspect of ESG. Regulations now cover many issues within the ESG pillars, and the number is likely to grow quickly.

Supply chain due diligence laws have been passed in numerous countries (e.g., Germany, France) that require companies to conduct due diligence on the environmental and social performance of their suppliers and take appropriate corrective actions to address issues. Guidelines and directives on responsible supply chain have been issued by many more countries that will or may become law in the near future (e.g., EU, Canada, Japan).

Over a dozen countries, including the U.S., U.K. and Italy, have laws prohibiting forced labor that require companies to take action to identify, prevent and mitigate modern slavery in operations and supply chains. Of note to supply chain leaders, some of these laws and guidelines include requirements on the supplier facility and the product. This demands visibility into the practices in the facility and traceability into the product from raw material to finished product.

Strategic data sharing

It is clear that no company can meet their ESG goals alone, whether it is carbon reduction or water usage or labor conditions or data security. As supply chains are formed it is critical to look at each company in the Constellation of Value from the ESG perspective. A company that may be a competitor in one sales channel could be an incredibly valuable contributor to meeting your ESG goals and creating happy and loyal customers in another sales channel.

Most companies need to collect data from their suppliers in order to complete ESG reporting. The supply chain is the hub of ESG integration because so much of the data and ability to meet ESG goals lies with suppliers and other third parties in your value-chain. Carbon emissions are one area where supply chain can have an enormous impact. Scope 3 carbon emissions are the result of activities from assets not owned or controlled by your organization, but that your organization indirectly affects in your value chain. In a 2023 report, Deloitte said, “For many businesses, Scope 3 emissions account for more than 70% of their carbon footprint. For example, for an organisation that manufactures products, there will often be significant carbon emissions from the extraction, manufacture, and processing of the raw materials.”

Related:

Read part 1: Supply chain: The intersection of ESG and the new customer

Read part 2: The supply chain is the hub for creating new constellations of value

However, data access and quality from suppliers for ESG reporting is a huge issue. Currently, many companies calculate Scope 3 emissions using volume-based estimates, but leading companies are trying to move to accessing supplier-specific data. This will not only improve the accuracy of the reporting, but it will allow companies to be more proactive in identifying ways to collaborate with suppliers to reduce emissions. The challenge is getting suppliers to be transparent and willing to share data. The supply chain function must be the conduit for getting critical data from suppliers for reporting. This clearly applies to carbon emissions, but it also applies to virtually every other ESG issue from labor rights to health and safety in the workplace.

Strategic data sharing with suppliers becomes a critical new skill. Companies need to create an incentive for their suppliers to spend the time and resources to collect and share the needed data. This can be accomplished through strategic data sharing. First identify exactly what data you need from the supplier and how often you need it for ESG reporting. Then identify what data you have that would be valuable to your supplier. Supply chain leaders need to shift their mindset and go beyond sharing transactional data to sharing strategic business performance and ESG data.

As part of this new mindset, you need to understand that the value of data is relative – from company to company and from supply chain constellation to constellation. These situations will become more common and require companies to become focused on exactly what data they are willing to share and what they want in return. The key to strategic data sharing is to have a laser-focus on specific pieces of data. Don’t think about large data exchanges. They will take too long to negotiate, require too many approvals and be too difficult to govern. Identify specific data that you need to track progress toward your ESG goal or for your ESG reporting requirements. Although you need ESG data, your supplier may need business performance data. You may have huge amounts of supplier performance data that could be aggregated and shared.

Supply chain leaders that master strategic data sharing (aka data trading) will create stronger, more trusted Constellations of Value with their suppliers and better integrate ESG into how they operate. This lays the foundation for turning ESG from a risk mitigation tactic to a corporate competitive advantage strategy.

In our final article in this series, we will cover how supply chain leaders can rank suppliers based on their residual risk to match against the ESG topics that are most critical to your corporate strategy, ESG goals and stakeholder interests.

About the authors:

Craig Moss is executive vice president of Ethisphere and director of the Digital Supply Chain Institute David Kurz is senior fellow at the Digital Supply Chain Institute and associate clinical professor at Drexel University

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