On April 22, we celebrate Earth Day, a worldwide event founded in 1970 to recognize the environmental movement’s achievements and demonstrate support for environmental protection. While the celebrations often focus on what we can do as individuals, there’s no question that corporations have a role to play too. And when it comes to corporate eco-initiatives, logistics and supply chain professionals often find themselves on the front lines, largely because they oversee the movement of goods worldwide, with all its potential for greenhouse gas emissions.
To learn more about corporate supply chain sustainability initiatives and the obstacles their leaders face, the Massachusetts Institute of Technology (MIT) launched a large-scale research project four years ago—research that eventually became the basis for the annual “State of Supply Chain Sustainability” report. Produced each year by the Council of Supply Chain Management Professionals (CSCMP) and the MIT Center for Transportation & Logistics (MIT CTL), the report examines how supply chain sustainability practices have evolved over the four-year period, how they are being implemented globally, and what that means for professionals, enterprises, industries, and the planet.
The project lead for this ambitious research effort is David Correll, Ph.D., a lecturer and research scientist at the MIT CTL who also serves as co-director of the MIT FreightLab. In addition to his research and administrative responsibilities, he teaches courses on designing integrated supply chains and the fundamentals of procurement.
Correll recently spoke with DC Velocity Group Editorial Director David Maloney about the latest supply chain sustainability research, its sometimes-surprising findings, and why he sees reason for hope.
Q: Earth Day is coming up, and, of course, you’ve been spending the past few years researching supply chain sustainability initiatives. This is also an election year, and ESG (environmental, social, and corporate governance) issues have become part of the political conversation. On top of that, 2023 was a rough year economically for logistics. Putting the economy and election together, have you seen pushback on ESG initiatives? Has sustainability taken a back seat?
A: That’s a great question. Speaking just to the data that we collect ourselves, I wouldn’t call it a back seat; I would call it a plateau. In our data from 2023, we did not see the growth in companies’ commitment to supply chain sustainability that we had seen in each of the previous years. There’s some evidence of a slowing of momentum when it comes to businesses’ commitment to sustainable supply chains. But I wouldn’t call it a back seat yet.
Q: What are some of the reasons for that loss of momentum?
A: This is one of our most interesting findings. When we ask people specifically about different things going on in the world that might impact their firm’s commitment to supply chain sustainability, the only factor that appeared to have a negative effect on that commitment was the prospect of economic recession. We may find this intuitive, but now we have some survey data to back up the notion that when people are worried about their downstream sales prospects, their commitment to policing their upstream for sustainability may wane.
Q: So the evidence suggests that less attention is being paid to sustainability because these programs are perceived as a cost. But are cost savings and sustainability always competing interests?
A: Gosh, that’s a great question. And I really think it’s a question that probably deserves a case-by-case analysis. On maybe the more obvious side of that argument, alternative energies and green technologies often have a much higher upfront cost [than their more traditional counterparts], and you just can’t walk away from that fact. On the other side of it, though, I think one could argue that they can act in tandem. For one thing, energy-efficiency efforts almost always save money if we can conserve the energy we’re using to perform the same operations. Then we are both saving money and reducing our environmental footprint.
The other part of it, though, is that a sustainability program can protect brand value in ways that I think are sometimes underappreciated. One way I like to think about it is as something akin to the TSA at the airport. We all put up with that because we hope that a crisis will be averted—one that we’ll never know about because we preempted it with our security clearance procedures.
I think the same thing can happen with supply chain sustainability and brand value. A brand [owner] doesn’t know what horrible, brand-diminishing threats could potentially lie hidden in its supply chain—things like disclosures of child labor or a brewing environmental catastrophe. Supply chain sustainability efforts are proactive efforts to keep that from ever happening. And it’s very hard sometimes to understand the cost benefit of forestalling something horrible and expensive from happening.
Q: When it comes to ESG initiatives, where is the pressure coming from? That is, who is pushing companies to make sustainability more of a priority?
A: What’s so interesting is that we have found that far and away the fastest-growing and strongest source of pressure is the investor community. By way of background for your readers, our survey goes out every year to about 3,000 people all over the world, and it goes out in several languages—English, Spanish, Portuguese, and Mandarin Chinese.
By analyzing all that data, we found that, of the 10 potential sources of pressure we measure, respondents consider investors to be the fastest-growing and the biggest source of pressure to make their supply chains more sustainable. And it’s probably helpful for your readers to know [exactly what other potential sources of pressure] investors beat out: They beat out government regulators, customers, and prospective employees. It really seems that the story of supply chain sustainability today is investor pressure.
Q: What are the biggest barriers companies encounter in their efforts to boost supply chain sustainability?
A: I’d say there are a couple of barriers that have emerged from our research so far, and we can put them into two buckets. In one bucket, I’d place what I call “the need for clear rules.” In this year’s report, we did a deep dive into the problem of tracking Scope 3 emissions [emissions resulting from assets not owned or controlled by the reporting organization]. Scope 3 is inherently difficult [to measure] because it’s emissions from the upstream and downstream activities of your vendors, not the emissions that result from processes inside your own firm. But it’s also unclear to many companies exactly how Scope 3 emissions should be calculated and who can book the wins when those Scope 3 emissions are reduced by a vendor or trading partner. So part of the barrier is just [a lack of] clear rules about how to tally the wins and losses.
In the other bucket, I would place the lack of a clear playbook for prioritizing social issues in supply chain sustainability efforts. One conversation that has stuck with me was with an executive who said that he wants to be sensitive to the increasing importance of social issues. He said the playbook is clear when it comes to energy—how to design a warehouse to reduce energy consumption or incorporate the use of green energy. But when we think about social issues, it’s not so clear to firms what their first, second, and third steps should be in order to become more socially sustainable.
Q: Let’s go back to Scope 3 emissions for a moment. These emissions are difficult to track and quantify, especially with different regulations in place around the world. How does someone navigate that?
A: The best answer I have right now is that they need partners who specialize in it—partners whose job is just thinking through the accounting and mathematics of measuring all of those emissions as things are moved around the world, with different regulatory regimes and different transportation technologies, and with multiple vendors using the same vessels to move things. I think we need more research, and everyone needs a partner to help them make those measurements, and then, even more importantly, to turn the results and findings into actionable steps so that reductions can be realized.
Q: With more Scope 3 reporting mandates set to take effect in various countries in the next few years, probably the sooner companies address those issues and find a partner, the better.
A: You know, that’s a great point. And it may speak to why we’re seeing investors as the fastest-growing and biggest source of pressure. One hypothesis is that the investors see those regulations coming down the pipeline too, and they want the companies they’ve invested in to be ready for that change.
Q: The most recent “State of Supply Chain Sustainability” report notes that crisis situations often allow companies to “reset” their supply chain sustainability programs and goals. Can you explain what that means?
A: Oh, thank you for picking up on that, because I think it’s one of our most counterintuitive and fascinating findings. And it’s also one we’ve seen now for multiple years in a row, so I feel really confident talking about this phenomenon.
The expectation is that a commitment to sustainability initiatives would suffer during a supply chain crisis. But, in fact, the opposite appears to be true. The research showed that respondent companies’ commitment to sustainability actually increases when their networks suffer disruptions.
For instance, we asked respondents specifically how the Covid-19 crisis has impacted their firm’s commitment to supply chain sustainability—we asked that for two years running and got almost the exact same result. If a respondent indicated that the Covid-19 crisis did impact their firm’s commitment to supply chain sustainability, the vast majority said that it had increased.
Similarly, we asked our European respondents what effect Russia’s invasion of Ukraine had had on their firms’ commitment to sustainability. And the majority of respondents said their sustainability commitment had increased as a result of this crisis.
So we had to start asking people why. How can this be? Because I really thought when we asked them about the Covid experience, they’d say they didn’t have time to think about sustainability while dealing with the myriad supply chain problems brought on by the pandemic.
What we actually heard back in our executive interviews was that the Covid-19 crisis “broke” inbound supply lines. There were factories they’d been sourcing from that they could no longer use. There were transportation vendors they couldn’t rely upon. That gave them the opportunity to go to their leadership to ask for the time and budget they needed to redraw their supply lines. And when they did the redesigns, they did it with sustainability in mind.
The same was true with the war in Ukraine and the introduction of trade sanctions. When firms were forced to redraw their supply lines in response to the crisis, they tended to increase their commitment to sustainability.
Q: So in a lot of ways, just being forced to revamp their supply chain networks gave them the opportunity to redesign them with sustainability in mind?
A: Yes, exactly. As one of the respondents said, “This gave me air cover to do the sustainability thing that I already knew I needed to do anyway.” In his case, he wanted to move to electric last-mile delivery vehicles—something that his company was thinking about and saw as a sort of “nice to have.” But there wasn’t an opportunity to ask for the time and budget to get that project done until the crisis gave him the air cover, if you will.
Q: You’ve done the “State of Supply Chain Sustainability” study for four years now. What trends have you seen emerge in that time?
A: One of the things that jumps out at me is the rise of the “social.” When we started this project, not everyone on the research team agreed that social issues—things like supplier equity and diversity or pay-for-trade and human rights—were even part of supply chain sustainability. But the research clearly shows that social aspects do matter. In fact, we’ve really seen strong growth among what we call the “social dimensions” of supply chain sustainability as an area of focus.
I didn’t realize how seriously firms were taking social issues as part of their sustainability portfolios before I saw the data. And that leads to my second observation: that sustainability is a moving target. We see different priorities rising and falling in importance over time.
So those would be my two big take-home points: that the issues are changing, and that social issues are rapidly growing in importance. And I think they’re here to stay.
Q: Is there anything else from your research you’d like to share?
A: I’d just like to share with your readers that, for me, Earth Day is a time to reflect on the health of our planet. And sometimes when we do that, I think we can easily find ourselves in a state of despair or state of concern that we’re not doing enough. I think that’s probably true. But it can also be very helpful to have something that makes you hopeful on Earth Day.
I wish everyone who reads the report could have the same experience I’ve had in preparing the report. It’s produced in cooperation with companies and students from around the world, and with our partners at CSCMP. All of these organizations are really, really smart and have really hard-working people, many of whom take time out to help us with this project for free. And to me, that really shows that my confidence is [justified]. There are a lot of problems, but there are also a lot of really smart, hard-working people out there who are committed to solving them.
Editor’s note: The 2023 “State of Supply Chain Sustainability” report is available for free at the CSCMP store (www.cscmp.org/store) and at MIT’s Supply Chain Sustainability Study home page (https://sscs.mit.edu/.)
