Sustainable Supply Chains: From codes of conduct to development programs.

As global regulations on sustainability tighten, companies face increasing pressure to ensure their entire supply chain adheres to environmental, social, and ethical standards. Frameworks like the Corporate Sustainability Due Diligence Directive (CSDDD) and the Carbon Border Adjustment Mechanism (CBAM) push businesses to improve transparency, accountability, and performance within their supply chains. To meet these challenges, companies must go beyond traditional supplier codes of conduct by integrating Life Cycle Assessments (LCA), Life Cycle Costing (LCC), and supplier development programs to enhance both environmental sustainability and supply chain stability.

Supplier Code of Conduct: A Foundation, but Not Enough

A Supplier Code of Conduct is a crucial foundation for establishing expectations on ethical, social, and environmental practices. However, these codes are often voluntary and non-binding, limiting their effectiveness in driving real change. Suppliers may commit to improving practices on paper, but without enforceable responsibilities, compliance is inconsistent. With the CSDDD placing legal responsibilities on companies to ensure that their supply chain respects human rights and protects the environment, the need for binding, enforceable agreements becomes essential.

Evolving Codes to Binding Responsibilities

To ensure compliance, companies must evolve from voluntary codes of conduct to legally binding supplier agreements. These contracts should require suppliers to:

- Provide primary, reliable data on environmental impacts, such as carbon emissions.

- Ensure human rights compliance and responsible sourcing, particularly when dealing with conflict minerals or materials from regions with high social risks.

- Adhere to environmental regulations and contribute to social development in areas where local governance is weak.

Legally binding agreements allow companies to hold their suppliers accountable, ensuring that sustainability performance improves over time.

Supplier Self-Assessments and In-Site Verification

While supplier self-assessments are a valuable tool for understanding supplier capabilities and gaps, they must be complemented by in-site verifications. Many risks—like poor labour conditions or environmental violations—are hard to identify through surveys alone. Regular on-site inspections ensure that the information provided by suppliers is accurate and that their practices align with the company’s environmental and social standards.

In combination with self-assessments, in-site verifications help companies ensure that suppliers are meeting agreed-upon targets, maintaining quality, and improving over time.

The Role of Life Cycle Assessment (LCA) and Life Cycle Costing (LCC)

While LCAs are essential for evaluating the environmental footprint of products, they also provide insight into the sustainability of suppliers. By assessing the full lifecycle of a product, from raw material extraction to end-of-life, LCAs can help identify suppliers whose operations may carry higher environmental risks, such as excessive energy consumption or hazardous waste generation.

When coupled with LCC, which focuses on the total costs of products across their lifecycle, companies can make smarter decisions about supplier selection. Sometimes, switching to local suppliers may seem beneficial due to reduced transport emissions, but higher material or production costs may offset these gains. Additionally, local suppliers may not always offer the same environmental standards as more distant ones, leading to unintended increases in the carbon footprint or risks to product quality.

Example: Paper Producer's Facility Decision

A printing paper producer for whom I was involved in the making of an LCA and LCC, provides a perfect example. The company sought to build a new production facility and selected a location based on financial incentives. However, an LCA revealed that the site’s lack of access to railways or ports significantly increased the carbon footprint of importing waste paper. A subsequent analysis of other available sites showed that a location with better transport infrastructure would have reduced environmental impacts and lower life cycle costs, despite higher initial investment costs.

This highlights how LCAs can reveal hidden environmental risks associated with supplier logistics, leading to more sustainable long-term decisions.

Supplier Development: Beyond Quality & Compliance.

Beyond compliance, companies should invest in supplier development programs that focus not only on quality improvement but also on environmental and social responsibility. These programs offer the following benefits:

- Capacity Building: Helping suppliers improve their sustainability performance ensures they can meet the company’s expectations, reducing the need to switch suppliers and incur associated risks.

- Risk Management: By working closely with suppliers to address issues like sourcing conflict minerals or critical materials, companies can minimize their vulnerability to global supply chain disruptions. This proactive collaboration reduces the risk of shortages, delays, or unforeseen costs. Furthermore, reputational risks are mitigated, as any negative news about unethical practices will typically affect the brand of the final product, not just the suppliers involved. Maintaining high standards across the supply chain helps safeguard the company's public image and ensures consumer trust.

- Innovation and Continuous Improvement: Supplier development can encourage innovation, such as creating more sustainable materials or finding ways to reduce production waste, further contributing to long-term success.

Design Decisions and Supplier Selection: Easing Compliance or Increasing Risk

Product design plays a significant role in supplier selection and supply chain sustainability. Design choices made at the product development stage can either facilitate or complicate compliance with CBAM and CSDDD:

1. Critical Materials and Carbon Intensity: If a product relies on carbon-intensive or scarce materials, such as metals from high-emission processes, it increases the risk of CBAM tariffs. Companies must consider the carbon cost of materials during the design phase to ensure they select suppliers that meet low-carbon benchmarks.
2. Supply Chain Risks: Armed conflicts, geopolitical risks, and environmental degradation can impact the availability of critical materials. Design decisions that fail to consider these risks can lead to supply chain disruptions and non-compliance with social responsibility requirements under CSDDD.
3. Materials Availability and Sustainability: Designing products that use recycled or renewable materials helps companies select suppliers aligned with circular economy principles, reducing both carbon emissions and the risk of human rights violations. Early design decisions are critical in shaping the supply chain’s sustainability and resilience. For instance, choosing a material that is classified as a critical material—or comes from a region with limited environmental protections or ongoing armed conflicts—can limit the pool of responsible suppliers. It can also increase the risk of supply chain instability and human rights violations.

Companies must therefore integrate supply chain risk assessment into the design phase, ensuring that their material choices do not inadvertently tie them to unsustainable or unethical suppliers. By aligning design strategies with supply chain realities, companies can reduce risks, avoid reputational damage, and ensure long-term compliance with environmental and social regulations.

Conclusion: A Comprehensive Approach to Sustainable Supply Chains

In the face of new regulatory pressures, companies must adopt a comprehensive approach to supply chain sustainability. While supplier codes of conduct provide a baseline for ethical behaviour, they are no longer enough. Businesses need to implement LCAs, LCC, and robust supplier development programs to ensure that their supply chains are not only compliant with regulations but also resilient, innovative, and sustainable.

By making strategic design decisions that consider supply chain risks and ensuring suppliers are both legally bound and supported to improve, companies can navigate the complexities of CSDDD and CBAM while driving real, long-lasting change.

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