Supply Chain Sustainability and ESG Criteria

Supply chain sustainability: the importance of integrating ESG criteria throughout the whole process

In the past few years, increasing awareness about climate change, resource depletion and environmental degradation has led to a greater emphasis on sustainable practices. Consumers, governments, and businesses are more and more recognizing the need to reduce greenhouse gas emissions, conserve natural resources and protect ecosystems. Supply chains play a crucial role in addressing these environmental challenges by adopting sustainable sourcing practices that can lead - among the others - to a reduction of waste and to an optimization of the resources used in the processes. This is why the world is increasingly starting to pay attention to the topic of supply chain sustainability and of sustainable supply chain management.

What is Supply Chain Sustainability

Supply chain sustainability refers to the practice of managing the environmental, social, and economic impacts of a supply chain in a way that minimizes negative effects on the planet, society, and business operations. It involves the integration of sustainable practices and principles throughout the entire supply chain, from the sourcing of raw materials to the production, distribution, use, and disposal of products.

The topic of supply chain sustainability is becoming increasingly important as businesses recognize the need to align their operations with societal and environmental goals. By adopting sustainable practices, organizations can reduce their environmental footprint, meet regulatory requirements, mitigate risks and enhance their reputation, thereby creating value for both their business and society as a whole.

Why is it important to have a sustainable value chain

While improving the sustainability of the supply chain can be challenging for companies and organizations, it is also true that it is indeed the supply chain to be responsible for the largest part of companies’ environmental impact. But not only on environmental reasons, the theme of sustainable value chain also sets the focus on other related themes, such as:

  • Ethics and transparency: stakeholders, including consumers, employees, investors and communities, are increasingly demanding ethical environmental and social practices from businesses, such as ensuring fair labor standards, promoting human rights, improving work-life balance, or supporting general social well-being throughout the whole supply chain;

  • Regulations: governments around the world have implemented stricter regulations and standards related to environmental protection, labor practices, and product safety. Non-compliance with these regulations can result in legal consequences, financial penalties, and damage to a company's reputation. By prioritizing supply chain sustainability, organizations can stay ahead of evolving regulations and demonstrate their commitment to responsible business practices.

  • Brand reputation: consumers are increasingly making purchasing decisions based on environmental and social considerations. By integrating sustainability into their supply chains, businesses can thus enhance their brand reputation and attract conscious consumers, gain a competitive edge, and improve customer loyalty.

Sustainable value chains and ESG criteria

Some of the topics highlighted in the previous paragraph recall the link between supply chain sustainability and ESG pillars. These two concepts are in fact closely related, since they share common objectives and principles. As regards the environmental pillar, for example, it has already been stated the crucial role the supply chain plays in minimizing greenhouse gas emissions, reducing energy consumption, optimizing waste and so on.

We have also mentioned how the topic of supply chain sustainability intersects with the social and governance aspects of ESG criteria: on the one hand, the social challenges are addressed by companies by increasingly focusing on improving safe working conditions, fair wages and respecting human rights throughout the whole supply chain; on the other hand, the governance aspects are met by focusing on transparency and ethical practices within the supply chain, along with ensuring compliance with laws and regulations in terms of sustainability.

Let’s sum up. Supply chain sustainability appears to be an integral part of ESG criteria, as it addresses the environmental, social, and governance aspects by promoting environmentally-friendly practices, ensuring fair labor and human rights, and fostering transparency and ethical behavior. Companies that prioritize supply chain sustainability are thus more likely to enhance their ESG performance, attract responsible investors, and ultimately contribute to long-term value creation.

Prysmian Group’s commitment to supply chain sustainability

Following the development of sustainability-related activities within the supply chain, in 2016 Prysmian Group started working to integrate ESG factors more closely within its supply chain strategy, thus highlighting their importance and recognising them as integral to that strategy. In this strategy, a crucial role is played by the Group’s suppliers, which are attentively selected paying attention to their compliance with ESG criteria: their sustainability must be assured from both a social and an environmental standpoint. Prysmian strives to maintain a supply chain that respects all aspects of workers’ rights and reflects the high standards applied by the Group to all direct counterparties.

Among the others, there are two main actions Prysmian Group adopted in order to improve sustainability in its value chain:

  • Suppliers partnering for widespread sustainability. From an environmental standpoint, supplier selection is key to reducing the Scope 3 emissions of the Group, so that the entire supply chain can achieve carbon neutrality by 2050. In addition, Prysmian seeks to support those suppliers that use recycled materials in their production processes. Moreover, constant efforts are made to reduce CO2 emissions by improving the efficiency of the distribution networks and fleets of the various logistics partners.
  • Responsible raw material procurement. Under Prysmian’s policy, raw materials can only be used if they have received technical approval and have been sourced from qualified suppliers. Consistent with the procedures adopted by the Group, the Purchasing area carries out product/process audits to assess the ability of the supplier to manufacture the materials concerned and guarantee the required technical performance and expected quality.

One of the possible challenges of being a global leader in manufacturing that has to source metals and raw materials is the need to continuously monitor the entire procurement base and ensure that all Prysmian’s business partners apply ethical conduct in their business processes. The real and potential impacts of this process are above all environmental, given the nature of the materials used, and social, as some materials may need to be sourced in regions populated by vulnerable communities. Prysmian can count on a broad and diversified procurement base, with mutually advantageous business relationships. Most of the Group’s suppliers are established leaders in their markets, applying best practices for the management of ESG factors.