Performing traceability is just one aspect of reducing reputational and financial risks throughout the supply chain; however, having clear objectives is critical to achieving optimum results, and reducing time and cost.
By Deepthi Sugumar, Senior Sustainability Consultant
Supply chains across all industries are being subjected to high levels of scrutiny because of environmental and social violations. Slowly, the trend is moving towards sustainability not being an option, but a mandate. There are now enormous pressures and focus placed on social sustainability, with regulation becoming the primary driver to performing traceability, followed by conscious consumption and responsible investment. The number of social regulations globally increased by approximately five times from 2017 to 2022, with the expectation for more to come in the future. This will place significant pressure on organisations to revamp their supply chains.
Using the Uyghur Forced Labour Prevention Act in the United States as an example, a single regulation has already had a large ripple effect on encouraging supply chain traceability. US Customs and Border Protection (US CBP) has seized many imported products, meaning millions of dollars worth of goods are piled up along the US border. A large portion of these products are fashion goods and solar energy equipment, leading to reputational risks and financial losses for many companies.
By 2035, the US has a goal of 100% clean electricity. To achieve this, solar energy must grow from providing 4% of the national electricity supply to 40% . This will dramatically increase the demand for solar modules and components. However, as solar energy equipment is being seized at the US border, will this not culminate in diminishing the country’s renewable energy commitments and objectives?
Global discussions surrounding the implications of importing goods from regions with poor human rights records have gained traction. The German Supply Chain Due Diligence Act, effective from January 2023, requires German companies to have compliance management in place to protect human rights3. Similarly, France launched the Duty of Vigilance Law (Loi de Vigilance) in 2017. French companies now must undertake due diligence for all their suppliers to protect their rights. The law also requires organisations to have a contingency mechanism for any infringement or violation2.
Furthermore, the UK’s Foreign Affairs Committee is in preliminary discussions to impose a ban on the import of solar panels from the Xinjiang province. This ban would involve the boycotting and sanctioning of products, particularly solar and cotton, and would have significant implications on the solar and fashion supply chain4. Similarly, the European Commission has drafted rules proposing to ban all products and imports from regions using forced labour5.
As a result of the proposed bans and sanctions, organisations must re-organise their supply chains. However, these changes will likely have multiple implications and cause a myriad of challenges for organisations; including, increased costs and complexity, transportation delays, and change or increase in emissions coming from the company’s supply chain (Scope 3 emissions), resulting in stagnation of progress towards emissions reduction targets. Furthermore, organisations and countries with renewable energy targets achieved through solar power will be significantly impacted by these changes, as renewable energy plays a critical role in the net-zero transformation and will have an acute effect on countries with net-zero targets.
What is the cause of this?
Why do organisations not have access to information regarding the origins of their raw materials? The limited practice of supply chain traceability and incomplete chain of custody process at the raw material level certainly affects this. Even when organisations implement traceability practices, it often fails to produce the needed results because they did it without any goals, objectives, or targets.
Although many organisations have taken proactive measures to successfully perform traceability, the outcome of the exercise does not consistently satisfy expectations, due to a lack of clear organisational objectives. For example, do organisations want to perform traceability for due diligence or to report sustainability claims? Often organisations do not know where to begin and simply start the traceability exercise and collect a superfluous amount of data without knowledge of what to do with this information. It is therefore pivotal to evaluate and analyse if organisations are traceability ready, as half the battle is won when they have a clear view of their objectives, gaps and how to address them.