How should risk managers tackle the sustainable supply chain question?

How should risk managers tackle the sustainable supply chain question? | Insurance Business America

Risk Management News

How should risk managers tackle the sustainable supply chain question?

“I’d say start small and be pragmatic”

Risk Management News

By
Kenneth Araullo

As businesses increasingly prioritize sustainability, risk managers find themselves at the forefront of a critical challenge: ensuring that supply chains are not only resilient but also aligned with environmental, social, and governance (ESG) goals.

With global supply networks under intense scrutiny, the question of how to effectively integrate sustainability into these complex systems is becoming a pivotal concern for risk management professionals.

This pressing issue demands a strategic approach that balances risk mitigation with the growing expectations of corporate responsibility, setting the stage for a broader conversation on the future of sustainable supply chains.

Thomas Williams (pictured), ESG manager at Markerstudy Insurance, shared insights into the growing emphasis on sustainable supply chain programs within the industry. According to Williams, businesses are increasingly motivated by a range of factors to establish these programs.

“A lot of companies are already doing a lot in this space, but they might not frame it specifically as ‘sustainability’,” he explained. However, the driving force behind these initiatives often lies in the need to create long-term value and build resilience within the organisation.

“When you look at it from a sustainability perspective, it lets a business quantify their impact and make changes in specific areas,” Williams added.

For Markerstudy, the decision to focus on sustainability was significantly influenced by the realisation that the majority of the company’s carbon footprint comes from its supply chain.

“It’s the single largest source of carbon emissions in our operations,” Williams stated. He also pointed to the importance of social responsibility, regulatory pressures, and stakeholder expectations as additional factors that have pushed sustainability into the spotlight.

“Recent global events have made us take a closer look at the resilience of our supply chain as well,” he added, highlighting the urgency of addressing these issues.

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Communication is key

In detailing Markerstudy’s approach to sustainable supply chain programming, Williams emphasised the importance of clear communication with suppliers from the outset.

“We started by deciding what we want in terms of sustainability goals and objectives. We wrote those down and communicated them to our suppliers,” he said.

Ensuring that suppliers understood and committed to these goals was a crucial first step. Williams noted that this often led to “some really interesting conversations that might not have happened otherwise,” as suppliers sometimes revealed sustainability practices that the company wasn’t aware of or offered different products and services.

Following this initial communication, Markerstudy moved on to assessing the sustainability maturity of its suppliers. Williams described this process: “We look at what our suppliers are doing in terms of sustainability, assessing their maturity through evaluations or third-party ratings.”

Based on these assessments, the company develops action plans and recognises improvements when they occur. “Then, the cycle starts again,” he added, underscoring the continuous nature of this process.

The role of risk management in sustainable supply chains

When discussing the role of risk managers in these efforts, Williams highlighted the need for a focused approach. “Risk managers have to look at the maturity of suppliers in the supply chain, in relation to sustainability goals and impacts,” he advised.

By identifying high-risk areas and prioritising attention where it’s needed most, companies can mitigate risks such as supply disruption, price volatility, and regulatory non-compliance. While risk managers may not directly manage supplier relationships, Williams stressed that “working with procurement and supply chain professionals is key” to ensuring that sustainability goals are realistic and achievable.

Williams also addressed the risks associated with not establishing sustainable supply chains. “If you rely on a sole supplier and they go under because of a climate crisis, you’re in trouble,” he warned.

He emphasised the importance of collaboration between risk management and procurement teams to maintain strong supplier relationships and support the achievement of sustainability targets.

On the topic of maintaining momentum in sustainable supply chain programmes, Williams highlighted the role of transparency and open communication. “Transparency and open communication are really important,” he said, noting that businesses are often more comfortable discussing their strengths than their weaknesses.

However, sustainability requires a different approach, where companies must engage in regular assessments, audits, and staff training to ensure alignment with sustainability goals. “You have to keep suppliers engaged and make sustainability part of the regular supplier management process,” Williams added.

A pragmatic approach is needed

In situations where suppliers struggle to meet sustainability targets, Williams advocated for a pragmatic approach. “Not all suppliers have the resources to meet sustainability targets quickly,” he acknowledged.

At Markerstudy, the company asks key suppliers to have some form of third-party assessment or certification, but remains flexible about which type. “We work with our suppliers to help them on their journey, offering support like training or innovation forums,” Williams said.

He emphasised that supporting suppliers in this way is mutually beneficial, as it directly impacts Markerstudy’s ability to reduce its carbon footprint and achieve its sustainability goals.

As a final piece of advice for companies looking to start their own sustainable supply chain programmes, Williams recommended a gradual, pragmatic approach. “I’d say start small and be pragmatic,” he advised, suggesting that companies begin by engaging with a small set of suppliers to understand their current sustainability efforts.

He also cautioned against imposing rigid expectations on suppliers, given the fast-evolving nature of sustainability regulations and assessments.

“Communicating your sustainability goals to your suppliers is crucial,” Williams concluded, noting that clear communication and commitment from suppliers were essential first steps in building a successful sustainable supply chain programme.

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