We recently helped one of our clients get their carbon net zero certification for their 2021 operations. The Slack forums sponsored by the non-profit certifying agency, Climate Neutral, were buzzing with activity. I was amazed by the enthusiasm of the participating brands to get certified and claim net zero status with the purchase of relevant offsets from wind and avoided deforestation projects, among others. As part of this project, we went beyond net zero analysis and holistically reviewed all sustainability elements required for such an exercise. Out of this research, primarily based on the World Economic Forum (WEF) ‘s white paper (Reference – Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation), we have prepared a 28-element ESG periodic table covering the four pillars of governance, planet, people, and prosperity.
ESG Periodic Table
Business Case: Why Invest in this Effort?
You might ask for justification of the effort across this 4 x 7 matrix. Why make an effort to collect and report progress across this grid? We borrow a few snippets from the University of Chicago’s “Chicago Booth Review” publication on “How to Create a better supply chain – that is resilient, green, transparent, flexible, efficient, and smart?”, to add our perspective and to outline an approach to achieve this objective. The Booth article mentions that the push to create greener supply chains is picking up steam, as is the pressure to be mindful of social issues, including fair labor, human rights, and general ethical business practices. MIT’s 2021 State of Supply Chain Sustainability report finds that 80 percent of surveyed company executives from around the globe said the pandemic had not affected their sustainability efforts, and 59 percent said they are investing in supply-chain sustainability. Additionally, four out of five surveyed said they were committed to employee welfare and safety.
Sustainability vs. Efficiency Tradeoffs
Climate Change vs. Involuntary Labor
One side benefit of the data collection exercise outlined above is the opportunity to comprehensively review the business from the sustainability standpoint and the tradeoffs. For example, creating a sustainable supply chain involves tradeoffs, and one is between sustainability and efficiency. Immediate delivery, for example, requires more vehicles, affecting the environment. A more economic effort could conflict with sustainability initiatives. And even if a company opts for sustainability over efficiency, there’s not always a clear path. For example, while auto companies could make the supply chains greener by utilizing electric vehicles to transport supplies and products, they still have some thorny environmental and labor issues to overcome. Among them, lithium-ion batteries use materials whose extraction can worsen air pollution. In addition, workers that mine some of the materials include children laboring in harsh, unregulated conditions.
Automakers, including Ford, Tesla, and Volkswagen, are moving toward using cobalt-free batteries. At the same time, the US Department of Energy has stated its goal of eliminating cobalt from all lithium batteries by 2030. Cobalt is ill-reputed for its association with both environmental and labor-exploitation issues. Further, such batteries could have a second life, making them greener. A 2020 study by MIT finds that used-electric-vehicle batteries could help power solar energy farms. Georgia Tech’s Beril Toktay points to the life extension of a product as a vital aspect of a sustainable supply chain. In the context of our periodic table, refer to Involuntary labor vs. Climate Change cells to understand how these tradeoffs can be reviewed and managed side-by-side.
Climate Change vs. Solid Waste and Resource Conservation
Focus on selling fewer products while making money on refurbished products could be one answer. This helps meet demands with fewer products, reducing the carbon emissions from producing and shipping products to a destination. Apple has pushed to sell refurbished products, and Caterpillar is leasing refurbished equipment. We call your attention to the ESG periodic table elements above Climate Change, Solid Waste, and Resource Conservation.
Toktay notes that a company looking to go green should focus on using lower-intensity materials, for example, recycled rather than virgin aluminum, and on making its manufacturing facilities more environmentally friendly. “Where is it getting its energy? And is it participating in greening the grid?” she asks. “Is it trying, for example, to enter into the wind and solar projects?” To draw a parallel with our work on carbon emissions analysis, mattress springs built from scrap metal have a much lower carbon footprint than cold/hot rolled steel. Using the right emission factors during an examination helps with accuracy and costs by reducing the required carbon offsets.
Sustainability vs. Cost-Benefit vs. Climate Risk Tradeoffs
Switching to sustainability and cost-benefit tradeoffs, we review responsible sourcing next, which dovetails with other factors, such as where to locate factories. Building factories in a company’s home country, or nearer to it, could accomplish other goals while also being environmentally friendly if the new building relies on greener energy or if the move results in reduced transportation. Companies must weigh these benefits alongside risks, as climate change and extreme weather shocks could affect business operations. The shortage of microchips was caused partly by drought in Taiwan, where manufacturing plants need water as part of the production process. Car manufacturing is among the industries affected by the chip shortage. Please refer to periodic table elements of freshwater availability, infrastructure support, and wealth generation as balancing acts that companies need to pursue in this example.
Many companies rely on a few providers with capacity and economies of scale, but in doing so, they expose themselves to climate-change risks. A company that prioritizes efficiency will still have to acknowledge and manage those risks, and one that becomes more sustainable will be able to mitigate these risks.
How to balance all of the above?
Latviv’s ESG periodic table has laid a solid foundation for clients to balance the tradeoffs between the ESG Periodic Table elements. In addition, Latviv provides tools to support analysis, best practices, audits, playbooks, and data integration to drive sustainability in your supply chain.
Please ask for a demo to see how our architecture uniquely supports this initiative.
About the Author
Piyush is the Latviv CEO and Co-founder. He is passionate about ESG and GRC initiatives in the industry. Please check his bio here.