“Just like with having contractual clauses for scope 3 emission reductions for suppliers, having a defined responsible or ethical sourcing guideline or principles is an important first step. This ensures that we take away the interpretation of what is ‘Responsible’ away from the arbitrary nature of the information-asymmetry driven market forces or the subjective individuals with their defined corporate roles,” emphasizes Ashwin Kak, Member of the Board of Advisors, Centre for Excellence in Sustainable Development - Goa Institute of Management. As a Sustainability professional, Ashwin believes that continuous improvement and learning are the vital elements that can make professionals thrive and drive themselves, their organizations, and their nations, into a Net Carbon Positive future…
The Chief Sustainability Officer (CSO) role is becoming increasingly crucial. To put ESG at the heart of value creation, how does a CSO and other C Suite leaders collaborate? Which are the top 2-3 elements that they must address?
Ashwin Kak
The CSO, in an organization, is the most non-siloed role. The CSO has to collaborate with the Chief Financial Officer (CFO) to ensure that the stakeholder materiality and the value-at-risk being mitigated is always aligned to the external environment. The CSO works with the Marketing/Branding head to ensure that brands live out and then speak authentically about sustainability, and not limit to just an event-based activation. The CSO works with the supply chain teams of procurement, logistics and operations to ensure that sustainability is not an after-thought but built into the ethos, KPIs and targets of the team members. These are a few top ways in which the CSO can lead by example, within the larger executive leadership team.
Measuring scope 3 emissions is very difficult since most activities happen outside of an organization. What kind of ecosystem or infra an organization requires to accurately manage / control scope 3 emissions?
There is a three-point agenda at play here. For organizations just starting off on their journey, they need to get their scope 3 materiality baselining correct – it could be a mix of actual emissions and scientific assumptions-based working – depending on how mature the supply-chain is already in terms of their own emission mapping – many guidelines and frameworks exist to help an organization get kick-started on their journey. The second point has to be a digital ecosystem which binds and integrates all of this vast information together into analysable and actionable bits of information. The third, and the final one, has to be putting a roadmap in place for addressing these emissions thenceforth. The first two are almost like the base foundation, while point three is where we end up spending more time with our problem-solving hats.
How do we get on this journey on scope 3 emissions? How would you have addressed the same in your supply chain ecosystem?
Well, naturally, our entire value chain needs to be engaged (in a phased manner), and there needs to be a mix of incentives and penalties. But, before we begin anything, we will first need a very strong internal buy-in across functional leaders – by on-boarding them onto this scope 3 emission reduction journey, as also engaging the employees across the company and creates sustainability champions and ambassadors from across the company.
During my stint at AB InBev, heading their Procurement & Sustainability function, we kick-started our scope 3 emission reduction journey with our suppliers by launching a get together of our key suppliers in an ‘Supplier Innovation & Sustainability Summit’ – I am aware that many others in the industry have followed suit. This summit was for our top 80% value contributing suppliers to hear from us on our clear plans on going supplier-level evaluation with our scope 3 journey, launching of a portal to enable them to register on it for resource-access, and a subsequent de-carbonization roadmap planning for our suppliers over a one-to-three-year timeframe.
Depending on the size of the supplier you are working with, you will have to work upskilling of their teams, sometimes even looking at co-funding to get their sustainability infrastructure upgraded – and it is here that commercial incentives and penalties need to be integrated with the sustainability goals to make them part of a larger package of the commercial association, and not a separate ‘good to have’ being carried out by just one team in the organizations.
How can companies monitor and control that their suppliers deliver on what they sign for?
The most natural first step when this journey begins, is including these sustainability, DEI, human rights, responsible sourcing requirements into the “contractual clauses” itself. But that’s just a step 1 to this journey. It needs to be followed up regular and surprise audits to monitor these performances, regular check-ins to review it across both the company and supplier teams, ensuring that the suppliers own on-boarding program for its new employees has a strong element of these sustainability performance requirements embedded into it. A lot of this has to be led (initially at least) top-down in terms of the messaging and tone-setting, because if cross-functional leaders share conflicting messages to their team, it will be difficult to get the procurement, supply operations, logistics and the commercial teams; all talking the same language and KPI as that of the sustainability team.
To pick up just one example here - Organisations like WRI and WBSCD have done more than enough in helping define Scope 3 emission standards, basis their extensive global studies. It covers the upstream and downstream aspects of scope 3 emissions, guidelines to follow to record such data, allocation basis intelligent estimations and even a process for setting targets for its reduction. “Reporting” is probably just three or four pages of this extensive 150+ pager report. There is a reason why I highlight this. It is because I notice a lot of young professionals getting into this field, getting so over-whelmed by the aspects of recording and reporting, that they forget the larger purpose to which they are working is the actual on-ground action for reduction of these emissions. So, my advice to everyone would be to stop worrying about the reporting aspects of it – as more than enough experts globally, have done enough work on this. Where we will win or lose this battle, will be the execution, monitoring, feedback loops and course correction of the solutions of the emission reduction. Let’s focus more, if not most, of our energies there.
In your opinion, is it practical to achieve the importance of ‘Net Zero’ pledge and how critical it will be for the organisations to manage their Scope 3 emissions to achieve these Net Zero commitments?
Before I get to answering a pointed question on ‘Net Zero’, we must look at how we have reached here today. Within the past 20 years itself, we can see how we have gone from the Millenium Development Goals to the SDGs, from just plastic removal at the end of the lifecycle of a product, to having equitable recycled material to now having calls for circularity at a cradle-to-cradle stage of a product itself, from carbon neutral to net zero claims, from renewable electricity certificates to additionality of renewable generation by corporates – it will not at all be a surprise, if within a decade, we will have a much stronger metric to be followed than even a Net Zero! So, we must approach this predicament of Net Zero, being very aware of this possibility.
Having said that, Net Zero, today, seems to be the most widely accepted metric on which companies and countries alike are disclosing their goals – some are reaching there in 2035, while others are stretching it to a 2070 or 2080. Unlike a lot of previous sustainability or ESG goals disclosures, which were limited to looking a few years forward, these Net Zero commitments of course cover the larger indirect and so-far-unaddressed Scope 3 emission abatement and reduction plans. And depending on the industry, scope 3 emission as a component of total emission can range from anywhere between 50% to 80% of the emissions. So, the Net Zero commitments are challenging for sure, but not impractical. The challenges lie not just in addressing the Scope 3 emissions, but also in how companies abate it – do we take the simpler route of Renewable Energy Certificates (RECs) and Carbon off-sets as the primary means, or only as the resort to cover the final and remaining 10% of our emissions (after we have spent most of our time in achieving additionality of RE generation or absolute reduction in emissions per se), will determine which company and country will truly lead by example.
What are the current best practices of a sustainable supply chain in India or globally, which could be a good learning for other corporates? Do you think there are partners that the companies can better associate with, to make sustainable supply chains a more pervasive action-agenda for every other corporate?
There are various practices being followed already, which we can all learn from. When we talk about sustainable supply chains, we look at various aspects of ethical sourcing practices, human rights, ecological footprint, fair negotiation and payment practices as well as just well-rounded capacity development of suppliers.
High risk sectors like agriculture, apparel, extraction, ICT, etc., can learn from the Corporate Human Rights Benchmark (CHRB). It is here that proactive self-regulation by such key industries can play a vital role, in having Indian companies also lead by example. On fair negotiation and payment practices, we need the corporates and their MSME partners working closely together, to ensure undue cash flow hits are not taken by any part to the transactions – monopolistic or monopsonic practices both need to be addressed at the root cause. In terms of skilling, instead of having another regulation starting to demand it, it is best for industry associations and agglomerations to take this up as a high priority and already start working on implementing up-skilling and practical training practices with companies and smaller suppliers alike.
In the end, one adage that companies as a collective need to now fully embrace is that we cannot regulate morality into our business practices. These changes have to be driven from within companies and industry associations almost like sustainability and ethical practices are being embedded into a business’ way of working in itself.
Higher Ground by Alison Taylor, and Grow the Pie by Alex Edmans are two fantastic books I would recommend to any sustainability or supply-chain or executive leader to read, to understand of the best ways in which companies can embed responsible sustainable practices across their ecosystem.
How do you foresee the scope & expanse of ethical sourcing growing from here on with companies waking up to the cause and taking pointed measures on it?
Just like with having contractual clauses for scope 3 emission reductions for suppliers, having a defined responsible or ethical sourcing guideline or principles is an important first step. This ensures that we take away the interpretation of what is “responsible” away from the arbitrary nature of the information-asymmetry driven market forces or the subjective individuals with their defined corporate roles.
With a benchmark of your own in place, determined by your stakeholder materiality, a company can actually utilize this to get twin-wins of getting the human rights and ecological health right in its sourcing process, but also positively address the increasing demands of the hedge funds, the responsible investors, the aware customers and the investigating media.
What I want to highlight here, is that till corporates look at extending their own ethical practices into its supply chain as a burden, they will only be busy implementing this as a tick-box activity. But the moment corporates look at the wider positive impact of their responsible behaviour on their own business operations and market reputation, will the aspect of ethical and responsible sourcing truly get into the next gear. There are now more than enough research studies, which show how proactive and intrinsic responsible corporate behaviour in its larger value-chain also holds it in good stead for its profitability and share prices.
Finally, to cap this off, how do you see India gearing up to play a leading role in empowering sustainable supply chains?
Here, we must appreciate a larger ecosystem of problem solvers – from think-tanks to climate bodies, from companies to start-ups, from union government policies to progressive state regulations – which are all playing an own important role in navigating into a future of sustainable supply chain. You have the union government, which is leading by example in investing into both Hydrogen energy and EV technology alike (of course, EVs reduce tail-pipe emissions to nought, but more will need to be done to ensure the sourcing value-chain emission of extracting the EV metals and minerals also goes down now). We have an environment advocacy organization like the Environmental Defense Fund, which is now having its third cohort of Climate Corps young professionals in India, who get placed to work on climate transformation projects with companies and state governments alike. One must also not forget the important role our courts also playing in upholding the right towards a sustainable future. I believe that the awareness is there, the actions have started, now all pillars of our socio-economic engine need to start working more in tandem with each other in a harmonious partnership approach, to create magnified impact.
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