A Three-Point Approach to Measuring Supply Chain Sustainability

Sustainability measurement and reporting is becoming institutionalized in large companies. Over 80% of companies listed in the S&P 500 published a sustainability report in 2015. However, there remain wide discrepancies in the content, structure, and quality of sustainability reporting. This is particularly true when it comes to reporting on the sustainability performance of supply chains.

Large companies typically have very complex supply chains with wide-ranging impacts. This means that there are potentially thousands of indicators that could be used to report on supply chain sustainability. A key challenge, therefore, is determining what and how to report in this area.

An essential starting point is in defining a sustainable supply chain. In a recent MIT SMR article, I argued that a sustainable supply chain “must operate within the thresholds imposed by nature and society.” Unfortunately, references to these thresholds are rare. New approaches are needed.

Measurement and Reporting Framework

Figure 1 provides a framework to measure and report supply chain sustainability. Eight key considerations are organized around three categories focused on sustainability context, collaboration, and communication.

First, any effort to measure and report on supply chain sustainability must explicitly consider the broader context in which the chain exists. This means that performance must be linked to environmental and social thresholds across the chain. These linkages distinguish sustainability measurement and reporting from other forms of reporting.

The key contextual considerations are:

• Consider all key impacts. Identifying impacts can be challenging due to differing economic, environmental, and social conditions across the supply chain. Nonetheless, global, regional, and local impacts, both positive and negative, must be considered. Value chain mapping is a useful starting point for identifying impacts and setting priorities.
• Set science-based goals and targets. Sustainability goals and targets must come from something beyond the supply chain itself. Translating science-based thresholds, like those in the planetary boundaries framework, to the supply chain level can be difficult, but it can be done. For example, PwC calculates that carbon emissions must be reduced by 6.3% per year until 2100. Start there.
• Develop context-based indicators. Indicators track progress, or lack thereof, toward goals and targets. Context-based indicators, therefore, express performance relative to science-based goals and targets. These are in the early days of development, but thoughtful examples of