Disruptions in global trade patterns and rising inflation have intensified investor and regulatory scrutiny of companies’ supply chains and their sustainability risks, said panelists at the UBS Sustainable Finance Conference.
As a result, said Peter Needle, founder and president of Segura, retailers are increasingly using the firm’s traceability systems to get a more detailed picture of their complete supply chain. The pressures on companies to meet sustainability regulations and consumer expectations mean companies need to “know where their components and raw materials come from, and effectively Segura provides them with an audit trail to see that their wishes are being carried out by their wider supply chain.”
Traceability analysis can also help companies identify risks of potential disruptions from such factors as energy shortages, droughts or political conflict, noted John Willis, director of research at the nonprofit Planet Tracker. A case in point is the impact sharp rises in natural gas prices have had on the fertilizer plants, some of which had closed down for a while, he said, which in turn impacts the market for agriculture products and food production.
Among other gas-related impacts in the supply chain was a shortage of CO2 and dry ice, which has then affected the distribution of products such as ice cream. “Traceability systems get you to think about the dependencies and interconnectivity,” he noted.
In the apparel sector, large companies have come together to pool resources on traceability as they work to meet evolving regulatory standards on sustainability factors related to product disclosures and labor, Wills noted. Blockchain technology is playing a role in some of these efforts.
Companies also have opportunities to improve profit margins through traceability while reducing risks on the regulatory and consumer front. One study of apparel companies cited a 3% to 7% net profit uplift for apparel companies attributed to robust traceability systems, and other research has found similar effects arising from companies deeper, more detailed knowledge of their supply chains.
Financing advantages can also be gained by companies that can verify positive environmental and social impacts of their operation through traceability information. Willis noted that a food producer secured a lower-cost of capital by agreeing to, among other things, an increase in the monitoring and surveillance of its fishing fleet.
