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Protecting the environment and increasing sales? Here`s why a sustainable supply chain pays off

by Editorial Office

The topic of sustainability has long been much more than just a social trend: Not only consumers and politicians, but also a growing number of companies see sustainable business as future-oriented. This was confirmed by the figures of the latest Hermes Barometer, in the course of which 200 companies were surveyed on sustainable supply chain management. Almost three quarters of the logistics managers surveyed believe that they can only remain competitive by implementing environmentally responsible criteria. Alas, there are more reasons why companies are increasingly focusing on a green supply chain.

Demanded and implemented worldwide: Green Supply Chain Management

More and more examples illustrate the need of many companies to implement long-term sustainable strategies. For example, the Clean Cargo Work Group, an association of more than 80 leading shippers, forwarders and carriers, including Hermes International, has been actively working to reduce CO₂ emissions in container shipping since 2002. Successfully so: CO₂ emissions have fallen significantly in relation to transport performance.

Only recently, more than 150 industry representatives from shipping, freight, energy, finance, ports and infrastructure have signed the joint declaration “Call to Action for Shipping Decarbonization”. In this declaration, the companies and organizations involved call on governments around the world to define a political framework in order to further reduce the global CO₂ emissions of maritime shipping. The aim is to achieve zero-emission shipping by 2030 with the help of government subsidies so that the entire industry becomes climate-neutral by 2050.

Daring to be more sustainable: Practical examples of green supply chain management.

The fashion industry, on the other hand, wants to respond to the ongoing supply chain challenges by increasing the amount of nearshoring. According to a McKinsey study, 71 percent of the fashion companies surveyed plan to shorten their transport routes, i.e. to procure goods from countries closer to home. While for Europe this makes Turkey one of the most interesting production countries, the US market is increasingly interested in Central America. 24 percent would even increase the reshoring share, i.e. relocating back to their own country. Although cost savings take precedence here over the desire for sustainability, this development will have a positive impact on the environment, as shorter transport routes will save CO₂.

Examples in the direction of sustainability can also be found in air transport: Lufthansa Cargo, for example, offers CO₂-neutral transport for all routes and product groups by supporting certified offset projects that are intended to avoid or at least compensate for the resulting fossil emissions. Other measures include the use of Sustainable Aviation Fuels (SAF), in which a certain amount of biofuel is blended, and the exclusive use of lightweight containers. Here, too, the ambitious goal of 100 percent climate neutrality is being targeted.

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Recognizing and leveraging benefits: Tips for a green supply chain

The Hermes Barometer shows: The majority of survey respondents would like to do business more sustainably. However, the question of what precisely is the most sensible way to implement measures remains. After all, a third (31 percent) of the respondents have already developed sustainable supply chain strategies or launched environmentally strategic measures within the supply chain (22 percent).

These measures primarily include cost and emission savings through the use of alternative means of transport (53 percent), regionalization of the supply chain or diversification of the supply network (47 percent), as well as the use of appropriate SCM software for more efficient workflows (39 percent) and increasing energy efficiency in industrial real estate (26 percent).

Sustainable Supply Chain Finance as a possible solution

Another tool to increase supply chain sustainability while reducing costs is Sustainable Supply Chain Finance (SSCF). SSCF refers to the extension of Supply Chain Finance (SCF) and offers companies the opportunity to link the benefits of SCF to more sustainable behavior by their suppliers. This means that suppliers must adhere to predefined sustainability criteria, thereby gaining access to a larger funding base and lower financing costs.

While this practice is not yet well established, partly because many decision-makers are simply unaware of the approach, initial evidence points to measurable benefits: for example, suppliers that produce sustainably are in a more stable financial position. This reduces the risk of failures and increases the reliability of supply chains. The World Economic Forum’s Beyond Supply Chain Report also shows that implementing sustainable practices can lead to supply chain cost reductions of 9 to 16 percent. The extent to which SSCF will truly lead to a greener supply chain future cannot yet be determined with certainty, but early predictions are very promising.

Aligning supply chain management sustainably at an early stage

Although many companies are already making their supply chain more sustainable by their own motivation, legislation in the coming years will also make companies rethink which have not yet been active in this context. The German Supply Chain Act will come into force as early as next year, and recent reports suggest that the EU will adopt an even stricter law.

It is therefore worthwhile for those responsible to actively shape the change in a timely manner in order to leverage the associated competitive advantages and comply with applicable legal requirements. Service providers such as Hermes International, a business unit of Hermes Germany, support companies in designing their processes in a green context – and are thus fulfilling a wish expressed by the logistics managers surveyed for the Hermes Barometer. 54 percent of respondents agreed with the statement that logistics service providers should provide advice on reducing CO₂ emissions.

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