Are supply chains the key to tackling climate and environment challenges?

There is a critical need for enhanced supply chain risk management in order for companies and industries to authentically address the impacts of climate change.

In brief:
  • With supply chains being responsible for between 70 and 90% of a firm’s emissions, it is a prime area for whole industries to decarbonise
  • Boards of companies are being urged to lead authentic net zero activities and efforts, and to put an end to greenwashing
  • All eyes will be on heads of state and business during the COP28, when evidence of work and fresh pledges are expected.
In detail: 

The Chartered Institute of Internal Auditors (Chartered IIA) is asking business leaders and boards to take immediate action against climate change and other environmental, social, and governance (ESG) risks in their supply chains, in the kick-off to the 2023 United Nations Climate Change Conference (COP28) in Dubai. 

The report, ‘Supply chain ESG risks: Harnessing the potential of internal audit’, argued the need for organisations to align their supply chain operations with environmental targets and social values.

With increasing demands for transparency and accountability from regulators, customers and investors, the report underscored the vital role of internal audit in providing assurance and supporting due diligence activities. 

To tackle these issues, the paper made a series of recommendations, including that boards and audit committees leverage their internal audit functions to assess business continuity and crisis management plans, especially in the face of climate-related disruptions such as extreme weather events.

It also stressed the importance of legal and regulatory compliance in supply chain management, and advocated for comprehensive due diligence in supplier engagement and selection. Further, it highlighted the potential of innovative methods including data analytics and AI for evaluating ESG risks within the supply chain.

Chartered Institute of Internal Auditors chief executive, Anne Kiem, pointed out the significant impact of the climate crisis on supply chains, and that boards must ensure their supply chains are not “sabotaging” otherwise strong efforts to decarbonise. 

Kiem said: “Businesses need to focus on ensuring supply chains are decarbonising and not sabotaging their transition to Net Zero. Internal audit has a key role to play by providing the board and senior management with independent assurance that climate hazards in the supply chain are being addressed effectively.”

AuditBoard senior internal audit advisor, Richard Chambers, agreed, and said: “Accelerating climate change means the risk of havoc caused by supply chain disruption is growing by the day. By harnessing the power of internal audit organisations can enhance their ability to identify, mitigate, and manage climate-related and other ESG supply chain risks effectively.”

The report came at a time when the effects of climate change are already impacting supply chains globally, and therefore restricting the ability to run efficient business. 

While the recommendations press the need for action, they also warned of overly ambitious commitments that can lead to accusations of greenwashing; that steps should represent a genuine commitment to ethical and sustainable practices.

It suggested that internal auditing could help with monitoring adherence to plans and pin-point deviations or warning signs, despite being a crucial, yet under-utilised tool.