In the latest of our Unlocking the Energy Transition series, we covered the key question of how to manage complex supply chains in a sustainability context including fostering transparency as a business asset, managing regulatory risk and compliance, and ensuring value protection during the energy transition.
Supply chain transparency
We started by discussing supply chain transparency. Keeping stakeholders such as investors and regulators informed of sustainability progress and performance is essential to maintain confidence, Organisations need to engage with their supply chains with clear and understandable requirements of their suppliers – and must be prepared to back those up.
Julie Taylor, Director for Commercial, Regulatory and Supply Chain in Strategic Infrastructure at National Grid, gave the example of how the organisation, as part of a major procurement exercise, had asked suppliers for information around their modern slavery policies. “One supplier was unable to assure us of their modern slavery processes,” she said. “As a result, we took them off our supplier list and replaced them with a competitor. You have to be unapologetic in asking for information and be prepared to be assertive if a supplier doesn’t meet the required standards.”
Verification and data
Another key aspect to transparency that fosters stakeholder confidence is obtaining external assurance over your sustainability information, as Jonathan Dunn, Head of Climate, Strategy and Sustainability at mining giant Anglo American, discussed. “We’re committed to independent, third party verification of our operations,” he said. “It’s about having agreed proof points and data points, and then having an outside party verify our progress against them. It’s a really important part of the process.”
Jonathan also made the interesting point that, as part of being transparent, the default can sometimes be to capture and publish data for data’s sake. But what actually matters is capturing and disclosing the data that matters to different audiences, and being very clear about the purpose of the data.
Strategic relationships in a long-term view
Perhaps one of the key shifts the sustainability agenda is introducing in terms of the supply chain is that relationships need to become more holistic and partnership-oriented. As Julie Taylor put it, relationships need to be “less transactional, more strategic”, with more long-term frameworks in place rather than just a series of “spot purchases”.
This led us into another recurring theme, which was around the need to balance short-term and long-term considerations, relationships, risks and rewards. For Jonathan Dunn, indeed, the sustainability agenda is all about balancing short- and long-term risks and opportunities, as well as increased efficiency. “If you frame it in this way, you can drive really productive discussions across key business functions. Do they understand the risks and opportunities arising out of sustainability? Decisions made now can have a long tail into the future – so have they factored these in? What mitigations are in place and what are the opportunities?”
Achieving a balance of short- and long-term goals is certainly not easy, especially when six monthly or even quarterly reporting cycles to the markets can push towards a focus on the short term. It can also be hard to make and justify long-term investment decisions (that may increase prices to clients/customers) given today’s continuing cost of living and economic pressures. Trade-offs may be needed – and the panel reflected that, these need to be political decisions made by governments as much as business decisions.
Nature and biodiversity next for mandatory reporting?
Regulation and reporting has been moving at pace, not least with the development and rollout of the ISSB standards and the CSRD/Omnibus in the EU. One area where we can expect increasing regulatory attention is nature and biodiversity. Dr Rebecca Heaton, Senior Sustainability Advisor at KPMG, said that she anticipates mandatory nature and biodiversity reporting to be on the way, even if the timescales remain uncertain. “As with TCFD reporting, I’d expect this to have a catalysing effect – really bringing the topic into the boardroom as a live issue,” she said. “I’d recommend businesses to get started looking at this as soon as possible because there could be a long glide path to achieving nature-related reporting maturity, being such a new area for many.”
Value protection in a more circular ecosystem
Then there is the key question of value protection. Jonathan Dunn outlined how, for the mining industry, there is huge and growing demand for many metals and minerals such as copper, nickel and lithium that are key to the energy transition. This in itself bolsters value prospects but an additional important aspect is that metals and minerals are very recyclable – not burned and immediately consumed like coal. “The International Copper Association likes to point out that over 60% of all the copper that’s ever been mined is still in use,” Jonathan said. “Metals and minerals are essentially circular and in that way can make a big contribution to sustainability.”
Julie Taylor strongly agreed with this, emphasising how the outputs of one part of the value chain – responsible mining in this case – can ripple through other parts of the value chain, enabling more sustainability all along the way and having a transformational cumulative effect. Being more sustainable is, arguably, the ultimate move in value protection.
In conclusion, Julie stressed that there are huge opportunities ahead for players in the energy industry who get this right, building on the UK’s leadership position. Jonathan emphasised that understanding the short- and long-term trade offs is key to taking a fully formed approach, while for Rebecca there is an opportunity for businesses to embrace what she called “radical transparency”. “You learn by doing,” she said. “Look how TCFD reporting has evolved. Start somewhere and get the information out there – doing something is better than doing nothing.”
