In just a fortnight last fall, the U.S. supply chain took a one-two punch as hurricanes Helene and Milton ravaged the South. Devastation in areas of Florida and North Carolina impacted the availability of produce, medical supplies like IV fluids and dialysis solutions, and quartz, a key component for making semiconductors, solar panels and fiber optic cables.

This is not an anomaly. By 2026, climate-related weather events and other environmental risks could cost suppliers an estimated $1.26 trillion, according to CDP's Global Supply Chain Report. 

Extreme weather, a shifting climate, and other natural hazards are increasingly important to sustainability and environmental, social and governance (ESG) priorities in supply chain management. These weather and climate effects factor into strategies for mitigation, preventing further climate change that exacerbates such outcomes, and adaptation, making supply chains more resilient to those effects. 

Companies need to understand their impact and the risks they face, as well as the collaborative opportunities that mitigating and adapting to such risks presents. Most major companies are now measuring their environmental impacts and risks, which includes closely examining the sustainability practices of their supply chain partners and discussing how they can collectively take steps to attain key goals of business sustainability and resilience.

The Deloitte 2024 Sustainability Action Report notes that 98% of companies have made progress toward their sustainability goals and targets in the past year. Though private companies are less likely to have an established ESG council or working group, nearly half say they are in the process of establishing one, the report noted.

Sustainability is both the responsible path and good for business. Consumers more frequently consider the environmental stewardship of companies, with more than three-quarters saying they would stop buying from companies that neglect environmental well-being. And even more investors consider ESG a priority, with a Capital Group study noting that 89% factor it into their investment approach.

Deploying sustainable practices across the supply chain can improve the overall resilience of your business ecosystem. This can be accomplished in three steps.

Ask the right questions. To gain an understanding of where supply chain partners are in their sustainability journey, it’s important to ask them several key questions: 

• Do you have policies, goals and metrics for sustainable practices? 
• Do you measure your carbon footprint?  If so, what is it, and what portion can be allocated to our work together?
• Are you using renewable energy sources? Are your suppliers?
• Do you publish an ESG/sustainability/impact report?
• Do you invest in ESG and sustainability by having dedicated and qualified staff, and allocated budget for measuring, reporting, and engaging in more sustainable processes?
• What corporate policies do you have to support reduction of your footprint?
• How are you addressing key global societal challenges, like climate change and water conservation?
• Can you assess your physical climate risks, such as increased instances of wildfires, floods, and hurricanes, as well as transition risks, such as shifts in carbon legislation or market demand that result from a low-carbon economy?
• What climate opportunities have you identified and explored, such as new product development or market access?

Consider the data. Next, develop a process to gather and analyze data about the ESG activities of your company and its suppliers. For example, you can use a combination of internal audits, supplier scorecards, third-party assessments and specialized software ports to engage with suppliers. 

You may find that your smaller suppliers lack the expertise or resources to collect and provide the data requested. Resources such as those provided by greenhouse gas (GHG) accounting software portals, some available for free or at a low cost, can help your suppliers get reliable estimates of their carbon footprint and other key metrics.

Take action … together. While some companies may choose not to do business with suppliers that fail to meet ESG and sustainability standards, it’s more effective to work together to reduce the impact of shared activities. This kind of collaboration can both reduce overall emissions and create more business value. Strategies to reduce shared footprint may include commitments to greater fuel efficiency, limiting airplane travel while doing business together, minimizing waste and recycling more, using more sustainable products, co-investing in sustainable business infrastructure, and sharing costs or combining purchasing power in buying renewable energy. 

Supply chain pressure can come as either incentives or disincentives. Incentives can include favorable supplier terms, such as reducing net payment time, if your suppliers provide carbon footprint or other key data regularly. Some companies also subsidize the costs of generating higher-quality data, such as providing access to GHG accounting software to their suppliers. Disincentives may entail penalizing suppliers for not providing climate data or even penalizing those not meeting carbon reduction targets. For example, Salesforce requires its suppliers to develop a climate reduction target, validated by the Science-Based Targets initiative (SBTi), or risk being levied a 0.5% penalty upon contract renewal.

Development of a collaborative approach and long-term commitment to sustainable operations with supply chain partners is a win for all involved. These shared values often result in stable, lasting partnerships, leading investors and customers to view your company more positively. Taking actions to address sustainability will positively impact society and natural resources, creating a more thriving world and global marketplace, and ensuring that you create a resilient company with lasting opportunity for long-term value creation.

Asheen Phansey is director of ESG and sustainability at PagerDuty.