ESG supply chain strategy for energy and utilities: PwC

In the race to build a cleaner, sustainable and more measurable energy future, the industry at the heart of it all is working to sync up supply chain and sustainability strategies. Energy, utilities and resources supply chain executives and management teams surveyed for PwC’s 2023 Digital Trends in Supply Chain Survey tell us they’re making progress building supply chain capabilities to help the supply chain integrate with sustainability and environmental, social and governance (ESG) efforts. While there’s still a long way to go toward full adoption, industry executives say they’re developing capabilities that will contribute to building a circular economy and reducing carbon emissions as well as measuring, verifying and reporting supply chain contributions to sustainability.

Most (92%) agree that supply chain strategy and operations are important to executing the ESG strategy and that digital investments in this area have also benefited the supply chain (82%). This suggests industry leaders recognize the importance of linking operations and ESG as they are intertwined. Of course, like other industries surveyed, supply chain leaders say increasing regulatory, investor and customer pressure to expand ESG disclosures poses challenges today. From coordinating ESG investment across the enterprise to establishing oversight and controls, and defining process and governance steps, ESG-related challenges commonly require collaboration and long-term strategic planning to confirm both that the right tools are in place today and that sufficient agility and flexibility exist to adapt to unexpected demands in the future.

Three questions you should consider as supply chain ESG needs evolve

While efforts to build capabilities are underway, more than three-fourths (78%) of those surveyed are still assessing EGS-related regulatory requirements, which continue to rapidly evolve for US companies and those with operations in Europe. The European Union’s Corporate Sustainability Reporting Directive (CSRD), the SEC’s climate disclosure rules and state-level emissions requirements have made it increasingly important to develop thorough and granular reporting that satisfies new requirements around supply chain traceability and expectations around non-financial reporting. This necessitates both a detailed review of technologies currently in place and a detailed assessment of the data management systems and tools required to collect and measure emissions data into the future.

With ESG needs and requirements continuing to evolve, how can you make sure your next supply chain moves are the right ones? Our survey results hint at three key questions that energy, utilities and resources leaders should answer to take today’s progress even further:

1. Are we under-prioritizing upskilling as part of our strategy?

Energy, utilities and resources leaders surveyed report a higher level of investment in technologies that can enable supply chain and sustainability efforts. As you invest time and money in processes and technology, your people can be left behind. Most of those surveyed recognize that the workforce will need some or significant levels of training or upskilling because of the ongoing digitization of the supply chain. It may be especially needed in areas related to sustainability. Digital skills — or the lack of them — are the top challenge to integrating ESG into the supply chain according to 84% of respondents, a higher proportion than in any other industry.

Still, despite digital upskilling being the top challenge, it may not be prioritized enough. Just 20% named digital upskilling of employees among their top three priorities. In fact, it fell well behind other top priorities which included increasing efficiency and automating processes and analytics — notably, all areas that could benefit from a digitally upskilled workforce.

What you can do

Embed upskilling within your company culture. As the ESG landscape and its technologies undergo near-continuous disruption, energy and utility companies need to invest in ongoing upskilling to confirm their workforce has the proper tools, coaching and support to succeed in the current environment. From here, it’s possible to measure and track the results of upskilling programs and then identify what is working well and make necessary adjustments. Finally, by recognizing and rewarding employees for ESG contributions, you can foster a culture of ESG awareness and engagement within the company.
Identify the specific ESG knowledge gaps in your workforce. This can be accomplished through surveys, interviews and job analysis that focus on the specific skills that are most relevant to your company's ESG priorities and supply chain operations. By using a variety of training methods — from online courses to in-person workshops and mentorship programs — you can meet the needs of different learners. You may also need to recruit new team members with skills in data science and advanced analytics, as well as those with functional supply chain skills.

2. Could we enhance our ESG efforts through integrated planning?

Cross-functional planning, collaboration and risk assessment are common practices within parts of the industry, particularly when faced with severe weather or other emergencies. But this type of cohesive integrated planning can be newer territory when it comes to climate-related supply chain risks or other ESG priorities. Proposed or enacted global, US or state regulations — including California’s Climate Corporate Data Accountability Act and Climate-Related Financial Risk Act and others that may evolve at the state level across the country — have elevated the need for a unified approach across your supply chain and company.

From increasing supplier diversity to assessing scope 3 emissions, it’s increasingly urgent to take a holistic approach to technology that can accurately measure and verify the supply chain’s contribution to ESG. However, more than half (62%) of industry leaders say the biggest ESG-related challenge today is coordinating investments across the company instead of separate spending by individual groups. This may suggest that while progress is underway in terms of tech investments and adoption, there could be room for more collaboration. Also, there may be a reason today’s efforts seem siloed across the organization, as very few executives and management teams expect to prioritize integrated planning soon. Just 10% call it a top three priority for the next 12 to 18 months.

What you can do

Champion organizational alignment. Align supply chain and operations with your organization’s cleaner energy investments, capital improvement plans and ESG strategy. Embed supply chain earlier in planning to increase visibility into materials and labor availability, supplier risks and other factors that should be tracked, measured and reported.
Close the loop between planning and execution. Break down silos to help build a culture that supports synchronized, integrated “closed loop” business and supply chain planning. Advance efforts to move from using historical data and anecdotal experience to responsive and forward-looking data-driven insights. Just 16% of industry leaders surveyed expect to use control tower visibility solutions to automate and enhance supply chain planning in the next 24 months.

3. Is our data and technology strategy up to the challenges of Scope 3 requirements?

Due to the diverse nature and far-reaching use of the products that energy, utilities and resource companies produce, Scope 3 emissions disclosures represent a unique challenge for the industry. From gathering private vendor data to determining whether those vendors even have the information required, success in this area requires collaboration, the right technologies and a dynamic data strategy capable of reading, cleaning and analyzing data from multiple sources.

While some are turning to digital capabilities to support efforts to reduce emissions, the availability of digital tools and data is a gap for most. Over three-quarters (76%) of industry executives cite their company’s lack of data and digital tools as a challenge to integrating ESG into their supply chains. Finding the right measurement tools and performance criteria also proves to be especially difficult. These challenges can be made more difficult by the speed at which the highly complex landscape of digital offerings and capabilities is evolving today.

What you can do

Build strong relationships with critical suppliers. Incentivizing strategies pertaining to Scope 3 can help you improve supplier communication and build alignment on the vision for achieving emission reduction targets. Such strategies might include upskilling suppliers in key areas and financially rewarding those who meet an emissions target. Cloud-based supplier relationship management solutions, which centralize supplier data and enable actionable insights, can also be an effective way to drive change and reduce emissions more broadly without sacrificing availability and reliability.
Develop a data and technology strategy at the outset. No single solution will solve the challenges of reporting ESG across your supply chain. Developing a strategy to integrate several technology platforms should involve cross-enterprise collaboration and a readiness to take on the primary challenge of identifying the sources of the ESG data coming into your company. While existing tools and capabilities can be leveraged to collect and analyze that data, in many cases it will be necessary to invest in breakthrough technologies capable of cleaning and enhancing unstructured data arriving from the field. Ultimately, the accuracy of your ESG reporting will be only as reliable as the data entered into the system.