Outlook of Sustainability Policy and Regulations on Supply Chains

Sustainability is in the headline news weekly, if not daily. It’s now a strategic issue.

Ignore it at your peril.

This post is the final one in a series on regulatory influence over sustainable supply chains. It is a forecast or future outlook of sustainability regulation on supply chains.

International and national trends and priorities will make sustainability a matter of priority.

We’ll unpack the trends and how they affect you. We’ll look at risks, including costs and benefits. We’ll also address how to achieve solutions that give you a competitive advantage. As always, we want to provide you with a path ahead that avoids risks while looking for opportunities.

Let’s get started.

The emergence of sustainability as a strategic asset

Since the 1970s, sustainability issues have risen in importance. The increase in government regulation, non-governmental regulation, and market-based regulation reflects that.

Government and the private sector are both engaged in reducing their environmental impacts. That includes their supply chains. That raises the question of how sustainability will develop over the long term.

In assessing the outlook of sustainability, we’ll inspect how regulations can affect supply chains. Specifically, we’ll look at the following:

With that, let’s start with the emerging trend regarding government-industry interests.

Moving towards greater balance between competing interests

Moving into the future, it’s clear sustainability regulation is on the rise. All you have to do is look at the latest CIA World Factbook, 2020-2023. This is a source prepared by the CIA for its use and the government’s. It serves as a baseline of intelligence for making national security decisions.

In the 2021 issue of the Factbook, the CIA added environmental issues to its assessments. Environmental issues in the Factbook include Current Issues; International agreements; Air pollution; Climate; Land use; and Urbanization, to name a few.

The government’s interest in sustainability has grown and will continue to grow. The same is true for the private sector. Exxon is spending between $15 billion in the next five years. Exxon set aside this outlay of cash for specific programs.

Chevron, too, is dedicating vast sums, over $10 billion, to reduce carbon emissions. These are only two companies addressing sustainability. Many others are following suit and embracing the transition to sustainable operations.

Maersk also has an admirable sustainability program that focuses on “sustainability performance”. It has clear decarbonization goals making it a sustainability leader among ocean carriers. Case in point: it has aligned the company with the European Climate Foundation 2050 Net Zero carbon emission. And Maersk is on track to meet that goal.

As stakeholders embrace sustainability, cooperation between the public and private sectors should improve. That will likely stem from increased collaboration and coordination between government and industry.

In the years ahead, the inherent conflict of interest should diminish. Agreement on goals will help to cement agreement and foster cooperation. Economic opportunities will also encourage improved relations between regulators and industry.

Technology enables and drives sustainable supply chains

A key driver of increased cooperation between regulators and private industry is technology.

Stakeholders agree resources are scarce and becoming scarcer. They also understand the need to reduce their pollution footprint. Global competition is yet another stimulus advancing sustainability as a strategic issue.

As leading firms adopt “green” initiatives, they may set industry standards that exceed governmental standards. That would positively affect the environment and profitability. Additionally, some green initiatives can help reduce risk—a major issue in a world of increasing risks.

In 2022, we find ourselves relying increasingly on technology to deliver solutions. Technologies available to make operations more sustainable are as follows.

That’s the picture in 2022. The future will likely offer more sophisticated technological solutions. These solutions will likely make operations leaner, more effective, and more efficient.

This may sound like Nirvana, and to a degree, it is. All the existing technologies businesses leverage today are in various stages of development/implementation. The future will see greater technological solutions enabling sustainable operations.

Innovation enables and drives sustainable supply chains

Like technology, innovation factors hugely in fostering sustainable supply chains. Innovation will likely increase out of sheer necessity. Government regulation, global competition, increasing supply chain risks, and opportunities will demand innovative solutions.

Chief among these will be the shift from regulations’ reliance on costs to benefits. Again, the tug-of-war between sustainability and economic goals will diminish. Technology and innovation will make opportunities and outlook of sustainability detectable. The shift in thinking will move from inherent conflict to mutual benefit. That change alone will propel the drive toward sustainable supply chains.

Corporations’ future depends on innovation for profitability and market advantage. These are positive drivers emphasizing the carrot over the stick. Thus, a new and positive approach will take hold. Once this happens, stakeholders can integrate sustainability into supply chain planning and execution. Along with increased cooperation among stakeholders, the future of sustainability looks bright.

The value of marketing sustainability issues

Marketing opportunities will also arise to appeal to customers. Stakeholders, especially customers, want to see corporations act more responsibly towards the environment. Non-governmental and market-based programs will factor heavily here to advance goodwill.

Conclusion of the outlook on sustainability

Sustainable supply chains are the wave of the future. Sustainability and supply chain management will work together seamlessly.

Sustainability regulation is here to stay, and it's growing. Businesses can influence the pace and nature of regulation by being strategic and proactive.

The path ahead is not set in stone. That means you can influence it. To do that, you must approach sustainability strategically and proactively. Governments and industry are moving from inherent conflict to mutual benefit. Regulations will balance costs with benefits. These approaches to regulation indicate the future of sustainability is on the rise.

At American Global Logistics, we focus vigorously on daily operations. We approach future operations with dedication and effort. Once we identify a potential trend, we explore it in-depth for risks and opportunities.

We go beyond ordinary standards. We seek extraordinary solutions to give you a competitive edge. We look at how we can convert challenges into opportunities.

If you want different results, you must do something different. Partner with AGL to get different results. We’ll help you improve your profits and performance.

Taking a strategic approach to supply chain sustainability regulations

Before jumping headlong into complying with sustainability regulations, you should understand their long-term effects.

Compliance with regulatory control over achieving sustainable supply chains should not be automatic and passive. Achieving sustainable supply chains is complex and can be problematic. But that compliance with sustainability regulations can also be advantageous.

Last week, we explored the short-term or tactical level of regulatory control of supply chains. This week, we’ll delve into the long-term or strategic effects of regulation on supply chains.

Without further ado, let’s address how a strategic approach to supply chains can benefit your business.

Why taking a strategic view matters

Risk has become a top-of-mind concern as risks increase in frequency and intensity.

Anytime regulations are imposed, they imply short-term and long-term risks. Here we’ll discuss the long-term risks in a general, but useful way.

We usually think of risk as something negative. That’s understandable. Risk implies danger, peril, uncertainty, and vulnerability. Any regulatory control over supply chains comes with some risk. It doesn't matter whether it's by government, non-governmental, or even market-based entities. Risk is inherent in any type of regulation. What is key is how you manage those risks.

One of sustainability's most prominent challenges is that of environment vs. economics. In the short term, that may not be an overriding factor in how you manage your supply chain. But, in the long-term, risk figures more significantly. It’s the difference between a little “r” and a big “R”.

Since this post is about the long-term effects of sustainability regulation, let’s see why a strategic perspective matters.

A long-term perspective of supply chain sustainability regulations

One key takeaway from the pandemic is that supply chain management is now a strategic endeavor. So, firms must adjust their perspectives and plan accordingly. That applies to how firms view regulatory control of sustainability. A strategic approach entails a long-term and end-to-end view.

To position your business for new regulatory controls, in today’s world, you should take a holistic view. Doing so helps you identify not only risks but also opportunities. As you analyze how regulations affect the connections between and among your supply chain nodes, your holistic analysis will uncover hidden opportunities.

As you discover opportunities, you’ll be able to redesign your supply chain with those options in mind. In doing this, you’ll reinforce your supply chain to cope with risks proactively. That takes reaction out of the calculus.

Another reason a strategic view matters is that it affords you the time to reflect on all effects. That allows you to consider all the options at your disposal. It’s a comprehensive approach that deals with not just the parts but the sum of the parts.

That’s important for several reasons. First, it is now easier for you to see all the effects, allowing you to prioritize which ones to tackle and in what order. You may not have to address all the effects.

An example is to decide to focus on, say, two key areas: 1) economics vs. sustainability and 2) the customer. And that will help you apply your limited resources to balance costs and benefits.

If you fail to consider the long-term impacts of regulation, you’ll react when risk strikes. You'll feel like you're playing whack-a-mole.

Ignoring the long-term aspects of risk increase uncertainty and vulnerability. You’ll suffer strategically regarding your overall competitiveness. Regulation changes market dynamics. And failure to plan for those dynamics will put your business at risk. So, you may face greater risk in doing nothing in anticipation of upcoming regulation.

Next, we’ll examine how to put the customer first. Then we'll address the inherent struggle between economics and sustainability.

Strategic supply chain optimization promotes sustainability and profitability

When viewing your supply chain holistically, you’ll consider your operations from all perspectives. That includes inputs from your staff, your suppliers, and your customers. So, you’ll get both internal and external inputs. No options will go unconsidered. That will enhance sustainability and profitability

This approach will likely reveal options previously not considered that can affect performance. And you can address resilience and other capabilities such as agility, on-shoring, near-shoring, etc. With these insights, you can optimize operations to meet your customer's needs, while complying with new sustainability regulations.

Strategic financial management promotes sustainability and profitability

When planning long-term, no strategic plan is complete without assessing costs and benefits. Here, it is about assessing the costs and benefits of sustainability regulations.

As with the other categories, you'll look for exploiting advantages and diminishing disadvantages. Regulations usually come with taxes and incentives. Whether you’re looking at one or the other, a holistic view can help you to balance costs and benefits.

You’ll also be able to do so in a meaningful way where each member of your supply chain pays their fair share of the costs. Equally important is the sharing of benefits. It promotes financial equity among your stakeholders. And it puts your business on a firm financial footing.

Strategic risk management promotes sustainability and profitability

Supply chain risk management has moved to the head of the class. It is a major component of operating a successful business. Like taking a holistic view of financial impacts, a comprehensive, long-term view of sustainability affords you more options.

In particular, you can identify all your risks, end-to-end, and share those risks with their attendant costs and benefits. That further helps you meet your performance goals and your customers’ needs and demands more effectively and efficiently. And that promotes resilience.

Strategic marketing promotes sustainability and profitability

Lastly, regulatory controls have a strategic marketing aspect to them. Your business can leverage the perceived negative effects of regulation by crafting a green public image. That fosters a cooperative approach that sets you apart from your competitors. Some examples of doing that are by releasing information such as voluntary eco-labeling. That puts you out front ahead of mandatory regulatory requirements.

You can also provide press releases about the status of your green initiatives that exceed any regulatory requirements. Again, that shows goodwill with society and your customers. The setting of voluntary industry standards is another way to boost your image. Many companies do that today. And it helps separate sustainable-friendly businesses from those that are not.

Exxon and Chevron, some of the biggest polluters have some of the most sophisticated green publicity programs. And they seem to work. Strategic marketing can make your company more proactive, enhance its brand, and facilitate goodwill. That’s the value of strategic marketing.

Conclusion of supply chain sustainability regulations

Thinking strategically will position your business for success. You’ll be more proactive, deliberate, team-focused, and customer-centered.

Your supply chain will cease to react when disruptions strike. In deliberately re-designing your supply chain, you will reinforce old capabilities and build new ones that can cope with the demands of the New Normal.

You’ll build resilience into your supply chain and other capabilities, like agility or responsiveness, that benefit you and your stakeholders.

But which capabilities should you develop? Your customers’ demands and the threats you face will inform you of the capabilities needed to survive.

The lines between internal and external operations will blur with open communications. You will value customers’ ideas and inputs as much as those of your staff and partners. It’s a new world, and now is the time to swiftly adapt or risk falling behind.

Now that sustainability has become a strategic issue, you must treat it as one. Gone are the days when you relegate sustainability concerns to a matter of minor import.

Sustainability regulations can make or break a company. They can propel your business to the leading edge or consign it to the dustbin of failed businesses.

Managing regulatory control of sustainability issues is essential but complex.

So how do you redesign your supply chain for sustainability without running afoul of regulations?

At American Global Logistics, we track trends, like those concerning sustainability. Our aim is to stay ahead of trends so we can position our clients for success.

We carefully track sustainability regulations and assess their impact on supply chains. We also recognize and appreciate that sustainability is essential and complex.

Why face this daunting task by yourself? Instead, consider partnering with a trustworthy partner like AGL. We’re strategic-minded, and we know what to look for and how to convert risk into opportunity.

We do it for our customers daily, and we can do the same for you. We can help you gain a competitive edge and position you for success in the New Normal.

Contact us today to find out how we can help you benefit by approaching sustainability from a strategic view.

Impacts of Sustainability Regulations on Supply Chains

Since the 1970s, with the creation of the Environmental Protection Agency (EPA), environmental issues have gradually grown in significance. Today, environmental issues have become a global concern with a focus on supply chain sustainability regulations.

The unfolding energy crisis in the EU (Natural gas) and the US (diesel fuel) has brought sustainability issues from low-to-moderate concern to a high priority. As supply chains transition to a post-pandemic marketplace, businesses must treat sustainability as a key strategic issue.

Sustainability ranks coequally with profitability and customer service. As the transition to the post-pandemic world finds itself in the beginning stages, now is the time to consider sustainability in redesigning your supply chain for resiliency.

The purpose of sustainability regulations in logistics and supply chains is to reduce the impacts of logistics and supply chain operations on the environment and society. More recently, as sustainability has grown in importance, stakeholders also view the economic aspects of sustainability regulations.

There’s no question that sustainability is a critical component in the logistics and supply chain space.

Therefore, we’ll explore the impacts of sustainability regulations on supply chains. That’s a broad scope that we can’t cover in one blog post. Covering regulatory control over supply chain sustainability requires extensive review and analysis.

To make sense of sustainability’s impact on logistics and supply chains, we’ll address the relevant issue in three parts. 

First, we’ll cover the types of regulatory control along with their costs and benefits. Then we’ll address the short-term impacts of regulatory control on sustainability issues. 

In next week’s post, we’ll focus on the long-term effects of the transition to sustainable supply chains. After that, we’ll provide a future outlook for the effects of regulations on sustainability on supply chains

Types of regulation

Before getting into a discussion of the effects of regulation, let’s briefly review the three types of regulation that affect businesses. 

First, we have governmental regulatory control. This represents the most widely used form of regulation. It is also the most formal, as it's backed by the full force of the government, with regulations having costs and benefits. Governmental regulations are mandatory and include both punitive and non-punitive measures. 

Finally, many governmental regulations issue outcome-based regulations. This gives business leeway to decide “how to” implement regulations based on conditions affecting them, which the government may not understand or appreciate. Government regulations tend to weigh in on the side of sustainability over economics.

Next, we have market-based regulations, which seek to foster sustainability goals via a market-based mechanism. Mechanisms include incentivizing market behavior via prices and economic efficiency to achieve sustainability goals. The emphasis lies in encouraging behavior modification through incentives as well as costs. 

One way to do that is via taxes and subsidies. Market-based approaches tend to consider costs and benefits, which typically result in a slower transition to end-state goals. That is, they work hand-in-hand with regulation.

Finally, we have non-regulatory controls that influence industry standards. Although they’re classified as non-regulatory, they regulate businesses if they set goals and objectives for the future that can have competitive implications. 

Businesses that adopt non-regulatory controls are apt to benefit at the expense of businesses that fail to do so. Non-governmental regulation sets aspirational goals rather than mandatory edicts. It relies on market competition and social costs to encourage compliance. This approach favors a balanced approach and possibly one that slightly favors economics over sustainability.

1) Supply Chain Risks Increase in Frequency and Intensity

According to various informed sources, supply chain risks are on the rise both in frequency and intensity. On the surface that bodes ill for supply chain stakeholders. Delving deeper into this issue, proactive shippers, 3PLs, etc., will find a proverbial silver lining in the cloud.

This change in supply chain management emphasizes anticipation over unpreparedness and responses that are proactive vs. reactionary. And being anticipatory and proactive are elements of resilience that you can build into your supply chain. That can eliminate, prevent, or mitigate risk.

In his book called Risk, GEN Mc Chrystal talks about this. He advocates changing your perspective of risk and viewing it as a part of normal daily operations. He refers to it as a Risk Immune System. His approach advises against treating risk as something foreign to supply chain management. Rather, he advises building processes that act more like an immune system that abates risk by employing existing capabilities. No new capabilities or special processes are called for.

One difference is taking care to ensure new solutions include sustainable ways to address risk. That means streamlining and optimizing business practices. It means considering moving warehouses closer to the customer. It means diversifying sources such as suppliers and fuels. And it means using IoT (Internet of Things) to facilitate proactive maintenance by fixing things before failure occurs.   

2) Infrastructure

Supply chains aren’t supply chains without infrastructure. You can’t transport, receive, store, and issue inventory without a proper infrastructure. Infrastructure represents the backbone of logistics and supply chain chains. Infrastructure includes roads, rails, bridges, dams, seaports, airports, and communications networks.

So, it makes sense for supply chains to function properly, infrastructure must be serviceable. More than that, as the backbone of supply chains, it must be in robust condition. However, today’s infrastructure in the U.S. is aging and dilapidated in places. 

To remedy these deficiencies, the federal government and state governments have and are entering into partnerships to rebuild and repair infrastructure. In doing so, addressing environmental concerns is a major factor made possible by partnership. 

Sustainable infrastructure reduces the impact on the environment and promotes resilience. Some examples are the use of solar and wind power to generate electricity. The redirection of traffic routes to reduce congestion is another example. And redesigning waste management through the reuse of waste and recycling is yet another example. These are just a few of the ways infrastructure supports sustainability. 

3) Use of federal and state taxes as incentives and disincentives

In changing behavior, levying taxes is a powerful tool. It’s powerful because it has the force of law behind it, and it directly influences corporate behavior. So taxes have a punitive as well as a beneficial effect. 

Tax codes seem to rely on the punitive aspects of modifying behavior. That’s likely because they have a quick short-term effect of ending or curbing non-sustainable practices. Costs to supply chain stakeholders are high, whereas the benefits are short-term. Once prohibitive taxes are eased, behavior will adapt and likely reengage in non-sustainable practices. 

4) The corrosive effects of inflation

Inflation affects sustainable supply chains negatively. It represents a cost that likely was unplanned, increasing the costs of regulatory compliance. In its early stages, inflation might not affect sustainability noticeably. But in the long term expect inflation to have a corrosive effect.

Businesses can absorb the costs initially, as they may not immediately register in daily business. Over time, that dynamic will change with the sharing of costs affecting the supply chain and consumers. When that happens, sustainability may take a back seat to maintaining profitability. 

5) Political disputes/conflicts lead to confusing regulations and policies

Disagreements between liberals and conservatives on sustainability regulation can lead to confused and disjointed regulations and policies.

This may occur as one administration switches to another, as we saw with the swing from the Trump administration to the Biden administration. Wild swings in policy direction can occur because of executive orders that override other executive orders. 

Legal changes legislated in Congress may also result in swift changes when one party controls both houses. Even so, any stakeholder may challenge laws in the courts, stifling and suspending implementation pending judicial review.

Costs of sustainability in the short-term can be high with little benefit to show for them. But the opposite may also be true where costs are less effective than planned because new regulations get caught up in the judicial system.

Using short-term tools such as executive orders is not as effective as intended. At best, regulations imposed with a short-term perspective have a mixed effect on ending or moderating non-sustainable practices.  

6) Pace of adoption 

The time allowed for adoption or the pace of adoption may affect regulatory control of sustainability. Should the pace of adoption be short, you can expect implementation and intended consequences may take longer to take hold. That could undermine the benefits of regulatory control.

In setting the pace of adoption, regulators should balance costs and benefits to ensure an even approach. An even approach takes both sustainability issues and economic ones into account to ensure costs do not exceed benefits. Striving for a balanced approach requires a thorough examination of all the factors that can affect implementation. And the pace of change can be a critical factor coming out of the gate.

7) Resiliency

In the post-pandemic world, resilience reigns supreme. Supply chains that can bounce back from disaster, disruption, or disarray will enjoy a market advantage. As you may realize by now, regulatory control can promote resilience. And indeed it should. 

The strategic objective is to move businesses towards sustainable supply chains in a way that keeps the supply chain operations. Thus, consideration of resiliency should be a primary concern of regulators. 

Resilience accounts for not avoiding risky events but bracing for them and snapping back without turmoil. Achieving resilience through built-in processes modified by regulations should be the strategic goal.

Again, seeking a balanced approach is a worthy approach that can enjoy wide support and facilitate successful implementation. Just as costs and benefits should guide the crafting of regulations, so should a strategic objective like resilience. After all, achieving sustainability goals is what it’s all about.  

Is your supply chain sustainable?

Sustainability has evolved from a tactical to a strategic issue. It now ranks with other strategic principles, such as profitability and customer service. More specifically, you can’t have a successful supply chain without addressing sustainable issues surrounding your supply chain.

Besides focusing on environmental protection, economic costs and benefits are a major concern of regulation. Any viable option must be sustainable from both environmental and economic aspects.

The benefits of sustainable supply chains are clear. But introducing regulations is a challenging task. To avoid burdening businesses with suffocating regulations requires a deft approach that balances green issues with economic concerns.

At American Global Logistics, we deal with many issues that affect performance and profitability. To ensure our clients have leading-edge supply chains, we focus on emerging trends and what they mean to our clients. We don’t just follow the trends, we identify them before they materialize.

We look at risks and opportunities in moving your supply chain in to the New Normal. In particular, we look at how we can convert risks into opportunities. That includes sustainability regulation.

Contact us to learn more about how we can help you transition to a more sustainable supply chain.