Retail Supply Chains Embrace AI to Improve ESG Compliance
A KPMG survey reveals that 90% of organizations plan to increase ESG investments, focusing on better data management systems
The retail sector faces unprecedented pressure to align with growing environmental and social governance (ESG) standards. A recent KPMG survey found that 90% of organizations plan to enhance their ESG investments over the next three years, with a significant focus on improving data management systems using artificial intelligence. This surge in ESG prioritization reflects a keen market response to regulatory pressures and a consumer base increasingly vocal about their preference for sustainable products. Seventy-three percent of millennials say they would spend more on sustainable products, and three-quarters of Gen Z consumers consider sustainability more important than brand name.
Despite the clear demand for more sustainable goods, most brands and retailers struggle to mitigate their supply chains, which is the greatest contributor to their social and environmental footprint. Supply chains account for up to 90% of a company’s environmental impact, yet brands and retailers often remain in the dark about the origins of the very products they sell. To guarantee sustainability, companies must start by mapping their supply chains to the Nth tier, down to the raw material-level suppliers that form the backbone of their products.
Given the complex and fragmented nature of supply chains, mapping material suppliers can be challenging but essential for responsible sourcing. The lowest rungs of the supply chain are where the greatest ethical and environmental abuses are most likely to occur. These blind spots make the concept of a “digital passport,” or a chain of custody for materials, invaluable. By creating a comprehensive digital record that traces each step in the manufacturing process, retailers can ensure that every component of a product meets the highest standards of sustainability and compliance. To achieve this, retailers need greater visibility and better data management.
The data challenges retail businesses face are multifaceted. Brands and retailers are caught between drowning in data without effective tools for analysis and grappling with a scarcity of critical information, especially regarding the origins of raw materials. This predicament complicates compliance efforts and stifles the pursuit of transparent and sustainable operations. On one side, businesses are inundated with data at the Tier 1 and Tier 2 supplier levels, leading to a sort of paralysis where ample data does not necessarily equate to actionable insights. On the other side, the industry faces significant gaps in early-stage data—insights into the origins of materials like cotton or wood for apparel companies remain elusive, impeding retail’s ability to ensure the ethical integrity of products.
For example, documenting the intricate mosaic of farmers, mills, factories, warehouses, and shipping facilities involved in apparel production demands data management and visibility far beyond the current capabilities of many organizations. Digitalization dramatically simplifies the process and reduces the work involved. The right multi-enterprise supply chain platform allows businesses across any retail sector to sift through key data, identify risks, draw connections, and enable more strategic sourcing. These tools are now indispensable for managing the vast amount of information that comes with global supply chains.
Adapting to Evolving ESG Compliance Demands
Digitalization has long presented a strategic advantage for global retailers and brands—a powerful option to create cost savings by automating processes, creating efficiencies, and reducing lead times. In the wake of new global supply chain regulations, digitalization is no longer a nice-to-have but an indisputable necessity. From the European Union's new Corporate Sustainability Reporting Directive to the United States’ Uyghur Forced Labor Prevention Act and the German Supply Chain Act, these laws demand meticulous scrutiny of supply chains to ensure ethical practices and environmental stewardship.
Navigating the complexities created by this fragmented regulatory landscape is increasingly possible only with a multi-enterprise platform’s sophisticated data management tools. A platform like TradeBeyond serves as an intelligent connector of data from ERP systems, supply chain partners, NGOs, and sustainability databases, offering brands and retailers a unified view of their supply chain while tying external data to specific SKUs and purchase orders. The platform’s supply chain maps illustrate the relationships between vendors and factories and visualize key performance and scorecard metrics such as audit results, certifications, and risk levels. This allows compliance managers to see at a glance any vulnerabilities in their supplier base. By centralizing key supplier data, this technology is also instrumental in helping businesses meet their requirements, including Scope 3 carbon reduction goals, allowing them to collect and assess emissions data, implement improvement plans efficiently, and track and measure their progress.
Increasingly, this technology leverages artificial intelligence to introduce greater transparency and traceability into supply chains. AI allows businesses to map their supplier bases more efficiently and document the chain of custody for every order they place. It can sift through large historical datasets and rapidly identify vendors and practices that pose potential ethical and environmental concerns. AI-driven analysis can pinpoint anomalies and draw connections to areas of risk, providing an early warning system to protect brand reputation and ensure ethical operations.
It’s no wonder 58% of organizations report plans to improve ESG data collection with artificial intelligence. This technology has already proven extremely efficient in simplifying and automating data collection and compliance processes. By harnessing the power of digitalization and artificial intelligence, the industry can move closer to achieving true sustainability and meet the demands of an increasingly conscientious consumer base.
Eric Linxwiler is Senior Vice President of TradeBeyond. He has over 30 years of experience in enterprise software and cloud-based platform companies with a specialty in supply chain optimization and workflow management. Contact him at eric.linxwiler@tradebeyond.com.
