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Sustainable Sourcing -
Risks, Advantages and Focus Areas
Sanchita Banerjee
Global Risk Management Institute • Supply Chain Disruptions and Geo-political
Instability: Sustainable sourcing often requires
Sustainable sourcing integrates environmental, diversifying the supplier base and exploring remote
social, and economic factors into supplier selection. sources, which can complicate communication and
It extends beyond merely acquiring materials logistics, increasing vulnerability to disruptions.
across various industries such as manufacturing, Risks include political instability in sourcing
retail, automobile, electronics, etc. As global regions, natural disasters affecting infrastructure,
supply chains expand, companies face increased and trade wars impacting import-export costs and
risks, including disruptions, cost volatility, threats regulations. To mitigate these risks, businesses
to brand reputation, and compliance challenges. should foster relationships with multiple suppliers
Stakeholders, including consumers, shareholders, across various geographies and build redundancy
workers, non-governmental organisations, into their supply chains. Additionally, staying
trade associations, labour unions, government informed about global developments and
observers, and so on, demand accountability for establishing contingency plans can help reduce
ethical practices, prompting businesses to adopt the impact of unforeseen disruptions.
sustainable sourcing in their supply chain • Greenwashing Concerns and Damaged
management. The ultimate aim is to forget
strong relationships with suppliers by enhancing
performance on sustainability issues. This
commitment to corporate responsibility has
become a core aspect of business strategy, allowing
companies to strengthen competitive advantages,
particularly in sectors with significant outsourcing
like food and apparel.
Risks with Sustainable Sourcing
While the benefits of sustainable sourcing are
undeniable, several inherent risks are present in Reputations: Consumers are increasingly wary
sustainable sourcing, and companies need to be of greenwashing, which involves misleading
aware of those risks. The following are the risks claims about a company’s sustainability practices.
that companies need to be mindful of: Without robust verification systems, unsustainable
practices can harm brand reputation if exposed.
• Increased Costs and Short-term Profitability: Common forms of greenwashing include vague
Implementing sustainable practices often marketing claims, selective reporting of positive
requires an upfront investment. This may include initiatives, and lack of transparency in sourcing
paying a premium for certified suppliers focused methods. To avoid greenwashing allegations,
on sustainability, adopting more expensive businesses must prioritise transparency by
ecofriendly packaging, or investing in renewable publishing detailed sustainability reports,
energy infrastructure. These costs may lead to subjecting them to independent audits, and
higher initial product pricing, potentially harming clarifying their sourcing policies to build customer
competitiveness. Companies must carefully assess trust.
these financial ramifications and develop strategies
to mitigate them, such as exploring cost-cutting • Lack of Transparency and Hidden
opportunities or educating customers on the Unsustainable Practices: Mapping complex
benefits of sustainable products.
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