Sustainability topics within the logistics Industry
The burning of fuels for transportation with our cars, trucks, ships, trains and airplanes is currently responsible for around 20% of total global greenhouse gas emissions and not expected to decline in the foreseeable future. A 2020 report by the World Economic Forum even estimates that by 2030, the growing demand for online retail will result in a 36% increase in the number of delivery vehicles needed in the 100 largest cities globally. This is equivalent to a 30% increase in the carbon emissions within these cities. What’s more, an increase in fossil fuel-based transportation will also cause a rise in air pollutants, typically responsible for creating smog and in 2019 accountable for around 1.8 million additional deaths globally. While this blog post is not aimed at understanding the impact of logistics in urban areas alone, the situation in cities is often magnified and can therefore be a good indicator for the social and environmental impact for the industry globally.
The good thing is that the narrative is changing as stakeholders demand greener, cleaner and more sustainable modes of transportation. With these shifting priorities, it comes as no surprise that logistics companies are now trying to understand which issues have the biggest impact on their business, the communities in which they operate and, on the environment.
At Sparq360, we decided to assess exactly which environmental, social or governance (ESG) topics are considered most material for the logistics industry. ESG material topics are those which are considered important to stakeholders; or that have a significant impact on the economy, environment or society. We conducted a benchmark analysis covering 25 of the largest global logistics companies including but not limited to Maersk, UPS, DHL, Knight-Swift, VOS Logistics, and Keuhne & Nagel. While we present each ESG topic individually, none should be considered in isolation. The topics are increasingly interconnected as one can easily influence another.
Similarly, the material ESG topics are also likely to change in significance overtime. The global focus at the moment is very much on reducing greenhouse gas emissions but as a company it is necessary to know that there are many more sustainability topics that are equally pressing and will likely become important to address in the medium to long term. Therefore, each topic should be assessed from a scenario-based perspective to understand how its importance may shift overtime.
Environmental topics highlight how a company interacts with the planet in terms of the greenhouse gases they emit, how much energy they use or waste they produce. The most frequently mentioned topics are outlined in the chart below.
Unsurprisingly, greenhouse gas emissions are seen as the most material environmental issue that should be addressed by the logistics industry. Almost all the companies assessed had goals in place aiming to reduce their scope 1 to 3 emissions by increasing the share of sustainable fuels, transitioning to renewable energy at warehouse sites (energy management) and electrifying their last-mile delivery solutions.
Some companies also mentioned biodiversity and ecosystem preservation as a material topic linking ballast water management, noise pollution, loss of containers and accidental spills as items that could significantly harm marine ecosystems in which they operate.
The topic of waste management looks at waste generated from day-to-day site operations. Metrics for this topic were mostly focused on preventing waste from being sent to landfill and reducing waste altogether. Companies also mentioned ship recycling as an important topic to consider saying they had a responsibility in ensuring ships were disposed of properly and parts were recycled for reuse elsewhere.
Resource use was also mentioned specifically by some companies but this topic is very interconnected with others. For example, resource use within the logistics industry aims to ensure efficient use of fuel for transportation. This also directly links to the topic of greenhouse gas emissions and energy management.
Social topics look at the relationship between an organization and its stakeholders, asking questions about health and safety practices, if employees receive equal opportunities and fair wages and if any human rights violations have taken place. The most material social topics for the logistics and transportation industry our outlined in the chart below.
Health and safety is unsurprisingly the most material topic followed by diversity, inclusion and equality, human rights and community engagement.
The health and safety topic includes themes such as reducing the number of road accidents, the lost time injury frequency rate and providing training to educate employees on health and safety risks. Health and safety can also relate to the resources that are available onsite for employees including resting areas and gyms.
The emphasis with diversity, equity and inclusion is on the ability of a company to recognize different backgrounds, cultures, skills and perspectives and giving all equal opportunities within a business. Benefits of an inclusive business are improved company image, more profitability and better customer relations.
Respecting human rights was frequently mentioned in one way or another by the different companies assessed. This topic revolves around fundamentally protecting human dignity, needs and freedoms. Some common human rights risks within the transport and logistics industry include human trafficking, forced labor, working conditions such as unpaid overtime, collective bargaining and land acquisition where new transport networks may disrupt land that belongs to local communities.
Finally, all logistics companies in one way or another will impact the communities in which they operate. To give back and help these communities develop and thrive, various companies donate money, employee volunteering hours or other resources.
Governance topics refer specifically to how an organization is managed and if for example, the right internal mechanisms are in place to ensure transparency and accountability from top management. Other governance topics look into the financial performance of an organization and if customers are satisfied.
The four most material issues for the logistics industry include data security and privacy, governance, ethics and compliance, product innovation and sustainable procurement.
The ethical handling of data security and privacy is considered the most material governance topic for most companies assessed. This topic relates to how a company manages its data, specifically to the management of employee and customer information. Data security and privacy is being used as an indicator for corporate ethics, an issue not previously considered in traditional financial reporting mechanisms.
Governance topics are mostly managed by companies through a code of conduct. The code of conduct outlines the values and policy statements which define the ethical standards for the way business is done. While often voluntary, a code of conduct explains how the company manages the disclosure of information, intellectual property, bribery, corruption, extortion, embezzlement, advertising, competition and other social and environmental indicators.
Innovation drives ESG progress and has the ability to disrupt existing product lines thereby making it an increasingly material topic for companies. Within the logistics industry product innovation is primarily linked to clean vehicle technologies and the ability to offer customer transportation options with much lower carbon footprints.
Sustainable procurement means understanding the environmental, social and ethical impact of the goods, services and materials purchased by an organization. If a supplier for example has a human rights violation, the customer is likely to secede doing business with them. Logistics companies are addressing sustainable procurement by asking the suppliers they do business with to commit and comply with their code of conduct and to undergo extensive ESG assessments.
Curious to know how you can determine which ESG topics are considered most material for your company specifically? Sparq360 has tools in place to help you and define how you can measure your impact towards any of the topics defined above.