Many Financial Institutions (FIs) today, especially the commercial Banks in Nigeria, claim to implement sustainability in operations and all functions of the bank which have been exhibited lately in either their stand-alone sustainability reports or Integrated Reports, but many have so far left a vacuum in linking the implementation to their supply chains. FCMB is one of the very few commercial banks that have identified how important sustainability is to its supply chain. A few years ago, the bank established a yearly “FCMB’s Vendors’ Sustainability Forum-VSF”. It is a yearly stakeholder’s engagement platform where all vendors of the bank are invited, hosted and trained on sustainability practices. The essence is to minimize cost, ensure quality of delivered products and services, improve speed of delivery, instill health and safety culture, cut down on emissions amongst others.

If Supply Chain Sustainability (SCS) is so important, what does it really mean? SCS is the management of environmental, social and economic impacts, and the encouragement of good governance practices, throughout the lifecycles of goods and services. The objective of SCS is to create, protect and grow long-term environmental, social and economic value for all stakeholders involved in bringing products and services to market- UNGC.

It is important to note that we are now in the era where environmental and social risks translate into reputational risks, credit risks, and financial risks to financial institutions.

For Financial Institutions, many environmental and social impacts do not come from direct operations but from their supply chains. It makes a good business sense for FIs to expand their sustainability efforts to their supply chains, which can be exposed to a number of environmental, social, and governance issues that present significant challenges and opportunities. Considering, for instance, the purchasing power and the number of suppliers that many of these firms have, responsible/sustainable choices can have huge impacts.

Main Sustainability Issues of the FIs Supply Chain

• Greenhouse gas emissions (GHG): From energy consumption, to transportation of goods, courier services, armored vehicles, employee commutes, and business trips all contribute to GHG emissions.
• Human rights: Some of the main challenges related to human rights include providing a healthy and safe work environment; guaranteeing a diverse workplace and fostering non-discrimination, preventing harassments etc.
• Data privacy and security: A vendor’s ability to protect sensitive or personal data to prevent issues such as privacy intrusions, cyber-attacks, and frauds should be a key criterion in the supplier selection process.
• E-waste and conflict minerals: Electronic scrap components such as CPUs, monitors, printers, etc., contain potentially harmful materials such as lead, cadmium, beryllium, or brominated flame retardants and is often handled in crude, informal, and unsafe
• Security: Using third-party security personnel introduces an additional component of risk and FIs cannot avoid employing security staff to protect branch offices and guard money that is being transported.
• Unsustainable practices in facilities and property management: Choosing the wrong suppliers to handle the design and construction of facilities can have significant repercussions on sustainability.

A few practical case studies showing the risks of unsustainable supply chain are:

1. The case of Ecobank Plc., when fire engulfed its Headquarters in July 2018. A tanker with 33,000 litres of diesel, while trans-loading, had caught fire as a result of some technical fault from the tanker.

The negative impacts measured here are:

• Service disruption for about 3 hours which resulted into financial loss
• One of the industrial generators of the banks was damaged,
• Panic from customers and stakeholders,
• Increase in carbon footprint of the bank as a result of the excessive fire,
• Pollution of the drainages with spilled diesel,
• Wrong perception of lack of safety culture and consciousness etc.

2. A Scaffolding Accident at Unity Bank’s Head Office. This happened during routine maintenance on the Head Office building at 42 Ahmed Onibudo, VI. The maintenance was carried out by a subcontractor to Highpoint Properties Limited. Sets of scaffolds being mounted by the technicians collapsed mid-way, 3 persons fell from the platform sustaining various degrees of injuries.

The negative impacts measured here are:

• Reputational damage as the impression was that the bank engaged quacks and unqualified contractors to carry out such project
• Financial loss as the bank had to foot the medical bill of the accident victim
• Backlash from stakeholders for not putting in place due-diligence to ensure quality, health and safety standards
• Negative picture painted by the media which is a reputational damage on the bank.

3.      Another example is the report from one of the national dailies and online media Premium times who reported on its online platform on the 6^th of January 2019, with the title “Menace to Society… Who will Save GTBank Customers from their Security Men?” In that report, there were instances where customers gave account of series of extortions, harassments, embarrassments etc. caused by the security personnel of the Guarantee Trust Bank.

The negative impacts measured here are:

•         Human rights violation and

•         Reputational damage which would have resulted into customer loss and financial loss

4. There is also a case of a Microfinance Bank that engaged the service of a Software Developer towards deploying Internet Banking Software for the management of banking transactions. Barely two years into the deployment, the system was hacked and compromised, customers fund were fraudulently transferred, and hundreds of millions of Naira stolen.  Investigations revealed that the Vendor who developed the software was complicit in the crime with the aid of IT staff of the bank.

Negative impact recorded here are:

• Security porousness
• Customers lost trust and confidence in the bank
• The bank experienced massive withdrawal of deposits and closing of accounts
• Financial loss to the bank
• Reputational damage etc.

Cases of unsustainable practices by supply chain in financial institutions are numerous and occur every other day. The FIs need to do the needful that will not hamper their operations and smooth running. For financial services, expanding efforts to include their supply chain gives companies a way to further integrate sustainability into their business, minimizing risks and enhancing opportunities that can be derived from supplier relations.

There are several benefits in practicing sustainable supply chain which cut across the triple bottom line (economic, social and environment)

Economic Goals: It helps to reduce cost, improves quality, speed of delivery, flexibility, resource utilization, visibility and innovativeness

Social benefits: Respect of human and workers’ rights, avoid child labour, improve health, safety and working conditions, gender equality, poverty alleviation, etc.

Environmental benefits: Averting Pollution, encouraging environmental friendly products and services, reduction of carbon emission etc.

Common business drivers for supply chain sustainability

This includes:

• Compliance and regulatory risk
• License to operate
• Business continuity
• Efficiencies and opportunities for innovation
• An increased ability to manage business risks,
• Fostering sustainability-driven productivity
• Cost reduction

Some of the risks that are traditionally connected with poor management of the supply chain are damage to reputation, reduced capacity to attract and retain employees, and loss of customers.

Some areas of Supply Chains that Sustainability can be integrated to:

• Raw material sourcing.
• Manufacturing.
• Packaging.
• Warehousing.
• Logistics (Transportation & distribution).
• Retail.
• Consumption.

Proactive steps FIs can take to ensure a sustainable supply chain

• Define sustainability goals.
• Align with company culture, code of conduct, sustainability strategy and materiality
• Comply with regulations and voluntary commitments (e.g., certification schemes)
• Train management and suppliers on market best practices.
• Sanction suppliers if default on standards.
• Designate organisational member in charge.
• Deploy technology to increase accountability, transparency and traceability
• Disclose their efforts using reporting mechanisms, such as their sustainability reports in-line with GRI standards, SASB, the Carbon Disclosure Project (CDP) etc.
• Monitor Suppliers.

Conclusion

In order to make supply chain sustainability a more broadly adopted and more thoroughly implemented business practice, we need to continue our efforts to build a better understanding of the business value created, alongside continued implementation of supply chain sustainability practices. The FIs should be well positioned to address sustainability challenges and minimize risks in its supply chains proactively and should look for opportunities to assess direct savings, ensure quality, safety and model avoided costs associated with their supply chain sustainability efforts to advance practices that create value for their businesses, environment as well as for society.

By Debo Adeniyi

Debo Adeniyi is the Executive Director and the Global Sustainability Leader, at the Centre for Global Solutions and Sustainable Development, (CENGSSUD)

He is a seasoned professional, a Corporate Sustainability and Sustainable Development Practitioner, a trained business strategist, innovator with experience and specialties towards working with the private sector in implementing Sustainability in core business strategy, DNA and operations with a strong drive on values, results, creating compelling overarching aspirations and embedding them in the organisation through change management and empowered leadership to create growth, innovation and operational efficiencies.

He can be reached via debo@cengssud.org, and Full Profile on LINKEDIN