The modern world is experiencing rapid changes, and the business landscape is evolving accordingly. As professionals working in supply chain functions, we are adapting to these changes to provide even greater value to our companies. A few years ago, we were required to embrace the General Data Protection Regulation (GDPR) and become well-versed in privacy matters to ensure business operations and regulatory compliance. Nowadays, discussing these topics with suppliers has become commonplace. Looking ahead, the next significant transformation we anticipate is centered around Environmental, Social, and Governance (ESG) principles, particularly with the impending Corporate Sustainability Reporting Directive (CSRD) from the European Union.
Personally, I am delighted to engage in ESG conversations with suppliers, as I have always been an advocate for protecting our planet. I also recognize the significant leverage that those of us in supply chain roles possess, considering our organizations contribute to companies spending over $22 trillion dollars in the United States alone1.
Promoting legislation that supports sustainable development has been a gradual process, especially in the United States. Nevertheless, corporations have a crucial role to play in being part of the solution. The UN Global Compact reveals that there are more than 17,000 Sustainable Development Goals (SDG) participants across 160 countries. These companies have a unique opportunity to not only generate strong economic returns but also to integrate long-term social and environmental value into their operations.
To put this into action, Responsible Sourcing2 has emerged as a popular strategy. Many companies adopt this approach because their supply chain often holds the most significant potential for promoting sustainability.
I am enthusiastic about our contribution to VMware's 2030 Agenda and ESG objectives of Sustainability, Equity, and Trust. Our efforts serve as a key lever to strengthen business resilience, drive innovation, and combat climate change through VMware Responsible Sourcing.
In the last year, our Responsible Sourcing program has made impressive strides in promoting sustainability, diversity, and accessibility. Notably, we successfully launched the Sustainability Supplier Engagement Program, which has been a significant milestone. Additionally, we are proud to share that VMware has been recognized as a CDP Supplier Engagement Leader, further highlighting our commitment to responsible sourcing practices.
The Sustainability Supplier Engagement Program has become a crucial initiative for VMware as we recognize the significant impact our suppliers have on our carbon footprint. In fact, more than 70% of our emissions stem from our supply chain, as per our recent greenhouse gas inventory. Committed to achieving net zero carbon emissions across our operations and supply chain by 2030, we have set ambitious goals for the coming years.
One major milestone is our aim to have 75% of our annual spend with suppliers who have established science-based targets (SBTs) by the end of FY25. Although ambitious, we firmly believe it is attainable through strong partnerships with our suppliers.
Understanding that supplier sustainability requires proactive efforts, we began the journey in FY21 by assessing our suppliers' sustainability practices using EcoVadis' Carbon Action Module. Having this baseline understanding allowed us to develop a strategic action plan.
By the end of FY22, 23% of our suppliers had set science-based targets. The realization that only 5% of suppliers annually take the initiative to set SBTs on their own motivated us to take direct action. To meet our FY25 goal, we implemented various procurement actions, such as enhancing our Supplier Code of Conduct, providing direct enablement to our suppliers, and incorporating contractual language with sustainability requirements.
In early FY23, we initiated a pilot program to explore the effectiveness of direct enablement with our supply network. We ensured a diverse representation of suppliers across industries, sizes, and ownership to understand their unique needs. The pilot yielded promising results, with 73% of participating suppliers now showing interest in or actively engaged in setting their own SBTs.
As a response to the pilot's success, VMware Responsible Sourcing developed a series of educational training and resources to support our suppliers on their sustainability journey. Five training modules cover essential topics, including building a business case for sustainability, stakeholder engagement, SBTs 101, and measuring greenhouse gases. These resources are freely accessible on our Responsible Sourcing Website.
On May 5th, we proudly launched the scaled Sustainability Supplier Engagement program, utilizing Watershed, our supplier resource portal, and a custom automated communications platform developed by Bridge Partners. We plan to roll out the program in stages, gathering feedback to optimize interactions. Our goal is to engage 90% of our suppliers (by spend) in FY24, solidifying our commitment to sustainability and responsible sourcing practices.
Being recognized as a CDP Supplier Engagement Leader is a testament to our commitment to sustainability and responsible sourcing. Beyond the Sustainability Supplier Engagement Program, we have expanded our impact in several key areas.
Collaborating with Procurement, we have incorporated new contractual language related to environmental considerations in our Supplier Code of Conduct. Additionally, we have introduced a Supplier Sustainability Addendum (SSA) that specifically supports and encourages suppliers to set science-based targets. This SSA is currently being implemented with our highest-spend suppliers.
Furthermore, we are actively engaging our suppliers in completing an ESG assessment through EcoVadis. Additionally, we have launched a new program to enhance sustainability in our promotional and giveaway items.
The combined efforts across these initiatives have earned us the recognition as a Supplier Engagement Leader by CDP. This acknowledgment places us among the top 8% of companies assessed for their engagement on climate change, based on our 2022 CDP disclosure. It serves as a strong indication of the progress we are making towards our supply chain emissions goals and underscores the collaborative efforts of our various teams.
With the direct engagement and education provided through our scaled program, we are confident in achieving our 2025 goal. We firmly believe that all of us must play a part in fighting climate change. Therefore, we encourage you to explore our Responsible Sourcing site for guidance, and you can learn more about VMware's ESG efforts here.
References:
[1] Kramer, M. R., Agarwal, R., & Srinivas, A. (2019). Business as Usual Will Not Save the Planet.
[2] The term Responsible Sourcing, as used here, encompasses Sustainable Sourcing, Sustainable Supply Chain, Sustainable Procurement, Sustainable Supply Chain Management, Responsible Supply Chain, Responsible Procurement, and Responsible Supply Chain Management.