Sustainable Supply Chain

The ESG Tsunami And Supply Chains - A Chat With Certa Founder And CEO Jag Lamba

September 19, 2022 Tom Raftery / Jag Lamba Season 1 Episode 255
Sustainable Supply Chain
The ESG Tsunami And Supply Chains - A Chat With Certa Founder And CEO Jag Lamba
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Show Notes Transcript

ESG is coming like a juggernaut, it will affect supply chains significantly, and many supply chain professionals are unaware of the changes it will require.

To find out more I invited Certa Founder and CEO Jag Lamba to come on the podcast.

We had a fascinating conversation covering Jag's company Carta, then we discussed what Jag refers to as the ESG Tsunami (what I refer to as the Sustainability Imperative), and its impact on organisations.

I learned loads, I hope you do too...

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Jag Lamba:

All the key stakeholders of an enterprise, which are employees, clients, and investors. All three stakeholders care deeply about ESG, right? There's a ton of data that basically points to it. There's massive investment funds being launched that are committed and contractually committed in most cases that will only invest in businesses that are making progress on ESG

Tom Raftery:

Good morning, good afternoon, or good evening, wherever you are in the world. This is the digital supply chain podcast. The number one podcast, focusing on the digitization of supply chain. And I'm your host Tom Raftery. Hi, everyone. Welcome to the digital supply chain podcast. My name is Tom Raftery and with me on the show today, I have my special guest Jag. Jag. Welcome to the podcast. Would you like to introduce yourself?

Jag Lamba:

Hey, Tom. Sure. Hi, I'm Jag. I'm the founder and CEO of Certa. It's a third party life cycle management, software firm, mainly focused on supplier cycle management. Previously I was a consultant with McKinsey and an investor, but my background is more of a engineer and a product manager. And I live in the San Francisco bay area.

Tom Raftery:

Okay. Fantastic. Why did you set up Certa?

Jag Lamba:

So I was a bit surprised and, you know, dismay by how difficult Tom, it was for two companies to work with each other. It was shocking. And when I sort of unpacked that, you know, why is it so hard? Why does it take three to six months for an enterprise to onboard and start working with a supplier I realized that, it's all the risks that an enterprise needs to mitigate. And I then realized that, oh, well, that's a software problem. And it's a problem worth solving because, you know, if you can bring down the, sort of the ease of working with others, Then the world becomes a bit more equal, especially for smaller suppliers, like, especially for more innovative firms. Right?

Tom Raftery:

Yeah. You're getting rid of friction.

Jag Lamba:

Yes. Yes. And you know, I mean, it is a great point, Tom, if you get rid of friction in this critical B2B sort of commercial economic process, Any removal of friction actually leads to the world being better and more wealth creation right. For all sides. So the whole idea is to remove the economic friction, to make the world a little bit more equal, you know, I'm all for it.

Tom Raftery:

Mm-hmm okay. And what kind of processes cause that friction typically that you can help get rid of?

Jag Lamba:

Yeah. So when two companies decide to work with each other, they need to mitigate, all the, of course the compliance risks, the data and security risks, the contract risks and the data resiliency, sort of finance risks. Also reputational risks that you don't wanna be working with firms. You know who you don't wanna be associated with. So Tom in a firm, in a large enterprise, there are different groups and different systems. That basically mitigate each of those risks. So a big cause of the friction is that the case gets passed from within different groups within the enterprise and across different systems. And, you know, not only does that slow things down, but it's also opaque to the business manager who wants to onboard the supplier and get started. Right. And, so the business manager is unable to plan their projects because of that opacity. So we make this process, extremely transparent. We streamline it. We connect all these data sources and groups within the enterprise together. And, some of our customers are able to see up to 70 to 80% improvement in cycle times by using Certa.

Tom Raftery:

Oh, fantastic. Fantastic. And. You talked in the prep call, you talked particularly about what you called the ESG tsunami. What do you mean by the ESG tsunami?

Jag Lamba:

Yes. So, you know, the risks that exist today I think are gonna be dwarfed by what is coming, which is, you know, related to ESG. So 70% of an organization's ESG impact is dependent on the supply chain. So with the upcoming regulation, both, in the United States, with the SEC and in the European union with the CS R D proposal, Companies will need to gain a ton of ESG data, not just internally, but from their supply chain, because that's where 70% of the impact lies. And that's going to become a big sort of, if you will activity and unfortunately, a source of friction and problem going forward not only in selecting the right suppliers, but in collecting the data from existing suppliers and then figuring out which ones to retain, what are the standards that companies need to push to their suppliers. So this is what, you know, we call the ESG tsunami, which I think it's gonna have a bigger impact on companies than even the Sarbanes Oxley regulation or the GDPR regulation.

Tom Raftery:

So, Jag I mean, I've talked at various events about this legislation that's coming, but for people who might have not heard that, can you explain what is this legislation that's coming in the EU and the US that are going to cause these issues for companies.

Jag Lamba:

So, just to take a step back, right? All the key stakeholders of an enterprise, which are employees, clients, and investors. All three stakeholders care deeply about ESG, right? There's a ton of data that basically points to it. There's massive investment funds being launched that are committed and contractually committed in most cases that will only invest in businesses that are making progress on ESG.

Tom Raftery:

Yeah.

Jag Lamba:

On top of that, the regulators are demanding transparency. So these disclosures are similar to financial disclosures. Yeah. You don't have to do great, but you have to disclose how well are you doing on the ESG sort of spectrum. Right. So that is gonna become transparent to everybody, who actually can sort of read your quarterly reports going forward. So what that means is your key stakeholders, which is clients, investors, and employees will have access to those disclosures. So that's why it's so important to take action on ESG now because you not only have to disclose, but all your key stakeholders will require you to make improvements in your, ESG profile and you know, your sustainability impact in the world. So what the regulation is, is, is, is purely it it's similar to like financial disclosure regulation, right? Which is you just need to disclose how well are you doing on ESG? And that applies to the suppliers as well, because you know, 70% of the ESG impact actually depends on your supply chain. So you'll have to sort of disclose that. And, you know, the world will then see if you're making progress.

Tom Raftery:

Yeah. Yeah, yeah, yeah. And, and the S E C proposals, which came out a couple of months ago at this point, stated that the large companies need to start disclosing next year, 20, 23 and small all. So from 2023 onwards, and then. Companies that are not large companies, but are publicly traded all the others. They will need to start reporting from 20, 24 and a year after that for each. So from 2024 for large companies in 2025 for smaller companies, they'll have to report out to scope three and the reports will have to be auditable. If I remember correctly from what the proposals were and that's enormous. A, nobody knows how to report to scope three and B no. One's had audited ESG reports before, as long as I'm, as far as I'm aware.

Jag Lamba:

Yes, so Tom, the, the thing is even though those are the timelines that stated by the sec, and they're coming pretty soon.

Tom Raftery:

Mm.

Jag Lamba:

Every organization is already on this. Like every large organization is already on this and they are, they're looking at you know, the supply chain and scope three emissions today. So. such a large portion of our economy is determined by these large enterprises. Right. And if they're looking and you know, they're collecting data from their supply chain, which is their scope three emissions, then the, the big impact is gonna be felt next year. And, you know, , I don't think we would have to wait until the year after, or the year after, you know, sort of 20, 25 because I don't think people are gonna wait until 20, 25 and we are seeing our clients not wait. You know, they're actually almost every large enterprise and mid-size company is taking action now. And they're extending this to their supply chain now.

Tom Raftery:

Interesting, and like I said, I think the fact that these reports have to be audited means that it shifts because what it used to be known as, before the ESG terminology came along, it used to be CSR. And typically whoever was responsible for CSR reported into the CMO that was, in, in a lot of organizations, that was the, that was where the, the CSR reports came from. It came from the C CMOs organization. But now that these reports need to be audited. You're gonna start to see that function shift to the CFO's department, no?

Jag Lamba:

A hundred percent that this will have to be, this will take the same importance as your financial statements. It is gonna be under the CFO organization. yes, it's gonna lead to a whole new business line for the audit firms, but I think it's all good for the firm. Right? It's all good for the world. not just for the firm, but good for the world because there's gonna be a lot more discipline in terms of you know, what you disclose. And the state of the ESG reporting initially will be where financial reporting was in its early days. Right. People who didn't trust it, people were skeptical of it. A lot of people thought it was, you know, scammy, but it's, you know, these are the, this is the way the world works. Right.

Tom Raftery:

It's evolution.

Jag Lamba:

proved. Yeah., it's progress happens gradually and this is, this is massive progress. So it's all, it's all great for the world. Yes. There's gonna be you know, additional impact on the companies, you know, additional burden on the companies to collect this information. Additional fees that'll have to pay to the auditors. But when you look at, the, the wider impact on our world I mean, I just, I just don't see any better use of company's resources. We're excited about

Tom Raftery:

Yeah. And, and, and it's a level playing field as well. I mean, everyone gets hit with it the same. So yes, there is a burden, but everyone gets hit the same. So it it's a level playing field in, in that respect. So I, I think it's a, ultimately, it's a really good thing, as you say. and it exposes the, the data to the investors and to the employees who are key stakeholders, as you say, as well as customers in, in every organization. We're starting to see investors sit up and take notice too, right? I mean, you mentioned that there's a lot of money heading this direction at the Glasgow climate summit last year, you had the founding of what's called GFANZ, where GFANZ stands for the Glasgow Financial Alliance for Net Zero. And that was a grouping of 450 investment firms who had 130 trillion dollars under their aegis for investing. And they're making sure that 130 trillion is only going to net zero projects. I mean, that's, I, I wanna say that's enormous, but 130 trillion is obviously enormous. It kind of redundant saying it's enormous, but that's enormous. Right?

Jag Lamba:

It is, it is. And, you know, we are seeing, because of that, we are seeing that, all the competitive advantages or many competitive advantages, advantages, shift to firms that have taken the lead on ESG. So the impact of, you know, having all this additional capital available to these firms mean that your cost of capital has reduced cuz you just have more capital available. So if you're doing good work in ESG, you're gonna have lower cost of capital available, you know, maybe better investors as well, better employees. And, you're gonna actually get more work with clients for B2B firms and, you know, even for B2C firms because customers are demanding it. So there are some firms, you know, I mean, a, a few firms come to mind that have just taken this. Not as a compliance and risk mitigation problem, but they're considering this as strategically important for their firm. And they've taken the lead on this. And, you know, one of the sort of shiny examples of this that, you know, constantly comes to mind is, is Unilever, right? You know, they they've built this muscle over time. Many of their decisions, you know, I would say most of their decisions within the firm actually go through this ESG lens. They've figured this out, and they're gonna have a, a competitive advantage over, you know, many of their competitors, because who are still trying to build this muscle. It's real in some firms like Unilever and those firms are gonna attract the best people. They're gonna attract lower cost of capital. You know, the customers are gonna lean more towards them. So I think the firms who consider this a compliance and risk mitigation problem are gonna miss the mark. Like you really need to wholeheartedly jump into this with systems processes, and people is as important as financial discipline has been for companies. ESG discipline is gonna be a strategic advantage hundred percent.

Tom Raftery:

Yeah, yeah, no, I, I run another podcast called the climate 21 podcast. And on that I interviewed a guy called Ken Pucker. And he talked about when he was COO of Timberland. And he was COO of Timberland back in the early days when Timberland embarked on its sustainability journey. So we're talking the early two thousands and they started to do things like report on their emissions, which very few companies had done before. He said that they couldn't report on scope three, which actually made up, he said around 95% of their emissions, because they just couldn't get access to that data. But even the, the 5% that they were reporting, he said it got them a name in the marketplace of being a company, which had a huge sustainability mission. And he said that that, that was who they were genuinely that's who the CEO was, you know? And he said that one amazing aspect to. Was that anytime they advertised a vacancy, he said the applicants who applied for that were far above anyone, they should have expected to apply for the role that they were advertising because they had this name of being a sustainable organization. People wanted to work for a company, they felt had a purpose. And so he said their costs of recruitment and retention dropped enormously as a consequence. So it is, it, it it's very much what you're saying. There it's employees. It's also customers as well. Similarly, he said the same thing about, they had no problem getting and keeping good customers as well. So, you know, it's, it's both sides and it's the shareholders. It's really something that people need, or organizations need to embrace.

Jag Lamba:

Yeah. I mean, the, benefits are absolutely clear, right? and what's driving, Tom, the benefits I think is, most people and companies, you know, I mean, companies are. Of people, right? So most people in companies are now looking to work with others whose values align with theirs, right. It's gone beyond, making money and sustenance, right? So, companies and peop you know, companies are gonna get better. People, you know, vendors are gonna get, better deals, better clients et cetera. Then there's the downside of not doing this. So let's consider the downside of not doing, you know, enough, right. Or, or trying to greenwash.

Tom Raftery:

Yeah.

Jag Lamba:

So I, quick story, like I, I was talking to the chief operating officer of one of the largest investment management firms in the world. Okay. So super senior person, you know, trillions of dollars under management, I think like 1.5 plus trillion, right? And this person had spent the entire past month, the majority of the past month dealing with a greenwashing issue. So someone there was a whistleblower within the firm that said, oh, well, it's. It's truly, you know, they're sort of trying to greenwash some of their investments so, this has to be a muscle that's developed internally. I mean, this is an example of an investment management firm. Of course, you know, that flows down to the companies that they're investing in. So they're gonna be super diligent about each company. Truly being committed to, you know, the ESG cause to NetZero to meet their, you know, metrics that they've, you know, sort of agreed to when they took the investment from the company. Right. And the cost of not doing it is it can be fairly catastrophic. So, I think there there's so many parallels, right Tom. In the early days, the companies that were not so careful with data security, data privacy, I mean, When a few CEOs, CIOs got fired, you know, you know, there were some high profile cases, you know, now everybody's super tight on that, right? It's not, it's a non-starter so, you know, ESG is gonna go there and I think, and beyond.

Tom Raftery:

Yeah. Yeah, yeah, yeah. Yeah. Is this a flash in the pan or is this here for the long term?

Jag Lamba:

Yeah, this is, this is gonna be one of those you know, I think similar to a combination of financial reporting, you know, it's, you know, it's around, it started in, I think the 1930s, and it's still going strong

Tom Raftery:

Mm-hmm

Jag Lamba:

and like data security and data privacy. Cause it has both elements to it. It's called the regulatory element to it. Right. And it's got the self-preservation of the firm sort of element to it. So it's got it's I think it's gonna be a combination of, I mean, you can imagine how, so long lasting and how powerful an impact's gonna have on firms, right? When you sort of combine, all your key stakeholders plus regulators, and it becomes a self preservation for the company and also, you know, the directors of the company. I mean, it's hard to overstate the importance of this, but Tom, we have a long way to go unfortunately, not a lot of people see it yet. So, you know, if you're listening to this podcast and you haven't taken action, it's not too late.

Tom Raftery:

So what should you do if you're listening to this podcast and you haven't taken action, what are first steps?

Jag Lamba:

So I think, let me, so I, I, I actually give a talk about the upcoming ESG tsunami at, at procure con you know, which is like, you know, one of the larger procurement conferences in the US, right?. And, you know, at the beginning of the talk, to a whole bunch of procurement leaders, you know, I basically tried to poll the audience and said, okay, how many of you have heard of scope three emissions? How many of you know what that means? And only about like 40%, I think of the audience raised their hand. So 60% of supply chain professionals, leaders in large firm have never heard of scope, 3 emissions. So yes, it's not too late to take action. you're not gonna be behind you go. You're almost gonna be, you know, I mean, even though, the time for action was yesterday, but you know, it's not too late. Right. Because, you know, so you, you, you need to take action. So. As with most things, you know, as with most change management efforts you obviously need need some buyin from the top, you know, you'll need some investment dollars, right? So that, I think that most CEOs committing to net zero and, you know, for the first time Gartner has said, Every single company is on the path to net zero. You know, it's like an unqualified statement. So, I think getting buy-in from the top is not gonna be a problem. In fact, at most companies, the pressures coming from the top and the, you know, the folks really don't know how to do it. Right. But if, if the pressure isn't coming, you know, so let's gain alignment right on what we wanna do. The second thing, you know, as, as a former consultant, as a technologist now, you know, you need to look at, you know, people process and, and systems, right? So you need to start putting them in place. Once the goals are well defined and, a good goal to start with and get the organization aligned behind is let's make sure at the beginning that we, we are doing what is required. By the regulators, right? Let's at least start there. I mean, Maybe without this people are gonna start getting fired in the company, right. It's gonna get into a lot of trouble. So let's just start there. And I think a good place to start, you know, the SEC regulation, even though it's 500 pages, it's actually nicely written. It's an easy. Easy read the European CSR recommendation. I mean, that's written like, you know, like a, like a lawyer. So anyway, I mean, so you need, need a lawyer to understand those, but the SEC is actually written in plain speak and I, and you know, I love that. So, you know, start there, start engaging with vendors and peers working on this. I think, you know, the industry would come up or determine what is the standard, right? Um, commercially acceptable level of effort. And, you know, you sort of, you know, stay with your peers there and I think the organization, it shouldn't be too hard to get an organization behind. We need to meet a regulation.

Tom Raftery:

Yeah. Yeah.

Jag Lamba:

it's so let's, let's start there. And then obviously, you know, hopefully that, you know, you'll see, start seeing other impact, another positive impact. Working on ESG within your organization. You know, all the things that we talked about, which is, you know, better, um, you know, better talent, lower cost of capital, you know, easier to get clients and all that. And then hopefully it'll snowball into, oh, well this is, this is a strategic advantage and it, it takes a while to get there. So if you're just getting started, the first place I would go is the SEC regulations

Tom Raftery:

Nice. Nice. Very good. Jag, we're coming towards the end of the podcast now, is there any question I have not asked that you wish I had or any aspect of this we've not touched on that you think it's important to highlight?

Jag Lamba:

I think the only thing Tom that comes to mind is, you know, a lot of folks right now in supply chain. Are trying to solve the supply chain disruption issue. Right. And that's caused by, you know, some of the, the geopolitical situation with the wars, et cetera, and the additional sanctions and stuff. and also, you know, somewhat by, you know, still sort of reeling from some of the effects of the pandemic and, you know, the financial issues related to inflation cetera. Right. And it's been so hard. To get data from the supply chain related to, especially related to, you know, your sub-suppliers, which is, you know, subcontractors, cuz they could be in a, either a geographically, less stable area, um, or you know, the owners of the company where, you know, the owners could be sanctioned. Right. And you might not know that the supplies owners are sanctioned or they in a country that sanctioned et cetera. Right. So it's been so hard to get reasonably simple data, you know who the sub suppliers are like, who the subcontractors are and who the owners of your suppliers are. And most companies, many companies haven't solved that fully. So you can imagine the amount of effort it would take now to understand the carbon impact. From these suppliers, which is a much more intense burdensome operation. So you've got to get started now, you know, if you just compare it to how difficult, just. Simple ownership data and subcontracted data has been to collect you know, imagine this will be 10 X more difficult, so you'll need to start putting the, the, the processes together, the systems together. So just, I think, you know, learning from, the transparency in supply chain issue and how difficult it has been to gain more transparency. you just have to act now.

Tom Raftery:

Cool. Cool, great. Jag, if people want to know more about yourself or about Certa or any of the things we talked about in the podcast today, Where would you have me direct them?

Jag Lamba:

Sure. I mean, the, the simplest is, you know, connect, via LinkedIn, you know, I'm slash J Lamba on LinkedIn. So, you know, just J Lamba is my sort of, you know, sort of the, the URL or the EAL Twitter handle. And you know, on, on email is JAG, which is like, you know, the, like the car Jaguar JAG, geter.com.

Tom Raftery:

Okay. Super great. Jack. That's been fantastic. Thanks a million for coming on the podcast today.

Jag Lamba:

Great talking to you, Tom. Thanks for having me.

Tom Raftery:

Okay, we've come to the end of the show. Thanks everyone for listening. If you like the show, please, don't forget to subscribe to it in your podcast application at choice to get new episodes, as soon as they are published. Also, please don't forget to rate and review the podcast. It really does help new people to find the show. Thanks, catch you all next time.

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