Inside Salesforce’s bold play for supply-chain leadership

Energy

Last week, the cloud-based software company Salesforce notified its thousands of suppliers that it will include language in all future procurement contracts requiring them, among other things, to set science-based targets to reduce their greenhouse gas emissions.

And it set financial penalties for those that don’t.

It was an unprecedented and bold move that, if emulated by others and aggressively enforced, could transform companies and markets far faster than any regulation ever could.

Welcome to the growing world of trickle-down sustainability.

Salesforce’s four-page Sustainability Exhibit, as the company called it, asks suppliers to commit to a science-based target aligned with the 1.5 degrees Celsius goal of the Paris Agreement; to develop and implement a plan to reduce “the carbon footprint and the environmental impact” of any products or services provided to Salesforce; and to publicly disclose their Scope 1, 2 and 3 emissions.

The provisions of the legal document won’t necessarily take effect immediately, though they are now part of “all standard purchasing contracts,” the company said, implemented whenever a supplier renews or when Salesforce makes purchases beyond an existing agreement.

Using procurement as an opportunity, if not a cudgel, to push more companies to take more ambitious sustainability actions has long been a strategy leadership companies use to drive change beyond their four walls.

In a letter to suppliers, Craig Cuffie, the company’s chief procurement officer, and Patrick Flynn, who heads sustainability, wrote, “We want to collaborate more deeply with you on climate action,” and asked them “to join us on this journey … by committing to the principles laid out in our Sustainability Exhibit in our next agreement.”

Using procurement as an opportunity, if not a cudgel, to push more companies to take more ambitious sustainability actions has long been a strategy leadership companies use to drive change beyond their four walls. Walmart’s Project Gigaton, for example, aims to cut 1 billion tons of greenhouse gases from its global value chain by the end of this decade. More than 2,000 Walmart suppliers, more than two-thirds of its total, are engaged, according to the retailer. Other companies have created similar, if less ambitious, supply-chain initiatives.

All are designed to send market signals from large companies in the hope that change will trickle down to suppliers both large and small.

But Salesforce’s may be the only one with teeth.

According to the Sustainability Exhibit, a supplier that isn’t in compliance with its terms — a “Climate Breach” — will face a “Climate Remediation Fee” equal to “the cost of carbon credits that must be purchased to offset each metric ton” of carbon emissions, or one-half of 1 percent of the aggregate amount paid by Salesforce to the supplier over the previous 12 months.

‘A little more deliberate’

The Sustainability Exhibit “was born out of a few particular contract negotiations last year, where we were motivated to try to get those suppliers accelerated on their climate action journey,” Flynn told me. Before launching it last week, Salesforce field-tested the agreement with a few key suppliers.

One of those was Herman Miller, the office furniture company, which has been working on its own supply-chain sustainability issues since about 2013, according to Gabe Wing, the company’s director of sustainability. He welcomed the nudge from Salesforce. “It’s personally exciting to see our customers get a little bit more deliberate about encouraging their suppliers to make improvements,” he told me.

For Salesforce, the document was the next logical step in prodding suppliers to help the company achieve its sustainability goals, Salesforce’s Cuffie explained.

“With some of our bigger suppliers, we’ve been on a journey for years and have established programs together. Smaller companies that don’t have the resources to build up a robust sustainability program can still take action. It’s vital that we bring all suppliers along for the journey, as every company has a role to play.” 

Another supplier, Marriott International, the hotel giant, didn’t get an advance look at the new requirements but had been reporting sustainability data to Salesforce for years. “We’re in each other’s supply chain — Salesforce is not only a major customer of ours but also a major supplier of ours,” Denise Naguib, its vice president for sustainability and supplier diversity, told me. “We think it is a really valuable exercise for all of us to work together as opposed to battling each other. Because ultimately, we win when we all do better.”

That seems to capture the spirit of the Sustainability Exchange, as Flynn described it to me.

“Climate leadership today asks to recognize one’s full value-chain impacts,” he said. “And whenever we’re talking about Scope 3 reporting, we’re talking a lot about the customer relationship — either downstream emissions, where you’re trying to understand and change the climate impacts of the customer use of your products and services, or upstream, where you are the customer. Every supplier relationship is a customer relationship in reverse.”

Salesforce, he said, “is poised to help show just how important the customer relationship is to the next wave of climate leadership. And one of the best ways to start is to model that behavior.”

Tomorrow’s customer, today

It’s not coincidental that Salesforce recently unveiled a new Scope 3 component to its Sustainability Cloud product, which helps customers track carbon footprint data. The product was originally created to enable the company to better track its own impacts. “We consider ourselves customer zero of Sustainability Cloud,” Flynn said. Its latest initiative stands to increase demand for the product.

It remains to be seen how much all this actually prods Salesforce suppliers to move further and faster than they might otherwise have done. It certainly feels like a potential game-changer. And, based on my very small sampling of Salesforce suppliers, they may be willing conscripts.

“If you start to think about us having access to more information, better information, and in looking at where the hotspots are, I think there’s some benefits” to the Sustainability Exhibit, Herman Miller’s Gabe Wing said. “It hasn’t been a stick that they’ve chosen to beat up their suppliers with. They’ve signaled where they’re going and why they’re going in that direction. And they’ve been proactively looking for ways to bring us along.”

For Marriott, it sends a signal to its hotel properties that may be more effective than one coming from Marriott’s own C-suite, Denise Naguib explained. “It’s not just corporate telling them, ‘You must,’ but their customers saying, ‘We want,’ which I think is a really valuable piece.”

Patrick Flynn, for his part, believes that Salesforce represents an early look at what supply-chain companies increasingly will be encountering from customers. “The question all businesses should be asking themselves is, ‘Who is your most climate-engaged customer today?’ because before long, all of your customers are going to look a lot like today’s most engaged climate customer.”

I asked Flynn, who wants to see the Sustainability Exhibit replicated by others, how he would view success. He had a ready answer — what he called his “pop the cork” moment: When a Salesforce customer makes the terms of the document a requirement for Salesforce itself, “not realizing that it came from us in the first place.”

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