OECD Supply Chain Resilience Review

7.  Policies can balance sustainability, efficiency and resilience

Abstract

The previous chapter has listed specific policy actions and areas that can underpin resilient supply chains. This chapter takes a more strategic overview, exploring how policy design needs to balance sustainability, efficiency and resilience, while dealing with trade-offs among them.

In addition to the specific policies outlined in the previous chapter, in order to promote agile, adaptable and aligned supply chains, policy design must account for the interplay between resilience and other objectives, including sustainability and efficiency. Policymakers may face the challenge of aligning these objectives in ways that foster long-term economic stability and sustainable development while ensuring the capacity to withstand disruptions. While it is possible to achieve synergies across these dimensions, trade-offs are also inherently involved. This chapter examines these issues through a policy lens.

7.1. Synergies between resilience, efficiency and sustainability can be captured

From the perspective of governments regulating supply chains, many policies not only strengthen the capacity to withstand disruptions, but also contribute to sustainability and efficiency. For example, investments in renewable energy infrastructure enhance energy security while reducing carbon footprints. Similarly, promoting circular economy practices—such as recycling, resource efficiency, and waste reduction—bolsters both resilience to resource supply shocks and achieves sustainability objectives.

Efforts to implement circular economy practices are particularly illustrative of these synergies. For instance, industries that prioritise the reuse of materials reduce their dependence on virgin resource inputs, thereby decreasing exposure to supply chain disruptions. At the same time, such efforts lower waste and pollution, contributing directly to sustainability. Furthermore, the adoption of energy-efficient technologies—such as smart grids or decentralised renewable energy systems—enhances both the reliability of energy supplies and environmental outcomes. Firms that build resilience through dynamic capabilities such as flexibility, agility and visibility in their supply chains are often better positioned to enhance efficiency as well (Sheffi, 2015[1]). Moreover, efforts to mitigate sustainability risks through responsible business conduct (RBC) and due diligence generally benefit firms’ sustainability performance and resilience (OECD, 2021[2]).

7.2. Trade-offs need to be addressed when balancing objectives

Despite these synergies, achieving a balance between resilience, efficiency and sustainability often involves trade-offs (Ivanov, 2017[3]; Rajesh, 2021[4]). Firms designing resilient supply chains must weigh the costs of redundancy against efficiency and environmental considerations. For instance, maintaining buffer stocks, diversifying suppliers, or investing in additional production capacity increases costs and resource use. These measures, while essential for resilience, can contradict sustainability goals by generating waste and depleting resources. Policymakers also face several goals that are difficult to tackle together when they promote security of supply, incentivise firms to adopt cleaner production processes and develop a policy environment that maintains competitive neutrality (OECD, 2023[5]).

The trade-offs become even more apparent in industries with high resource intensity. For example, adding redundancy in production facilities to ensure resilience may lead to increased energy consumption and emissions, conflicting with climate targets. Similarly, maintaining extensive inventories for risk mitigation can lead to resource inefficiencies, including overproduction and waste. These challenges underscore the need for policies that optimise the balance among these objectives rather than pursuing them in isolation.

Fortunately, such trade-offs can be mitigated. As noted, dynamic capabilities enable firms to reduce costs and resource use while enhancing resilience. Strategies such as flexibility within the production processes, improved supply chain visibility, and co-operative relationships with suppliers allow firms to adapt quickly to disruptions without over-reliance on resource-intensive measures. Moreover, advances in technology can play a pivotal role in reducing these trade-offs. Digital tools such as predictive analytics and blockchain enhance supply chain visibility and transparency. This enables firms to identify vulnerabilities and implement targeted measures that strengthen resilience without significantly increasing resource use or costs. Additionally, the use of renewable energy in operations and transportation can offset the environmental impacts of redundancy, aligning sustainability with resilience.

7.3. Targeting sustainability requires protecting resilience and efficiency

When sustainability is the primary objective, policies can be designed to safeguard resilience and efficiency. Synergies and trade-offs between these goals should inform governance strategies aimed at improving sustainability in supply chains. Section 4.2.1 has highlighted how supply chain sustainability laws can put pressures on economic actors, potentially leading to inefficiencies and disruptions in trade relationships. Without empirical analysis on the effects of these new regulatory developments at this juncture, providing robust and detailed evidence-based policy advice is not an easy task. However, two general principles can guide policymakers aiming to minimise unintended negative impacts of supply chain sustainability laws on efficiency and resilience: (1) least possible distortionary policy design and implementation; and (2) international co-ordination and co-operation.

7.3.1. Aim for the least possible distortionary policy design and implementation

Supply chain sustainability laws should minimise distortions to ensure trade continues to flow and deliver economic benefits with proven spillovers for sustainability objectives. To this end, governments can:

• Enact trade facilitation measures to minimise the costs of implementing sustainable practices, especially for micro, small and medium-sized enterprises (SMEs).

• Minimise certification costs for supply chain actors required to comply with sustainability standards, including by providing clear guidance to avoid uncertainty over how compliance should be verified.

• Promote stakeholder participation in the development and implementation of these policies.

• Assess periodically the adequacy and effectiveness of implementation mechanisms.

• Exploit synergies with other policies, instruments and initiatives in the broader ecosystem for sustainability governance (Section 4.2.2), allowing the development of policy mixes where every objective is tackled with the most effective and least distortionary tool.

7.3.2. Pursue international co-ordination and co-operation

Governments designing and implementing supply chain sustainability laws can foster international co-ordination and co-operation at every stage. Policymakers can consider several best practices, for example:

• Align sustainability requirements in supply chain sustainability laws with international standards.

• Base guidelines for companies on responsible business conduct and due diligence on existing international standards, such as the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (OECD, 2023[6]), the related OECD Due Diligence Guidance (OECD, 2018[7]) and the OECD Recommendation on the Role of Government in Promoting Responsible Business Conduct (OECD, 2022[8]).

• In the context of policy mixes where sustainability initiatives can be used as a form of proof of compliance with sustainability requirements in supply chain sustainability laws, design methods to assess and recognise credible initiatives building upon existing tools such as the OECD Methodology for Alignment Assessment of Sustainability Initiatives (OECD, 2024[9]).

• Promote harmonisation, mutual recognition and general co-operation on supply chains sustainability laws through multilateral fora such as the OECD or other forms of international regulatory co-operation.

References

[3] Ivanov, D. (2017), “Revealing interfaces of supply chain resilience and sustainability: a simulation study”, International Journal of Production Research, Vol. 56/10, pp. 3507-3523, https://doi.org/10.1080/00207543.2017.1343507.

[9] OECD (2024), Methodology for OECD alignment assessments of sustainability initiatives, OECD Publishing, Paris, https://doi.org/10.1787/b533c060-en.

[6] OECD (2023), OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, OECD Publishing, Paris, https://doi.org/10.1787/81f92357-en.

[5] OECD (2023), Strengthening Clean Energy Supply Chains for Decarbonisation and Economic Security: OECD Report for the G7 Finance Ministers and Central Bank Governors, May 2023, Japan, OECD, Paris, https://g7.utoronto.ca/finance/2023-clean-energy-supply-chains-OECD-G7-202305.pdf.

[8] OECD (2022), Recommendation of the Council on the Role of Government in Promoting Responsible Business Conduct, OECD, Paris, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0486.

[2] OECD (2021), Building More Resilient and Sustainable Global Value Chains Through Responsible Business Conduct, OECD Publishing, Paris, https://doi.org/10.1787/4e08c886-en.

[7] OECD (2018), OECD Due Diligence Guidance for Responsible Business Conduct, OECD Publishing, Paris, https://doi.org/10.1787/15f5f4b3-en.

[4] Rajesh, R. (2021), “Optimal trade-offs in decision-making for sustainability and resilience in manufacturing supply chains”, Journal of Cleaner Production, Vol. 313, p. 127596, https://doi.org/10.1016/j.jclepro.2021.127596.

[1] Sheffi, Y. (2015), The Power of Resilience. How the best companies manage the unexpected, The MIT Press.