Invitation: 3rd NATIONAL SUSTAINABILITY CONFERENCE: Future Leaders’ Summit on Sustainability

Supply chain transparency: forging better relationships with suppliers

In the aftermath of the horsemeat scandal, what can companies do to manage supply chains and put sustainability at the heart of sourcing?

Global supply chains are long and complex and must be managed correctly to ensure environmental, social and economic sustainability. Photograph: Royalty-Free/Corbis

Findus, the frozen food brand at the centre of the horsemeat saga, last week announced it is taking action to address the shortcomings of its supply chain management. The frozen food giant, whose beef lasagnes were found to contain up to 100% horsemeat, has joined the Supplier Ethical Data Exchange (Sedex), a not-for-profit organisation that allows suppliers to share responsible trading data with retailers and brands online.

With the support of Sedex, Findus will conduct ethical and health and safety audits of its suppliers and then, armed with this information, it aims to manage risks throughout its supply chain, engaging with suppliers to create greater transparency across its global supply network. The move is also intended to help restore trust in the wider food industry.

Retailers have come under intense scrutiny since the explosion of the ubiquitous horsemeat scandal. More than 5,430 Food Standards Agency tests have so far revealed 44 UK products containing horsemeat, putting retailers including Tesco, Aldi, Ikea and Asda under serious pressure to clean up their supply chains.

Supply chain disasters

Lack of visibility and a lack of direct influence over suppliers further down the supply chain can lead to distinct problems: work can be sub-contracted or even contracted directly to suppliers with poor health and safety standards, dismal labour rights records or detrimental environmental practices.

Just last week, it emerged that Zara is under investigation for ‘degrading’ factory conditions in Argentina, where Bolivian labourers, including children, allegedly worked 16-hour days without breaks.

Labels belonging to Inditex (the parent company of Zara), Walmart and Sears were found in the ashes of the latest factory fires in Bangladesh, where more than 100 workers died in factories with appalling health and safety standards.

Elsewhere, Yum Foods!, the owner of fast food giant KFC, says it plans to stop sourcing packaging derived from tropical rainforests, following a scandal that erupted last year over its former supplier Asia Pulp and Paper trashing Indonesian forests to source paper for KFC ‘buckets’.

Similarly, fashion companies have been forced to address the issue of toxic chemicals being used in the dyeing process. The Roadmap to Zero coalition now aims to stamp out harmful dyes from apparel manufacturing.

So, what can retailers do to avert further catastrophes? What are the challenges they face? And where do they start on the journey to greater transparency?

Current state of play

Climate change, more frequent extreme weather, unsustainable farming practices, water scarcity and population growth are taking their toll on global supply chains, sending raw material costs soaring and threatening the security of retailers’ operations.

However, the sheer size and complexity of global supply chains means tackling sustainability is a monumental task. Pinpointing risk is an uphill struggle; retailers can end up inundated with data, and suppliers become reluctant to ‘waste time’ completing check-lists and audits.

The food and fashion industries are leading the charge on supply chain sustainability. With many high profile brands operating in these sectors, criticism of food and fashion supply chains has been severe.

While some companies, including Unilever and Marks & Spencer (M&S), are seeing the commercial benefits of responsible sourcing, globally, there is still a huge amount of progress still to be made.

Clarity of purpose

“Retailers need clarity of purpose,” explains Sedex CEO Carmel Giblin.

“Establishing a code of conduct that sets clear, realistic expectations is vital. Taking a risk-based approach is also important, identifying the high risk areas and tackling these first.

“Getting robust data is great, but retailers must take this further by understanding suppliers’ business challenges, offering support and developing long-term relationships.”

Louise Nicholls, head of responsible sourcing and Plan A at M&S, also stresses the importance of setting clear standards. She advocates taking a pragmatic approach to reviewing supply chain issues, listening to suppliers, providing evidence-based training and highlighting the business benefits of sustainability. Importantly, she says, retailers should lead by example.

Effective communication is all important

‘Telling the story’ of how sustainability links to business growth using real life examples is essential. Suppliers should also be encouraged to tell their story back to their customers, clarifying the progress they’re making on specific sustainability challenges.

The role of collaboration

Nicholls recommends that retailers participate in working groups and joint initiatives, such as the Ethical Trading Initiative’s recent trip to Peru. This saw M&S, Tesco, Waitrose and Co-op meeting with Peruvian stakeholders in the fruit and vegetables sector to discuss common challenges.

Tackling industry-wide issues collectively can accelerate the pace of change in a cost-effective way and collaborative industry platforms are becoming increasingly popular. These include the Global Social Compliance Programme, the FMCG forum Aim-Progress and the Electronic Industry Citizenship Coalition.

Empowering the supplier who holds the direct relationship with companies further down the supply chain is also important. Retailers must ensure they ask relevant, searching questions of their first tier suppliers, working closely to make their expectations crystal clear.

When recruiting new suppliers, use credible, industry-standard scorecards, reinforced by mandatory data-sharing on carbon, environmental and social performance.

Engaging positively with suppliers

Retailer collaboration with NGOs and local groups on the ground can be instrumental in communicating more effectively with suppliers.

UK retailer John Lewis has established a sourcing office in India and launched a new bath mat range via its sustainable cotton farming project in Gujarat. This initiative, developed by CottonConnect, is helping to improve the environmental performance of the company’s cotton supply chain while enhancing supplier livelihoods.

HP has recently introduced new supplier guidelines to protect the rights of student and temporary workers in China, while Sony’s ‘Green Partner’ programme defines clear standards for its suppliers of chemical substances, ensuring that only approved suppliers are retained.

Katharine Earley is a freelance copywriter and journalist, specialising in sustainability.

Asia Pulp & Paper – Market pressures tip the balance By Andy Tait

Asia Pulp & Paper – Market pressures tip the balance

By Andy Tait on Apr 2, 2013

Asia Pulp & Paper’s change of heart is good news for forest conservation, but consumers need to keep up the pressure, says Greenpeace’s Andy Tait

In recent years, Greenpeace has helped persuade some of the world’s largest corporations to tackle deforestation in their supply chains, both through hard-hitting confrontational campaigns and through backroom lobbying and collaboration.

In fact, the one often leads to the other. With Kimberly-Clark, we fought a five-year campaign to end its links to destructive forestry in Canada’s Boreal Forest. With McDonald’s, the campaign to end its involvement in Amazon deforestation for soya was short and sharp, as was our campaign against Nestlé regarding the sources of its palm oil. Change within Indonesia’s largest palm oil producer – Golden Agri-Resources, the palm oil division of Sinar Mas – came after a longer fight.

Many of these companies, and others, have become strong advocates for broader action to tackle deforestation across supply chains, partly as a result of our work. 

The most recent and perhaps the most unexpected shift has come with our decision to suspend public campaign work against Asia Pulp & Paper (APP) – one of the largest paper companies in the world.

In February 2013, the company announced a new forest conservation policy. The policy commits APP to no further plantation establishment or peatland development on forested land. Underscoring this commitment, APP announced the immediate suspension of all remaining natural forest clearance and peatland development across all concessions that supply it.

APP has not suddenly “seen the light”. Remember that the new policy follows roughly a decade of persistent campaigns from Indonesian and international NGOs. Commercial pressure also played a role, coming from international businesses such as Adidas, Disney, Mattel, Nestlé and Unilever whose customers did not want to buy products linked to deforestation. This decision is based on an assessment that APP can cope without further expansion into forest areas and that this move will end up being a good one for business.

Onus on APP

Only time and on-the-ground evidence of change will succeed in convincing APP’s critics and its former customers that the company is genuinely turning over a new leaf. Unquestionably, the onus is on APP to demonstrate that it is delivering on its commitments and addressing the major environmental and social costs of its operations until now.

Fortunately, at this stage, the signs are positive that APP is serious about implementing its forest commitments. An endorsement by the company chairman suggests that the new policy is supported at the highest level, and the company is investing a lot of money and resources on the ground to oversee the first stage of implementation.

If implementation does succeed, many challenges remain. Until the end of January 2013, APP suppliers were still clearing rainforest. Many social conflicts across the company’s supply chain must still be addressed. Peatland areas previously drained and cleared will continue to emit large amounts of greenhouse gases if management of these areas does not change rapidly.

In this context, at what stage should the international market recognise and reward progress? And if there is no market benefit where is the incentive for the company to change practice?

In the short term, the attention of some campaigns will now turn to APP’s main competitor in the Indonesian pulp sector, April (Asia Pacific Resources International), which continues with the deforestation activities APP has just committed to end. This now makes April the leading driver of deforestation for pulp in Indonesia. And April, like APP, depends on the international market.

Greenpeace has recently sent letters to April’s chief executive, Sukanto Tanoto, some of its key customers and the World Business Council for Sustainable Development of which, surprisingly, this most unsustainable company is a member.

Indonesia’s pulp and palm oil industries have relied on rainforest peatland destruction for far too long. Forests play a vital role, not just for biodiversity and for the communities that depend on them, but also for storing carbon and thereby protecting the global climate. By continuing to clear rainforests, plantation companies put themselves on a collision course with their customers, consumer-facing brands that have pledged to tackle climate change and to clean up their supply chains.

Zero deforestation policies driven from the consumer side are helping to drive change in supply chains through excluding poor practice and supporting commodity producers that commit to implement more responsible practice. But the landscape remains extremely complex and questions remain about how to link market changes to political policies and governance that genuinely protect forests and reward better industry practice.

Through confrontation and collaboration, NGOs can play a vital role in driving change on the ground and in corporate supply chains. But that market pressure alone cannot deliver change quickly enough for Indonesia and other countries’ rainforests. Ultimately, we need political solutions. And soon.

Andy Tait is a senior campaign adviser at Greenpeace. He tweets at @andyrtait.

Resource scarcity spotlight: Jochen Gassner, First Climate By Steven Wilding on Apr 2, 2013

“Ethical Corporation: Shared value or sustainability?

Jochen Gassner: Shared value to achieve sustainability.”

Resource scarcity spotlight: Jochen Gassner, First Climate

By Steven Wilding on Apr 2, 2013

A market approach to natural resource management

Jochen Gassner is a Board Member at First Climate Markets AG. His responsibilities encompass the development of international and national VER markets, the design of climate neutral products and services, and the consulting of private and public sector clients.

Before joining First Climate, he worked as Group Environmental Manager at Borealis and as Environmental Consultant for a number of industry sectors. He studied environmental engineering at the Leoben University of Mining and Metallurgy, Austria, and holds a PhD in sustainability research from Graz University of Technology, Austria.

Ethical Corporation: Tell us briefly what it is you do?

Jochen Gassner: At First Climate, we help companies measure, manage and compensate or offset their carbon and water footprints. We are one of the most experienced carbon offset providers in the market. We are now piloting a similar programme to help companies invest in water stewardship projects.

Ethical Corporation: What do you see as the big issues to look out for in 2013?

Jochen Gassner: As a company, we are always looking at the carbon space. The very interesting question right now is where to go after Doha [Climate Change Conference, November 2012]. We don’t see any real commitments yet to reduce greenhouse gas emissions after 2012.

As a German company, we are also watching the energy market as Germany is spearheading a change in its energy system. At the same time, Germany faces an an election year in 2013, so it will be interesting to see how politics influences developments in the energy system.

Ethical Corporation: What are your personal priorities in the year ahead?

Jochen Gassner: The key thing for us is to strengthen our role in the global carbon market. Historically we’ve been very active in the compliance carbon markets and we still are, but that marketplace now plays a smaller role than it did a few years ago.

Our focus is therefore moving more towards the voluntary carbon market. Then we’re also piloting other initiatives in the water and renewable energy space. To elevate those to a stage where they are profitable would be a change for 2013 as well.

Ethical Corporation: Do you anticipate any advances on international carbon policy in the future?

Jochen Gassner: The negotiation process certainly needs to be simplified if we are to take this forward. In the near future, we have to see what China is developing in terms of its regional schemes and where the US is heading after the re-election of [President] Obama.

But the big solution is for carbon markets to become like commodity markets of this world, which is off the table right now.

Ethical Corporation: What role do you feel collaboration will play in making a transition towards a more sustainable, low-carbon future?

Jochen Gassner: Companies won’t be in a position to do it alone. The order of magnitude of the challenge means that it needs industry collaboration, as well as governments. The role of government is key because someone needs to take the risk. So look at the German renewable energy system and the role that feed-in tariffs played in that. Without that, we wouldn’t have seen the same growth.

That said, with technological progress, we are moving to a point where some renewables in some parts of the world can be competitive without subsidies, which is when governments need to step out. I think citizen participation is important too. We’re always talking about consumers and what they can do, but I’m convinced that we need input from wider society because without that we can’t make the necessary transition.

Ethical Corporation: Do you think that companies are taking future resource scarcity issues seriously enough at present?

Jochen Gassner: Generally, the corporate sector has been focused on capital costs and labour costs, and not so much on resources because they seem readily available. When it comes to strategic management of scarcity risks, however, we’re only now beginning to see companies getting their heads around the issue.

Resource scarcity will bring with it a redistribution of risks and opportunities. For example, companies in the extractive industry will have to go to places where exploration and production is more risky and expensive.

It’s important to be mindful that there are certain resources that are already scarce. Think about water, fossil fuels, and minerals and metals, for example.

Then consider the rise of the global population by a couple of billion [over the next four decades], which will demand more consumption of these resources all the time. While we’ve seen some decoupling between GDP and resource use over the last decades, we are still in a situation where GDP growth is coupled to the use of resources.

Ethical Corporation: Water is a particular focus of your resource conservation attentions at this time, is that correct?

Jochen Gassner: Yes. It’s obvious, but water is one of the most important resources. It’s almost impossible to replace. We’ve set up a public-private partnership that brings together financiers with corporations with technical expertise and organisations such as the Gold Standard.

The idea is to develop an innovative financing mechanism for water saving, water purification and water supply projects – much like the carbon projects we are financing already. As it is, there are a number of projects in the carbon markets that have a focus on water element, such as irrigation projects.

But there’s no currency to fund these projects, so we’ve been financing them through the carbon. We’re now working on establishing Water Benefit Certificates to fund these projects.

Ethical Corporation: How exactly do you envision these Water Benefit Certificates working?

Jochen Gassner: We see them working very much like the voluntary carbon markets. So, on the one side, you’ve got someone who is willing to invest in a project, and on the other hand you have projects like drip irrigation and water purification that require financing.

We’ll establish a mechanism that allows us to quantify, monitor and verify the water savings of those projects, and will establish a currency that helps us to link financing to the water savings. So just as a Carbon Credit is issued for a tonne of carbon dioxide reduced, a Water Benefit Certificate is issued for each thousand cubic meters of water saved, supplied or purified.

Then, with the market, we’ll attach a value to those cubic metres, and then we’ll sell that saving as a financing opportunity for the corporate community.

Ethical Corporation: Where are you at today with the Water Benefits Certificates?

Jochen Gassner: At present, we’re focused primarily on methodology and concept development. The way forward is to get supply and demand to a scale where we can create the market. We need to build a larger portfolio of projects and identify potential [financing] bodies for the Water Benefit Certificates.

Then we might see something that is similar to what we see today in the voluntary carbon market, with an established market of buyers and projects which are financed by them.

Ethical Corporation: Climate change – mitigation or adaptation?

Jochen Gassner: I can’t say both? Where we stand today, I would hope for mitigation but I think we will need more adaptation.

Ethical Corporation: Name a government to watch on sustainability.

Jochen Gassner: The United States. We’ve had great hopes in Obama to move the green agenda forward. Perhaps he’s got some more freedom in his second term to do that.

Ethical Corporation: Corporation tax: higher or lower?

Jochen Gassner: That all depends on where we’re talking about.

Ethical Corporation: Corporate responsibility impact: Obama or Xi Jinping?

Jochen Gassner: I guess the answer again would be both. If I had to choose, maybe Xi Jinping just because of the magnitude of China and what it now means for the global economy. It’s imperative that they embark on the agenda as well.

Ethical Corporation: Shared value or sustainability?

Jochen Gassner: Shared value to achieve sustainability.

Jochen Gassner will be speaking at the Responsible Business Summit, 7/8th May 2013, where he we be discussing how to create and implement a business model to reflect water, food and energy shortages.