The necessity of sustainable supply chains
Supply Chain Digital speaks to Pierre-Francois Thaler, co-CEO of EcoVadis – a leading sustainability scorecard company – about making supply chain operations safer and more sustainable.
Could you outline your thoughts as to why current sustainability efforts are not enough to prevent workplace tragedies?
Current sustainability efforts rarely lead to true change. After the Rana Plaza factory collapse in 2013, businesses, citizens and governments around the world pledged more than $280 million in funding to improve factory conditions in Bangladesh and prevent similar tragedies. Despite this outpouring of financial support, we have seen very little improvement in factory conditions and worker safety:
- An NYU Stern School of Business report found that in the two years following Rana Plaza, only eight of the 3,425 factories assessed in Bangladesh corrected violations to the point that they passed inspection.
- H&M signed the Accord on Fire and Building Safety shortly after Rana Plaza, but still has not fulfilled its commitment of installing necessary, life-saving doors in its Bangladeshi factories.
It is important to also note that supplier audits - that have risen in popularity as a means for keeping suppliers compliant - often fail to prevent major accidents. Before its collapse, audits in Rana Plaza factories failed to identify illegal construction of the building, and in 2012, Tazreen Fashions in Dhaka caught fire after being audited by Walmart. It takes much more than auditing suppliers to prevent these types of tragedies.
Financial support for sustainability can only go so far. To make a real difference in supply chain sustainability, global companies need to leverage their influence and resources to drive true change. Large companies spend 80 percent of their revenue in supply chain activities, making it an effective platform to act through when looking to drive change.
By engaging suppliers and their workers on proper health and safety standards and continually monitoring their progress towards safety goals, we can make big steps in the prevention of workplace tragedies.
Some companies scrimp on health and safety to cut costs – what would you recommend to change this culture?
Customers are becoming more interested in and conscious of the sustainability practices of the companies they purchase from. Businesses that continue to scrimp on health and safety in their supply chain simply cannot hide anymore- the influence of empowered customers and the increasingly watchful eye of governments, local NGOs, labour, environmental and other watchdog organisations are too strong.
Several new laws have emerged in the past year that aim to protect supply chain workers, including the UK Modern Slavery Act and the US Trade Facilitation and Enforcement Act, which bans slave - or forced-labour made goods from being imported into the country. If companies fail to source sustainably, they face not only a loss in brand reputation and customer loyalty, but regulatory and financial consequences as well.
For companies that work with multiple suppliers around the globe, going sustainable can seem like a daunting task, but approaching the process step-by-step can help create a positive mind-set and culture. The first step has to be creating a sustainable culture within your own organisation. Start by asking the following questions to gather information about the state of sustainability culture in your organisation.
- What kinds of business benefits will sustainable practices bring to my organisation? (Sustainable practices can result in a revenue uplift of 5-20 percent)
- How do our sustainability initiatives stack up against our top-performing competitors?
- How many supply disruptions due to sustainability issues did we encounter last year?
- What are our customers saying about sustainability?
- What about our employees: who can our internal sustainability champions be?
When the procurement team is armed with this information, they can head to the c-suite with a plan. Changing the culture works best through a top-down approach with commitments from the company’s executive leadership, communicated clearly and when sustainability initiatives are tied to overall business objectives. This makes it easier for procurement to create external initiatives with suppliers.
Is there a way of positively incentivising more stringent health and safety standards?
Supplier performance management does just that. This model motivates suppliers to move beyond minimum compliance standards by rewarding top-performing suppliers, based on a rich sustainability scoring system.
This creates positive competition that ultimately gives buyers a better return-on-investment and allows them to stop focusing on chasing noncompliant suppliers. Instead they are able to invest their time and resources to work with engaged suppliers to improve, innovate and create and maintain long term business relationships that ultimately support their communities economically, socially and environmentally, which in turn strengthens the business.
What steps can companies immediately take to make progress in health and safety through procurement?
Implementing a supplier performance management model is a great place to start and will set you up to execute on the following steps more effectively. From there, it’s important to educate suppliers and their employees on key sustainability criteria. Given the volume of new laws and regulations around this issue, it can be hard to understand where you are and aren’t compliant.
Providing suppliers with a comprehensive CSR implementation guide that goes into the benefits of CSR practices, gives an overview of the core concepts, implementation guidance and recommendations based on the company’s specific size, location and sector can be extremely helpful.
A well educated workforce knows where they are vulnerable and are more likely to report problems and ensure that their factories are safe and secure. Helping and guiding suppliers as much as possible will benefit buyers immensely in the long-run.
Another step businesses can take is to collaborate among industry peers and competitors. Together for Sustainability, the chemical industry’s sustainable initiative, developed and implemented a global program to assess, audit and tangibly improve sustainability practices within the industry’s supply chains. These kind of initiatives generally lead to higher standards and sustainability results for the entire industry.
What solutions does your company offer to this end?
EcoVadis offers reliable supplier sustainability ratings and scorecards covering 21 CSR indicators, 150 commodities and 110 countries. Some criteria we rank suppliers on include employee health and safety, working conditions, child and forced labour and labour relations. Suppliers are ranked based on how well they are doing in these categories and are given guidance on how to continuously improve.
Our ratings foster an environment of collaboration, which we have found to be successful -- 70 percent of suppliers improve their sustainability score with each assessment. Buyers who access supplier rankings can make better decisions about which suppliers they should work with, and suppliers who are assessed by EcoVadis have a third party verification of their sustainability standards, with detailed feedback on how to improve, giving them more credibility and ultimately more buyers willing to do business with them.
Companies are increasingly factoring CSR into their operations – do you see this trend continuing indefinitely?
Absolutely. Sustainable operations are no longer nice to have, but a necessity for doing business and avoiding social and legal backlash. Sustainability is increasingly top of mind for consumers, and they will likely take their business elsewhere if a brand is found to be in violation of their ethical standards. In addition to increased social consciousness, the regulatory consequences that noncompliant businesses face are immense.
EcoVadis’ barometer survey indicated that 90 percent of CPOs see sustainability as a priority in procurement functions, but we are just getting into the growth phase of this trend. Companies are increasingly implementing sustainability programs, and as those programs quickly mature, companies are expanding coverage to more of their spend and embedding it deeper in their processes. These processes include setting CSR rating targets for suppliers, buyers, categories and divisions, and creating reward schemes to motivate stakeholders to reach their goals.
Even if companies don’t yet fully understand the social benefits of sustainability, we’re getting to the point where companies need to become sustainable if they want to keep business operations uninterrupted and protect their profit and overall financial health.
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