At last week’s UN Global Compact Leaders Summit, the international business community gathered to, in the words of the UN Secretary-General Ban Ki-moon, “highlight the key role of responsible business in building markets that are more sustainable and inclusive.”
For more than a decade, BSR has been working to help companies define, prioritize, and mitigate the negative impacts on the environment and society that occur in their supply chains. Increasingly, we are helping companies recognize opportunities to promote human rights, improve labor conditions, protect the environment, and support ethical business conduct.
To further this work, we partnered with the Global Compact to develop comprehensive guidelines for companies on how to apply the Global Compact Principles in supply chain management.
Through our work on this report and our interactions with the UNGC Advisory Group on Supply Chain Sustainability, we have found remarkable consistency in practice, and identified a number of emerging trends that will impact how companies build and refine their approaches to supply chain sustainability.
Advancing the Business Case for Supply Chain Sustainability
One of the significant challenges in creating a strong business case for supply chain sustainability is the difficulty of measuring and tracking the impact of these practices. In the absence of a compelling business case, many companies fail to commit resources to engage with suppliers on labor, human rights, environmental, and governance issues. To help companies overcome this barrier, the BSR and the Global Compact’s guide describes three key business drivers for supply chain sustainability: managing risk, realizing efficiencies, and creating sustainable products.
In addition to these business drivers, “ethical rationales” also carry weight by providing the imperative for companies to demonstrate their corporate values in every aspect of their business. Many companies see corporate responsibility, and supply chain sustainability in particular, as natural extensions of their corporate values and culture. These initiatives can support companies’ engagement with employees—from hiring to training and performance management—and their efforts to embed corporate responsibility values into the organization.
For some companies, these ethical rationales for supply chain sustainability are enough to prompt action, while other companies also require a clear business case. To build internal commitments to supply chain sustainability, we recommend that company leaders use the approach that will work best given their corporate culture.
Prioritizing Engagement with Suppliers
During the advisory group meetings, several companies presented their approaches to mapping their supply chains to identify, prioritize, and manage risks and opportunities. Cemex, a Mexican building materials company, decided to work with the 20 percent of its suppliers that together receive 80 percent of the company’s spend on goods and services. With this supplier group, Cemex creates improvements in sustainability and business value by conducting training and development programs that help these suppliers strengthen their business practices and embed sustainability principles within their systems.
By contrast, Norway-based Telenor, a global provider of telecommunications services, focuses its efforts on the significant labor standards compliance issues in the sub-tiers of its supply chain—in other words, its suppliers’ suppliers. While the company does not focus exclusively on its sub-tier suppliers, they do look carefully at these suppliers due to a serious risk they encountered with a subcontractor in Bangladesh in the past.
To maximize impact on supply chain sustainability, we recommend that companies carefully map their product and service categories throughout the full cycle of their supply chains; identify where human rights, labor, environment, and anti-corruption risks and opportunities occur; and implement management controls in areas that prove to have the most important risks and opportunities.
Sustainable Development and Economic Inclusion
In addition to direct economic impacts such as payments to employees, suppliers, and governments, it is well established that companies also have indirect economic impacts via monetary flows throughout supply chains and beyond. Less well explored are the opportunities companies have to promote sustainable development and economic inclusion through supply chain relationships.
Through our work with the Global Compact, we discovered many examples of companies seeking these opportunities through their sourcing activities:
- Nestlé India established a training and technical-assistance program to increase the number of local suppliers that meet the company’s quality and food-safety standards. By building local supply, Nestlé was able to reduce its costs and risks related to food imports; the training also helped suppliers increase their competitiveness and opportunities in the market.
- Levi Strauss & Co. has joined civil society organizations to implement training programs on worker rights and responsibilities and health education at suppliers’ factories. The program improves worker well-being, ensures worker rights are respected, and results in cost savings for factories through increased productivity and reduced absenteeism.
- Restaurantes Toks’ approach to developing a supply of strawberry marmalade (which we have described on the BSR blog) had a positive impact on an impoverished rural community by integrating a local women’s enterprise into the company’s supply chain and helping increase the organization’s production capacity and sustainability practices. The company regularly invites business leaders and students to visit this supplier to learn about the company’s approach to inclusive sourcing.
The experiences of supplier diversity programs in North America and local content programs in the extractives industries also demonstrate how inclusive supply chains can support economic development through job creation and increased incomes.
Increasing Engagement with Sub-Tier Suppliers
Many companies’ most significant sustainability issues—and therefore the bulk of their risks and opportunities—are found in the sub-tiers of their supply chains. Historically, however, companies have struggled with whether and how to include sub-tier suppliers in their supply chain programs. For example, in the information and communications technology sector, companies like Dell, Hewlett-Packard, Intel, Motorola, and Philips have started to explore ways to address the issue of “conflict minerals” in the sub-tiers of their supply chains that contribute the metals for electronic components.
Because visibility down to raw material extraction can be challenging, we recommend that companies focus on the relationships and transactions that happen in the sub-tiers of their supply chains for major product or service categories. In some cases, agents or wholesalers may play key roles in aggregating supplies and will need to be part of holistic solutions that allow traceability of and accountability for product inputs and processes further upstream. Next, companies should look in particular for challenges that are directly related to their business and/or issues that have a large potential impact on society—such as the concern that the minerals extracted for electronics products are being used to finance militant groups in the Democratic Republic of the Congo.
This is an especially challenging area for supply chain sustainability efforts, and we believe collaboration is the most promising method to address these issues. Our new guide includes a chapter describing how companies can collaborate with others in their industry to create long-term solutions for systemic challenges.