Sustainability in the Supply Chain

Sustainable economic development requires companies to pay close attention to values within their supply chains. Paying attention to emerging legislation and voluntary codes, and adopting principles such as the circular economy, can protect the environment and improve business performance.

The behavioural standards expected of businesses have changed over generations. Over the last century, greater demands have been placed and concepts such as Corporate Social Responsibility (CSR) began to emerge in the 1960s. Successive generations of business leaders have responded to causes such as civil rights and environmentalism. Campaigners have both criticised and enlisted the help of business to progress their agendas. We can look at initiatives like Investors in People, which began in the UK in the early 1990s, to see how businesses have reacted to calls for more equal opportunities and greater fulfilment for workers.

In current times, scrutiny over aspects related to human rights issues such as diversity and gender equality, as well as the environment, continues to intensify. Among global initiatives, the United Nations 2030 Agenda for Sustainable Development recognises the importance of decent work and sustainable production to achieve its goals, while proposals for EU Mandatory Due Diligence Legislation call for stronger obligations on businesses to respect human rights and the environment.

Change is happening and ignoring it is not an option. Businesses need to be able to show how they are responding, using their power and influence to effect change for good.

How Does the Supply Chain Impact Sustainability?

Sustainability transcends any individual company’s internal activities and interactions with stakeholders. It extends throughout the supply chain. The way a company organises its supply chain is closely linked to the value creation model. It encompasses aspects including the goods that are purchased, their origins, the prices paid, transformation into the finished product, and despatch to the point of sale.

For any individual organisation, a sustainability-focused review of the supply chain should include factors such as the constituent components and materials involved in making the end product: how raw materials are sourced, the processes that are applied, even the means by which they are delivered can be a concern. The review may highlight wasteful activities involved in production, creation of pollutants or toxins that could be prevented by using alternative processes, or poor handling of waste and by products.

Some of these issues may already be covered by legal obligations. Others may not be addressed in law, although solutions or voluntary codes could be in place that go above and beyond the minimum required standards. To make progress against sustainability goals, the review needs to question whether chosen suppliers are acting responsibly? Could they do more, or better, to enhance sustainability? Is there scope to work together to qualify alternative approaches that use materials or processes compatible with the circular economy?

According to research reported by IBM, attitudes among workers and investors are in favour of companies that have good sustainability credentials. Moreover, a significant proportion of consumers are prepared to change their purchasing habits to benefit the environment, while some are prepared to pay higher prices for products from companies that align with their own values. So re-engineering supply chains for sustainability could be good for business.

When preparing an offer for a supply contract, businesses traditionally tend to highlight factors such as price, quality, and service as their most important virtues. Without dropping any of these, we can now expect companies to draw more attention to sustainability achievements in their value proposition; such as lowering emissions, reducing energy consumption, and recycling/re-using products and materials.

In the absence of regulation on some of these issues, the extent to which companies go above and beyond minimum legal obligations could become winning qualities. These may include, for example, commitments to re-forestation or ocean cleaning, particularly by companies involved in goods such as wood or paper, or plastics production.

In some cases, sustainability concerns are closely connected with social and ethics issues. One topical example is the concern about the supplies of cobalt used in batteries and magnets, as the drive towards electrification for energy sustainability is raising world demand for the mineral. More than 50% of the world’s cobalt reserves are reckoned to be in the Democratic Republic of Congo (DRC), a region not only ravaged by conflict and corruption but also where unregulated and unprotected artisanal mining is commonplace. This is known to be dangerous, with minimal consideration for workers’ safety, and there are also concerns about the use of child labour. However, simply refusing to buy cobalt from companies engaged in the DRC risks making conditions worse for workers and communities there.

We can look to existing supply-chain legislation like Section 1502 of the US Dodd Frank Act, conceived to combat the human rights abuses associated with conflict minerals - gold, tungsten, tantalum, and tin originating from the DRC or neighbouring countries - to understand how action on supply chain can drive positive social outcomes. The reporting obligations enforced by this Act have required companies to demonstrate due diligence in ensuring that their supplies come from reputable sources which has encouraged some to invest back into local communities to improve healthcare, education, living conditions, and protection for workers.

How can Individual Employees Help?

Despite genuine commitment to CSR principles, operational efficiency and profitability remain as major concerns for businesses; in fact, they are essential to ensure a company’s own sustainability. Fulfilling external demands to play a part in ensuring the sustainability of the planet must come while continuing to meet traditional obligations of enterprises to pay staff, suppliers, pensions, taxes, shareholders. Acting early to engineer sustainability into the supply chain can give time for proper research and analysis, to ensure the adopted approaches are the best to meet all requirements.

For example, it can take time and financial commitment to work with suppliers to change the way products are designed or made to move away from processes or materials that are known to be damaging. Extensive dialogue may be needed to agree sustainable ways of producing and delivering current products. While some suppliers may be willing to change, others may take more convincing. It may be necessary to find alternative suppliers that are already committed to sustainability objectives. It can take time to find a suitable and reliable partner.

To improve supply-chain sustainability, it’s important to audit suppliers’ environmental credentials. This can be a laborious process, to gather basic information about environmental impacts and should also ask about any commitments to voluntary initiatives that could indicate a healthy culture of sustainability in the organisation. Reporting and record keeping may not yet be obligatory (in the same way as Dodd Frank or RoHS legislation), although taking the time to compile informal reports into how you evaluated your partners and how they performed could pay dividends in the future. You may even consider establishing a supplier award for commitment to sustainability to recognise outstanding performance or improvements in specific aspects.

Optimising the supply chain for sustainability is a long-term an ongoing commitment. The right approach offers the prospect of making a difference in the world while also strengthening business performance by increasing sales and reducing costs such as utility bills and waste handling.

For insights into issues affecting sustainability, the European Parliament Working Group on Responsible Business Conduct comments on EU business and policies that affect the environment and human rights around the world, and provides links to related EU publications. For an official EU view on sustainability, the European Green Deal has information on proposals to improve resource efficiency, reduce environmental impact, and promote the circular economy.

A Note of Caution

While sustainability goals are vital and tough targets are expected to become legal obligations, it’s important to understand that the supply chain is a critical business asset and enabler. The chosen partners simply must be reliable: non-compliance, delivery failures or stoppages are not an option.

Researching and testing arguments about sustainability is recommended, particularly where there is no legislation in place. Although the slow pace of legal change can be frustrating, laws provide reassurance that due process has been applied and that the issue has been examined and consulted widely before a final decision has been made. Looking into alternative approaches to an environmental or ethical issue, before embarking on big changes to the supply chain, may help avoid errors and inconvenience to the business. Working with an incumbent supplier to make improvements may be a more efficient and economical solution than moving to an unknown and untested new suitor that may be unable to live up to their promises.

It is also worth noting that reshaping a supply chain can be an enormous task: not only because of the numbers of different parties involved but also because supply chains tend to evolve over time, shaped by factors that are outside individual control. One example is the PCB fabrication industry, which is predominantly located in Asia with only a few percent of boards manufactured in the West. Although producing PCBs more locally may sound good for sustainability, the associated infrastructure, specialist suppliers, and expertise are located where the majority of fabrication currently happens. Transferring production could be impracticable, for the foreseeable future.

Conclusion

Sustainable development is the defining theme of our time and has widespread commitment from consumers to governments and NGOs. Legal obligations and social pressures on businesses to behave responsibly towards the environment and humanity are increasing.

While companies and individual employees can and must play their part, the issue transcends traditional corporate boundaries and demands close attention to the entire supply chain. Re-engineering for sustainability is a long journey. To reach the destination, start with achievable goals and keep going.

• A Call to Activist Engineering
• Activist Engineering – Engineering for a better world
• Air Quality Projects