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Overview of Green Supply Chains Understanding Supply Chain ResponsibilityTM Paula Ivey Assisted by Eric Heimbecker The CSR Group LLC Presentation Outline • • • • • • Setting the Landscape Moving Beyond Simply “Green” The Business Case for Supply Chain Responsibility (SCR) Standards and Certifications Industry Initiatives SCR in Practice – – c Starbucks Patagonia 2012. All copyrights reserved. 2 Making Headlines “Gap Inc. Reaffirms Commitment to Improving The Lives Of Workers In Lesotho” Gap Inc. Press Release Images are still shots taken from Sky News video. c 2012. All copyrights reserved. 3 Making Headlines “In China, Human Costs Are Built Into an iPad” NY Times January 2012 Image from New York Times article. c 2012. All copyrights reserved. 4 Why Supply Chain Responsibility TM? Increasing regulation and consumer expectations Risk and Reputation Management SCR Increased responsibility in supply chain >>> increase transparency Outsourcing increases >>> companies held accountable for Supply Chain 5 c 2012. All copyrights reserved. SCR The Book – Why Now? Information Age Social Media Empowered, engaged, actionoriented consumers Shareholder resolutions/activism Immediacy of information Viral communication Consumer’s demand transparency Global Trends c Globalization Complexity Smaller, more connected world from outsourcing Finite resources Climate Change Supply chains have become networks of supply webs Heightened awareness of externalities 2012. All copyrights reserved. 6 Moving Beyond Simply “Green” “SCR extends CSR to the Supply Chain. It is defined as a holistic responsibility for all aspects of your supply chain, including environmental, social, cultural and economic, and encompasses what you make, how it is made, and how it is transported.” The CSR Group LLC c 2012. All copyrights reserved. 7 What is SCR TM? Includes a variety of issues such as: c Labor and working conditions Human Rights/Child Labor Women’s Rights Environmental Protection Product and Components Environmental Impact Transportation Cultural Responsibility Sustainable Agriculture Product Design Packaging Design End of Product Lifecycle 2012. All copyrights reserved. 8 What is SCR TM? Benefits suppliers: Extends Sustainability to a company’s direct and indirect suppliers The semantics: The terms Ethical Trading, Responsible Sourcing, and Supply Chain Responsibility are used interchangeably c 2012. All copyrights reserved. 9 The Business Case for SCR Perception Gap • The CSR Group helps bridge the gap between a companies leadership and consumer’s perceptions of a firm’s SCR Consumer perception of SCR c 2012. All copyrights reserved. The Gap Knowledge Environmental responsibility Labor/Human Rights Audits Full transparency Leadership perception of SCR 11 First Mover Advantage • First movers in sustainability can benefit from being early adopters, preventing consumer doubts to reactionary measures Image from Rogers, E. M. Diffusion of Innovations, 2003. c 2012. All copyrights reserved. 12 The Business Case for SCR A recent study (NBS, 2011) suggests that proactive SCR management INCREASED from of 50% to 57%, and reactive management DECREASED from 50% to 43%. 1. Brammer, Dr. S., Hoejmose, Dr. S., & Milington, Dr. A. Network for Business Sustainability. Managing Sustainable Global Supply Chains. May 2011. c 2012. All copyrights reserved. 13 The Business Case for SCR 1. 2. c A number of stakeholders are driving the push for sustainability in supply chains1 Integrating sustainability into core business functions is considered the most important leadership challenge facing business today for almost two thirds of company leaders2 Bancilhon, C., BSR. Maximizing Benefits From a Sustainable Supply Chain, March 2011. BSR & GlobeScan. State of Sustainable Business Pol 2011, November 2011, . 2012. All copyrights reserved. 14 Offensive Business Case for SCR Increase shareholder value Increase market share & customer base Increase operational efficiency & cost savings Build and maintain brand equity Employee attraction and retention Gain access to socially responsible investors c 2012. All copyrights reserved. 15 Offensive Case: Efficiency & Savings Operational efficiency Cost savings 1. c Key initiatives include energy, solid waste, and water Many companies find “low hanging fruit” in environmental initiatives that reduce cost, increase efficiency, and allow companies to begin their sustainability journey Corporations with best-in-class CSR efforts have experienced significant cost savings compared to those with average or laggard efforts1 Senxian, J. & Jutras, C., Aberdeen Group. The ROI of Sustainability: Making the Business Case, April 2009 2012. All copyrights reserved. 16 Defensive Business Case for SCR Retailer demands & customer demands Risk management Reputation management Stakeholder engagement management Preparation for the changing regulatory environment c 2012. All copyrights reserved. 17 Defensive Case: Risk Management Risk Management 1. 2. c “Minimizing the risks of criticisms and concerns from NGOs, the public, and customers” is one of the two key motivators in the adoption of socially responsible supplier practices1 Corporations are held accountable not only for their own practices but also for the practices of their suppliers2 “Any type of business can be implicated in human rights abuses” (Human Rights Watch) Billions of dollars are at stake for companies with strong brands Examples: Awayshesh, A. & Klassen, R. D. The impact of supply chain structure on the use of supplier socially responsible practices, International Journal of Operations & Production Management, 2010 Amaeshi, K. M., Osuji, O. K. & Nnodium, P. Corporate social responsibility in supply chains of global brands: a boundaryless responsibility? Clarifications, exceptions, and implications”. Journal of Business Ethics, 2008 2012. All copyrights reserved. 18 Defensive Case: Changing Regulations Changing Regulations California Transparency in Supply Chains Act of 2010 (SB 657)1 Dodd-Frank Wall Street Reform and Consumer Protection Act (§1502)2 Enacted in January 2012 Pertains to all manufacturing and retail companies with worldwide annual gross receipts of $100M+ which are doing business in California Requires disclosure of efforts to remove slavery and human trafficking from direct supply chains Estimated adoption by June 2012 Pertains to disclosure regarding conflict minerals Section of larger act establishing improved regulation and accountability European Union: RoHS Recast Directive (2011/65/EU)3 Adopted and was enacted in January 20134 Pertains to Restriction of the use of certain Hazardous Substances in electrical and electronic equipment (RoHS) Update to previous RoHS legislation *Sources from legislation websites c 2012. All copyrights reserved. 19 The Business Case for SCR SCR actions bring tangible benefits to both buyers and suppliers, building the business case for a sustainable supply chain1 1. Bancilhon, C., BSR. Maximizing Benefits From a Sustainable Supply Chain, March 2011. c 2012. All copyrights reserved. 20 Supply Chain Standards Navigating the Landscape • Standard and certification fatigue • Working to implement a sustainability policy can be overwhelming with the vast amount of standards, codes, policies, legislation, and governing bodies addressing SCR today • T4SD – most extensive database globally of standards and certifications Image created using wordle.net with list of codes from International Trade Centre. Standards Map, 2012. c 2012. All copyrights reserved. 22 Sample of Existing Standards & Organizations Agricultural Standards Labor Standards SA8000 Rainforest Alliance ETI Sustainable Agriculture Network FLA Workers’ Rights Consortium Fair Trade WRAP Other Industry Standards c 2012. All copyrights reserved. Initiatives & Tools SEDEX Other Relevant Standards AA100 Sustainable Consortium Joint Initiative GSCP Global Alliance Business Social Compliance Initiative ISO 26000 ISO 14001 ISO 1404 ISO26000 Social Accountability in Sustainable Agriculture 23 SA8000 by Industry Lighting Others Facility Services / Accessories Pest Control Services Agriculture Waste Management Transportation Toys Textiles Apparel Sporting Goods & Equipment Automotive Plastics Packaging Building Materials Metals Business Services Chemicals Medical / Pharmaceutical Cleaning Services Industrial Equip. Housewares Construction Furniture Consulting Food Footwear Energy c 2012. All copyrights reserved. Electronics Cosmetics 24 Agricultural Standards Other Agricultural Standards Marine Stewardship Council Forest Stewardship Council (FSC) with Rainforest Alliance European Sugar Manufacturers' Committee Code of Conduct International Code of Conduct for Production of Cut-Flowers c Code of Conduct for the Tea Sector Sustainable Bio-industrial Standards 2012. All copyrights reserved. 25 Tools & Initiatives Labor Standards Agricultural Standards Tools & Initiatives • SEDEX •Sustainability Consortium •GSCP • Joint Initiative • Global Alliance • Social Accountability Agriculture (SASA) c 2012. All copyrights reserved. 26 SEDEX Suppliers Ethical Data Exchange (SEDEX) • Web-based system for sharing information on supply chain labor practices between suppliers and retailers. • Reduces duplication in auditing. • Has memberships for companies reporting data and for companies accessing data. •Has more than 6,000 suppliers and 70 brand name companies—Tesco, Sainsbury’s, Marks & Spencer, The Body Shop, Cadbury Schweppes, Hallmark Europe, Natures Way Foods •Organization is UK NGO. • http://www.sedex.org.uk c 2012. All copyrights reserved. 27 Examples of industry initiatives and trends SCR Industry Trends Increased: Collaboration Industry specific initiatives and Codes of Conduct Industry standards Tools (like Sedex and GSCP) for supplier data consolidation Supplier expectations c 2012. All copyrights reserved. 29 Industry Standards – Representative sample CONSUMER GOODS Electronic Industry Code of Conduct International Council of Toy Industries, Code of Business Conduct World Federation of The Sporting Goods Industry Model Code of Conduct Carpet Industry Sustainability Code of Conduct Green Seal (for Industrial and Manufactured Products) c 2012. All copyrights reserved. EXTRACTIVE INDUSTRIES International Council on Mining & Metals Sustainable Development Framework Kimberly Process Certification Scheme for Conflict Diamonds Principles for the Conduct of Company Operation within the Minerals Industry Suggestions for a Code of Conduct for the Oil and Gas-Producing Industries 30 Collaboration • Collaboration is emerging as a meaningful and effective means to create real change in responsible supply chain movement. • Electronic Industry Citizenship Coalition® (EICC®): A code of best practices adopted and implemented by some of the world’s major electronic and telecommunication brands and their suppliers Goal is to implement a single supply chain social responsibility code of conduct in the electronic sector supply chain. One of the main objectives is the unification of codes and practices in the electronic industry. EICC sets forth performance, compliance, auditing and reporting guidelines across five areas of social responsibility: • • • • • c Labour Health and Safety Environmental Management System Ethics source: http://www.csr-supplychain.org/standard/gesi 2012. All copyrights reserved. 31 Collaboration across industries Conflict minerals: EICC – conflict minerals use in electronics industry LBMA - The London Bullion Market Association – Responsible Gold Guidance requires audits of LMBA-accredited gold refiners’ due diligence * RJC - Responsible Jewelry Council – Supports LMBA – Chain-of-Custody Standard just launched March 2012 OECD- Organization for Economic Co-operation and Development AIAG c – Automotive Industry Action Group 2012. All copyrights reserved. 32 Supply Chain Responsibility In Practice SCR Today in the US Wal-Mart – Supplier sustainability requirements leads to Sustainability Consortium Intel – Requiring sustainability reporting of top 75 suppliers Chrysler – 15 “suggested” requirements of their tier one suppliers Walgreens and United Airlines– Just announced in past few months Whole Foods – At meeting with top 100 suppliers released 17 requirements of suppliers within next 2 years. c 2012. All copyrights reserved. 34 SCR Applied Energy Efficiency Savings DuPont...$2 billion in savings (1990-2000) 3M…Annual energy savings of $25.6 million Frito Lay ...30% ROI on energy saving initiatives Solid Waste Reduction Interface, Inc. (carpet manufacturer) …Eliminated over $90M in waste Hewlett Packard …Saved $2.4 million in 2007 McDonalds …Reduced its solid waste by 30% by changing food wrapping materials Water Reductions Ford…Reduced water use by 43% Coca Cola…Reduced water use by 19% Unilever…Saved 1.6M kilograms of CO2 from reverse osmosis system Sources: Company Website and The Climate Group c 2012. All copyrights reserved. 35 CSRG Client Example – SCR Applied Large Global Retailer Multi year engagement Project work in multiple business units Involved complex issues Developing systems Supplier engagement Select supplier auditing SCR management plan Risk and reputation management c 2012. All copyrights reserved. 36 Patagonia A Best Practice SMB • The Footprint Chronicles: • Promoting traceability, transparency and accountability • Interactive map of all suppliers on website • Our Common Waters: • Water Footprint • Common Thread: • Reduce, Repair, Reuse, Recycle c 2012. All copyrights reserved. 37 CSRG SCR Toolkit • • • • • • c Supplier Code of Conduct – Best practice examples of supplier codes of conduct – The CSR Group, LLC recommended template for supplier code of conduct – Informational resource on supplier codes of conduct People & Society – Templates and language around child labor and corporate policies with regards to supply chains Energy And Climate – List of recommended software providers for managing and tracking GHG information – Standard GHG Tracking Template Water & Waste – Water Usage Template – Waste Footprint Template Geographic Risk – Geographic Risk Tool Management/Implementation – List of prequalified auditing firms 2012. All copyrights reserved. 38 Some of our clients… c 2012. All copyrights reserved. 39 39 The CSR Group’s SCR Flow Operational Change Cultural Change Auditing and CAP/Improvement BEGIN:. Assess the Landscape Analyze – Define. On-Going Activities: Collaboration Communication Change Management Implement c 2012. All copyrights reserved. PLAN (including Data Management System) 40 Take-aways • Supply Chain Responsibility (SCR) is reaching mainstream • Uptake is growing rapidly • SCR is driven by retail and the brands, but ultimately by the consumer • Grocery Manufacturers and FMI Survey just released by McKensie showed that Resource Depletion and Supply Chain Sustainability issues are the top two issues they face today. CSRG survey of the Natural Products Industry shows the same. • Capacity Building in APEC Countries is an opportunity • Industry is coming together to create efficiencies • Public Policy and governments can play an important role c 2012. All copyrights reserved. 41 Questions? Thank you for your time. Holistic Supply Chain What you make (Product/Food) Product Components, Ingredients Product Design Packaging Environmental Impact of Materials End of Product Lifecycle How it’s made (Process) Working Conditions Local Community Impact Energy Sourcing Environmental Impact of Process How it gets to there (Transportation) Environmental Impact Working Conditions 43 c 2012. All copyrights reserved. Starbucks Coffee and Farmer Equity (C.A.F.E.) Practices Program • Comprehensive programs including forest conservation, responsible purchasing and microfinance • Network of Producer Support Organizations (PSOs) provide supplier development to small-scale farmers • 93% (509M lbs.) of Starbucks’ coffee was ethically sourced in 2012, including 90% through C.A.F.E. Practices • Applicant non-compliance decreased by 92% over three years and there was a 112% strategic status achievement over the past five years • Green Coffee Pricing Model rewards compliant suppliers with premium prices while fostering price stability and mutually beneficial relationships c 2012. All copyrights reserved. 44