‘Greening’ the supply chain
30 September 2020: In the desire to make the post-COVID-19 world better and address the threat caused by climate change, is ‘greening’ the supply chain the answer? The latest government consultation on illegal deforestation seeks to address this.
The UK government seems to think supply chains have a part to play in the fight against climate change, as it has published a consultation seeking views on whether to introduce a new law designed to prevent forests and other natural areas from being illegally changed into agricultural land.
The thrust of the proposed legislation would be to make it illegal for larger businesses to use forest risk commodities that have not been produced following relevant local laws, and they would need to undertake due diligence to show that they have taken proportionate action to ensure this is the case.
In some respects, the proposed approach is similar to the requirement under the UK’s Modern Slavery Act 2015 for some commercial organisations to demonstrate the steps they have taken to identify and mitigate the risk of slavery and human trafficking in their supply chains. In this instance, however, the threat is reputational damage rather than fines or imprisonment.
The current consultation arose from a government-commissioned taskforce, the Global Resource Initiative (GRI) that considered actions the UK could take to make international supply chains greener and leave a lighter footprint on the global environment.
As the consultation document points out, the UK consumes significant amounts of commodities such as beef, cocoa, palm oil, pulp and paper, timber, rubber and soya, whose production is associated with deforestation. Although the current consultation focuses on forests and land conversation, the GRI has said this is only the first step. The impact of commodity production and trade on the environment, human rights and working conditions as a whole will have to be addressed if any real progress is to be made.
But what do we mean by ‘greening’ the supply chain?
In essence, it is quite simple. Any organisation that produces or supplies goods or services needs to review its supply chain to assess the risk that any element within that supply chain is not following best practice regarding sustainable production.
So a clothes retailer, for example, must decide not only from whom it buys its garments and at what price (as a commercial decision) but also understand the supply chain from start to finish ie how are those garments are made, from what, how they are transported and assess the risks within that supply chain of non-compliance with required standards.
Having assessed the risk, the clothes retailer must then decide how it will mitigate any risks identified within the supply chain. One choice could be to do nothing, another could be to end or not enter into contracts with non-compliant suppliers. But neither of these solves the problem and, of course, in the case of the former could run the risk of fines, reputational damage or even imprisonment for directors or top management.
Rather the garment retailer, in this case, should work with suppliers, producers and governments to improve production methods, change the raw materials used or seek out the most sustainable way to transport the garments from source to market. In doing so, the supply chain is ‘greened’.
It does not necessarily mean stopping production of a particular item. Instead, the aim is to seek the best way to produce goods with a lighter footprint. In the same way, it is not designed to reduce trade, nor is it anti-consumerism, although many organisations are concerned that unless there is a ‘level playing field’ some may increase their competitiveness at the expense of those who do adhere to stricter standards.
Although the concept is simple, it is not so easy in practice to implement or enforce. As the section 54 Transparency in Supply Chains published in accordance with the UK’s Modern Slavery Act has revealed, many organisations find it difficult to go beyond their tier 1 suppliers or monitor the working conditions in supplier factories in the UK, let alone in far-flung locales.
The GRI’s report acknowledges that governments can only ‘enable change’ by making it commercially viable for producers and retailers to effect change. They cannot drive demand in the same way as consumers or investors. Even so, other governments and institutions such as the EU are also looking to enable or even enforce behavioural and commercial change either through legal penalties, trade sanctions, reputational damage or moral pressure.
We can, therefore, expect many more such consultations and legislative changes that will aim to ‘green’ the supply chains. It would be wise for commercial organisations of whatever size to be prepared to review and reconfigure their supply chains to meet the increased demand of government, consumers, investors and employees. You could say our, and their, futures depend upon it.