In the past few years, we have witnessed a wholesale shift whereby businesses in just about every sector realize that sustainability is a topic that they must engage with in a credible and transparent manner. In many cases, it has become a basic expectation in the marketplace.
With this settled, we are now seeing new frontiers being established, areas where leading companies are pushing the envelope and laying the foundation for the next generation of best-practices in corporate responsibility, accountability and sound management. Nowhere is this more apparent than in the case of sustainable supply chain programs. Just as companies recognize that by paying attention to their own environmental and social responsibility they can realize significant benefits, they are now starting to expect the same level of responsibility from those companies with which they do business. In fact, one can reasonably argue that a seminal event in the wave of corporate responsibility was the supply chain scandals of the 1980's, when Nike was pilloried for substandard working conditions in its supply chain.
But what does this mean for companies now? How are companies implementing sustainable supply chain programs? We present here a few "ingredients" that can help a company start to come to grips with the sustainability of its suppliers.
First off, depending on the particular sector a company is in, there are many different frameworks that have been established to provide guidance for corporate social and environmental responsibility. For example, in the electronics industry, the Electronics Industry Citizenship Coalition (EICC) is a membership organization aimed at increasing environmental, social and governance accountability among its members. Interestingly, to be a member in this organization, a company must pledge to ask its own suppliers to also become members in EICC. Thus the premise of the EICC is to promote supply chain sustainability. So if a company is interested in increasing the sustainability of its supply chain, then it is worthwhile to explore what frameworks already exist that could help structure such an approach.
The next element of a solid approach to increasing the sustainability of your supply chain is to formulate a supply chain code of conduct. This is a formal set of requirements and expected behaviors that a company imposes on its suppliers. The elements of such a code of conduct can vary depending on which issues are most material to your sector. Most codes require compliance with basic human rights principles, while others extend to requirements for environmental and social reporting.
The level of rigor of a supply chain code of conduct can vary significantly. In some cases, companies craft some vague language and then bury the code of conduct into the back pages of a long supplier contract or RFP, never to be seen or discussed again. However in other cases, the supply chain code of conduct has real teeth, including the option for unannounced audits, financial penalties or even contract terminations to ensure compliance. Of course there is the risk that a key supplier may not be able to meet the requirements of a such a code of conduct. Some companies phase-in the requirements of their codes over a period of time, allowing their suppliers, especially key suppliers, time to come into compliance.
The bottom line is that it comes down to risk management. Companies want to manage their risk and understand where in their operations the greatest risks are located. With the inclusion of environmental and social factors in the assessment of a company's overall footprint, it now understood that risks in the supply chain can also come from these factors. The time has come for companies to address these risks directly.