Dr Paul McNeillis is a director for CSR at Achilles Information. Here he looks at how ‘black swan’ events in the world of sustainability have the power to make or break companies

No company ever truly got hurt by a supply chain scandal, or so says conventional wisdom.  And there is evidence that may appear to support this: Mattel came under the spotlight in 2007 when their toys were subject to a series of product recalls in a toy safety story that simply refused to go away. The events escalated and reverberated around the business and political sphere culminating in the tragic suicide of the manager of a supplier company in China. A recent case study by the Oxford-Achilles Working Group on CSR goes into the public and the private stories of that complex case to give valuable lessons learned. However, the bottom line questions remain: Did the share price plummet? Did the brand value drop? Did sales fall long term? No.
 
However, things could be changing. A year ago the Norwegian national telephone company, Telenor, was caught up in a scenario that may be the shape of things to come: A factory in Bangladesh supplying the company had two deaths and audits revealed the use of child labour. That same factory was linked to them by a joint venture with Grameen phones, headed by microfinance, Nobel Prize winner Mohammed Yunnus.  The two parties split with some heated mutual criticism and sustained media pressure on Telenor ensued. The debacle came close to causing Telenor real damage.
 
Brands are as vulnerable as they are valuable, as high street jeweller Ratner famously found to his cost in the classic incident in 1991 when he made a single supposedly light hearted speech denigrating his ‘affordable’ stock as “total crap”. The comment virtually destroyed the brand overnight and wiped £500million off the company’s value.

If such damage is possible to national brands, could a global giant be next? Why do they seem immune when there are so many risk factors and so many stakeholders watching? The answer may lie in the metaphor of the Black Swan created by Nassim Nicholas Taleb in his 2007 book The Black Swan. Taleb argues that almost all major scientific discoveries, historical events, and artistic accomplishments were as rare as “black swans”—undirected and unpredicted phenomenon which then came to pass. He drew an analogy in finance by arguing that banks and trading firms are highly vulnerable to hazardous Black Swan events because they fail to contemplate scenarios which could in fact be predicted. Similarly, within supply chains we start every day with a business as usual mentality that fails to spot the dangerous scenarios. There seems a reluctance to plan for that Black Swan – an unexpected, but in hindsight entirely predictable event.

In procurement the foundations for a major brand destroying scandal are already laid: NGO’s active for many years produce sophisticated and sustained critiques that cannot be brushed aside by clever PR. Consumers de-sensitised for years are starting to be presented with real choice in the market as leaders pull away from laggards and make corporate responsibility a strategic advantage. Above all else, the bottom line in global supply chains is that too little is actually really happening to prevent a Black Swan event. CSR initiatives led by small teams are not getting traction yet in procurement departments.

The scale of benefit realised by moving to low cost countries is enormous, however, scratch the surface and the investment in responsible supply chain initiatives is tiny. Only a few industry wide initiatives are really starting to pull together a global effort of sufficient scale to address the issues in a serious manner.

Put together these ingredients and the ‘unlikely’ event of a real supply chain scandal – one with devastating results – seems as plausible as the now widespread analogy of the Black Swan. It’s time procurement professionals woke up to these predictable dangers and started working with each other in cross-industry initiatives, with their colleagues in CSR and on producing change on a meaningful scale that makes an impact in the real world. Only then can they say ‘we’ve seen the black swan coming and we’re ready for it’.

The Achilles Group, headquartered in Abingdon, Oxfordshire, UK, identifies, qualifies, monitors and evaluates suppliers on behalf of major organisations worldwide. The Achilles Group’s services for sustainable procurement help create opportunities for business and reduce risk in the supply chain.

Jeff Hittner, corporate social responsibility consulting leader for IBM, tells Sustainable Sourcing that benchmarking, collaboration and simplicity hold the key to sustainability success

We hear a lot about targets – but how many companies are actively benchmarking their sustainability achievements? 

We’re seeing a lot of high-flying goals from the board of directors and the CEO about reducing carbon by ‘X’ percent and water by ‘Y’ percent, but the majority of them don’t have any metrics to track the data related to this. First and foremost it’s essential to identify what metrics should be measured and how they relate back to a company’s sustainability goals. 

What is IBM’s own research telling you about the sustainability market?

From our survey findings – where we’re asking companies around the globe at a c-suite level about their sustainability needs from a supplier standpoint – over half (of respondents) are telling us that they’re being required by their business partners to adopt standards relating to carbon management. A further three quarters are being asked to adopt standards relating to ethical labour standards. This shows that there is a genuine awareness of the kind of issues that companies really need to start tackling.

To what extent is the lack of a common and coherent approach to benchmarking holding companies back? 

Standards for sustainability are immature and, in many respects, are competing with one another. There was a recent story in the Financial Times that claimed that within the FTSE 500 companies there were 35 different methodologies for counting carbon. You’ve also got competing standards on green buildings, you have competing standards for best in class of all sorts of products. The real challenge is to look at the best in class performers and figure out what the best measurements and metrics for sustainability are going to be.

How close are we to producing a standard set of metrics?

Simplicity is always desirable but from the standpoint of a single set of standards I don’t think we’re there yet. That’s not necessarily a negative thing. We’re seeing industries getting together, competitors even getting together, and saying that we need standards around things like water because there are none out there and we’re all measuring it differently. That sort of discussion starts a dialogue and we’re increasingly seeing collaboration being driven by the need to talk about best practice in areas such as water conservation.

What’s the best example you’ve seen in action? 

The beverage industry got together and created the Beverage Industry Environmental Roundtable, which includes companies like Diageo, InBev, Coke and Pepsi. Those companies are real competitors, but they’re working together to develop standards for measurement and they’re working together to develop best practices around conservation. We’re seeing something similar with things like the Wal-Mart supplier index. So even though there’s not a global standard, we’re seeing some really big players and some really key industries getting together and developing a set of standards. It’s almost like the quote  ‘politics makes strange bedfellows’ – the same could be said of sustainability. 

How much of this is being driven by the need to overcome the kind of environmental taxes and legislation that will undoubtedly be levied over the coming decade? 

I think that’s part of it but I don’t think that that’s necessarily driving the a lot of the standards’ efforts that are existing right now. If you go back to the water example, then Coke or Pepsi can’t open up a plant in India unless they’re addressing water shortage and water as an issue. And the same is true of a company that wants to open up a business in Brazil, they have to address social issues there if they want to get the implicit acceptance to succeed there from customers and stakeholders, so I think legal and legislation is definitely a driver but it’s the not only one. In particular, we see a lot of these standards efforts being driven by what I would consider some of the leaders in these different industries, so they’re doing it for an entirely reason. They’re doing it for opportunism – they see sustainability as an opportunity to get ahead and to lead and drive the change that’s going to encompass their entire industry. 

Are some companies ahead of the rest when it comes to sustainability?  

Undoubtedly. In fact I think the majority of the business world is made up of laggards when it comes to leaders and laggards on the topic of sustainability. So in that sense the legal side of things will give everyone a huge push. 

IBM has recently launched a new Sustainable Supplier Information Management Consulting offering. More details can be found here

By Richard Edwards

Increasingly ethically-aware consumers are helping sustainable sourcing to shoot up the corporate agenda, according to a leading figure at US-based business ethics and corruption specialists, Ethisphere.

Robert Leffel, associate director at the Ethisphere Institute, whose company recently published its annual World’s Most Ethical Companies league table, told Sustainable Sourcing that procurement operations were rapidly moving from the periphery of corporate responsibility to becoming one of its bedrocks.

“In today’s globalised economy with its intricate supply chains, it’s no longer enough to produce a good quality product at a competitive price,” Leffel said. “How a product is produced and what kind of impact it makes along the supply chain has become an important issue that can define or destroy a company’s competitive advantage.”
 
Almost all of the companies in this year’s list – among them some of the biggest names in global business, including Google, Toyota, HSBC and BMW – had done, or were in the process of, implementing sustainable sourcing practices.
 
“Even in the industries that were not traditionally associated with environmental protection (e.g. service oriented) there is a growing trend to contribute to environmental sustainability by, for example, sourcing renewable energy supply for office buildings, improving energy efficiency, reducing waste, supporting alternative transportation modes for employees, and so on,” he said.
 
Of those top performers, external pressure was, Leffel claimed, forcing consumer product manufacturers to raise their game.
 
“Consumer product manufacturers and retailers can also be singled out for a higher concentration of ethical and sustainable sourcing practices, perhaps due to the consumer pressure and product liability issues,” says Leffel.
 
However, a lack of transparency in companies operating outside of the Western world, still meant that this year’s list – the third published by the company – was dominated by companies from Europe and the U.S.
 
“..this does not mean that other countries or continents have no ethical companies,” Leffel said. “Nor does it mean that business ethics or sustainable sourcing has an exclusively ‘western’ domain. We are convinced that there are many companies, big and small, around the world that meet the criteria for good corporate citizenship including sustainable sourcing practices. But there is still a problem with information availability and sometimes transparency.”

By Heather Rodgers, head of group procurement and supplier management, Centrica

To extend Centrica’s business principles into the supply chain, the corporate responsibility committee supported the creation of a new group-wide policy, the responsible procurement and supplier management policy, to explain the conduct that Centrica expects of itself and its business partners. The Centrica procurement team has been at the heart of driving the policy in the last 18 months and is now working closely with its supplier partnership community to roll this out.

The policy outlines commitments to reduce environmental impact, respect human rights, ensure business integrity and focus on health and safety. It places procurement at the centre of executing the policy.

After the board endorsed the policy in December 2007, key milestones were created to implement the policy across 2008 and 2009. We undertook a number of steps to introduce and embed the policy into our procurement processes:

• Across Centrica, a group project team was initiated in 2008 to lead and roll out the corporate responsibility and responsible procurement strategy across Centrica’s businesses. Participants include group and business unit procurement teams, legal representatives and members of the corporate responsibility team. The two people who are driving this across the company are Trevor Boyce and Hulya Akal.
• We began by speaking with other CPO’s to capture the lessons learned during their experience in rolling out responsible procurement policies for their companies. This saved a huge amount of time because it ensured we did not tread the same path and meant that we had feedback for areas that weren’t successful in other companies. In April 2008, we then held a meeting with our strategic suppliers to share ideas and begin the journey of communicating Centrica’s messages of corporate responsibility. The attendance was excellent and the next session is planned for April 2009. The team have received very positive feedback from suppliers who indicated that they have similar policies for themselves. DHL’s UK Procurement representative for CR policies and initiatives, said, “I welcomed the opportunity of getting together with like-minded individuals, representing a broad range of organisations, sharing common themes and sets of goals. The workshop proved to be an excellent and productive day, brainstorming ideas, scenarios and sharing current working practices, I certainly took away with me some ideas and ways forwards”.
• One of the exciting initiatives during 2008 was when we worked with one of our key suppliers, Worcester Bosch, to map out the supply chain from its beginning to it arriving at our customers’ doorstep. This exercise benefited both of us as we gained a greater understanding of how transparent supply chains can be. We will continue to address this with our suppliers going forward.
• Our research did not stop there, because in talking with other CPOs at roundtable events we were pointed in the direction of companies like SEDEX (the Supplier Ethical Data Exchange) and First Point Assessment Limited, which is a division of Achilles Information, and other external bodies to capture best practice for supplier audits and to understand how this is being tracked and audited by other blue-chip organisations. The supplier audit is being utilised with some of our outsourced partners to ensure we get the balance of capturing the evidence with the practicalities of making the request for information relevant to the policy. They have provided some useful feedback which we have built in as part of the experience. This demonstrates the team’s desire to ensure that any supplier audits that are undertaken encompass an internationally-recognised corporate code of good practice.
• We worked with the legal and corporate responsibility teams to create new contractual clauses that would embed the policy’s principles into supplier contracts.  The procurement team ensures that these clauses are included in contracts in upstream and downstream businesses for those suppliers who supply goods and services, including supply chains across the world and our outsourced operations. This is initiated when new categories are opened up, new suppliers are signed on and with renewal of contracts.
• To measure and report performance at board level, we developed key performance indicators to track the number of suppliers signing up to the policy. These KPI’s are incorporated across the procurement teams’ annual targets. These measures demonstrate confidence that the policy roll out is on course and reportable to the Centrica executive committee. 
• The website is our window to the suppliers and we are talking with other companies on how we can lever this portal to exchange information. Just recently, Centrica has been voted one of the best companies in Europe for communicating its corporate responsibility programme, according to communications consultancy Hallvarsson & Halvarsson (H&H). We want to carry on evolving our communications with our suppliers and will be talking with them at our supplier forum next April on ways in which we can take it to the next stage. 

Good progress has been made and strong foundations have been laid for carrying forward and further embedding responsible procurement into Centrica’s procurement and supplier management processes. November last year saw a successful re-certification audit from the Chartered Institute of Purchasing and Supply, where the team highlighted how impressed they were with the environment and sustainability section for policies and procedures and it was regarded as being in the upper quartile of all companies audited.

What is great is that companies are coming to talk to us and we are happy to share our experiences – like the people who helped us at the beginning of our journey. Nevertheless it remains a journey and there will be plenty more lessons to learn as we carry on going forward.

Centrica is a top 30 FTSE100 company with growing energy businesses in the UK, North America and Europe. It secures and supplies gas and electricity for millions of homes and businesses and offers a distinctive range of home energy solutions and low-carbon products and services.

By Francesca Wakefield

The buzz around sustainability and corporate social responsibility has been gathering pace for some years now, but in the current climate companies need to ask how much it really contributes to the bottom line.

The reality is that 2009 will a be a year of reckoning for the sustainability agenda, forcing companies to ruthlessly assess which policies and sourcing decisions actually deliver shareholder value and which are simply an extension of the company’s CSR programme. A potential solution is demand management. A strategy that is based around reducing consumption and corporate spend on external products and services, demand management could become the new face of sustainability.

In the current climate cutting costs is the name of the game. Indeed, a survey conducted in February by the Procurement Leaders Network identified cost reduction as the overwhelming priority for respondents in 2009, with over 96% ranking it as either their highest priority or a high priority.

Such a response does not immediately lend itself to supporting sustainability policies which often involve sourcing from more expensive suppliers. At the World Economic Forum in Davos this year, for example, climate change was supposed to be at the top of the agenda but found itself sidelined as discussions were dominated by the economic crisis. Similarly, corporate sustainability agendas will find themselves subject to the tests of short-term cost saving and corporate gain.

Of course this will not be the case for every company, there will be some that will continue to have a stand-alone business case for sustainability (such as those bidding on public contracts or operating in niche areas) as evidenced by Bovis Lend Lease’s recent £2.4bn contract win as reported by Sustainable Sourcing. But for the rest, the worsening economic climate will make it difficult for procurement departments to justify sourcing from a supplier primarily on the basis of green credentials.

A sustainability strategy that fits perfectly with the mantra of cutting costs, however, is demand management. Concerned with reducing consumption and corporate spend on external products and services, demand management can involve reducing waste, corporate travel, number of printouts, the amount of computers and electricity spend – all things that are directly relevant to a company’s sustainability strategy.

The current economic crisis need not wipe sustainability off the table, but it will necessarily redefine how the concept is implemented and how much of a business case there really is for the broader concept of CSR. Instead of simply throwing a bit of money at a school and assuring shareholders of the reputational benefits, companies will be under increasing pressure to move from bolt on to built in sustainability that delivers measurable benefits.

Francesca Wakefield is an analyst at the Procurement Leaders Intelligence Unit

By Meryl Bushell

Talk of sustainability has grown considerably over the last 10 years, but how much of the talk is translated into action, especially in these challenging economic times?

When I first started having discussions about CSR in supply chains I was met with a lot of resistance. It was not easy to convince others that there were business benefits in adopting ethical and sustainable practices in procurement. I can remember many debates where the topic was dismissed as unimportant or “hobbyist”.

Over the years, climate change science has alerted the developed world to the folly of ignoring the impact of CO2 emissions and a huge number of organisations have started to take action to limit their environmental footprint.  But how many organisations have done this in a rigorous and thorough way? Most organisations start by looking at their own usage and introduce programmes to reduce their in-house energy consumption. At the simplest level these are about turning the lights out and reducing the heating a notch or too. We have all seen hotels pleading with us to reuse our towels, and many companies have introduced double sided photocopying or conference calls in place of travel. While worthy, these initiatives are hardly ground breaking and cynics will remark that they smack of self interest as they double as cost saving initiatives.

Some organisations pick a high profile sustainability item and channel all their efforts into their flagship area – many bespoke recycling activities fall into this category.

Few organisations meet best-practice levels of a comprehensive sustainability programme which encompasses all of their activity. I believe that there are three areas that need to be systematically addressed:

Own Use
Ensuring that all in-house production and operating activities are executed with minimum impact on the environment (and this does not mean coming down heavy for items affecting employees, but allowing senior executives to drive around in gas-guzzling company cars).

Bought in Goods and Services
Laying down minimum standards for suppliers and actively selecting only those goods and services which meet environmental specifications. Simply designing a questionnaire and getting suppliers to tick boxes serves only to keep bureaucrats  employed. Sustainability standards should be part of every adjudication process, and given the same level of weighting as other product specification items. Quality checks and audits should take place for sustainability criteria in the same way as they do for other criteria.

Product and Service Design
Developing goods and services which actively help an organisation’s customers and stakeholders improve their environmental impact.

Of course, sustainability should not be constrained to items impacting the environment but should also embrace human factors, diversity and ethics. The credit crunch and the subsequent economic downturn have led many firms to abandon their high ideals and instead drive for short-term cost savings. If they had studied the available research they might have thought twice before embarking on this course of action.

While consumers are indicating that the financial climate may force them to purchase fewer organic products, demand for Fairtrade and other sustainably-sourced produce is holding up, and if anything the indications are that demand will increase. In studies undertaken by Feel Research, 92% of consumers claim to be willing to pay extra for ethically-sourced products, and a recent PricewaterhouseCoopers report found that 58% of consumers said they are currently buying fewer sustainable products than they would like to.

So, driving comprehensive CSR policies and practices islikely to help organisations to maintain and win market share and revenues even in an overall declining market. The business case for CSR in supply chains is even stronger in times of economic woe, and procurement professionals should be championing sustainability at the board level to help their companies survive and thrive.

Meryl Bushell is an independent consultant and executive coach. She is the former chief procurement officer of BT.

Watch out for Fairtrade Fortnight which runs from 23 Feb to 8 March.

Richard Edwards

US technology giant Apple is coming under fire from environmental campaigners who believe that the company is falling short when it comes to sustainability reporting.

The potentially embarrassing accusation – made worse by the presence of eminent environmental campaigner Al Gore on the company’s board – comes as Apple begins showcasing its green credentials with the launch of a new laptop that utilises a battery which, it claims, boasts three times more rechargeable cycles than a conventional model.

Apple’s advice to shareholders that they vote against a proposal for more corporate social responsibility (CSR) reporting, however, has caused consternation among campaigners who believe that the company should fall in line with other major global companies.

The shareholder resolution, which was proposed by As You Sow, in collaboration with the New York City Office of the Comptroller and the Green Century Equity Fund, stated that Apple “lags behind its global industry peers on sustainability reporting, especially regarding key environmental issues such as climate change.”

It’s not the first time that Apple’s CSR credentials have been questioned. In August 2006, an investigation by the UK’s Mail on Sunday alleged that workers making the company’s iconic iPod were being forced to work in squalid conditions to earn the equivalent of £27 a month.

One of the workers interviewed as part of the newspaper report even claimed that working in the sprawling Chinese factory that produced one of the best-selling products in history was “like being in the army”.

The company has also irked the likes of Greenpeace, which heavily criticised Apple over its failure to publish information on its policies regarding the use of toxic chemicals in its products.

On that occasion Apple CEO Steve Jobs issued a full apology – this time around the company seem less eager to reach a compromise.

“The board believes that the proposal has been substantially addressed and publication of an additional report would produce little added value which requiring unnecessary time and expense,” Apple said in a proxy filing that advised shareholders to vote down the proposal.

Apple’s stance, however, has given rise to fears that more companies could ditch CSR reporting as the economic downturn continues to bite.

“I’m not surprised at what Apple has done,” Solitaire Townsend, chief executive of Futerra, told Procurement Leaders. “It’s a significant undertaking and it takes a lot of money and expertise – it can also be patchy in what it delivers you. In a recession where companies are looking at the value delivery of everything they do then it could be one of the areas that gets neglected.”

Townsend argues though, that the shareholder’s demands suggest that Apple’s current reporting procedures are inadequate. “The irony is that if a number of stakeholders are saying you should do a report then clearly the information Apple has out there isn’t sufficient,” she said. “It’s not up to companies to decide whether the information they provide is thorough enough – it’s up to their audience.”

Although contacted, Apple did not comment on the story to SustainableSourcing.