With the ESG norms gaining centerstage, many corporations have pledged to work with only those suppliers that adhere to social and environmental compliances. While the statement might seem simple and workable, there are myriad challenges in ascertaining that everyone in the value chain is aligned with a bigger corporate goal of enhancing sustainable expanse. The complexity further accentuates when there are multiple small sourcing partners spanning global geographies. Our recently held Webinar, ‘Sustainability & Ethical Sourcing, Supplier Diversity,’ brought forth leading global companies’ strategies towards ensuring sustainability. The panel discussion offered interesting success stories & best practices for others to imbibe and start their sustainability journey. Excerpts…
Sanjay Desai, Co-founder & Regional Director, Humana International (S) Pte Ltd. - "Holding your organization and its partners to a high standard is not just good ethics, it is good business which fuels customer loyalty and brand building blocks."
What is ethical and sustainable sourcing?
Ethical sourcing can be explained as the process of products being sourced from sources which are manufactured or procured responsibly and sustainably. It is a component of sustainable sourcing but not the same thing. Sustainable sourcing is a process of selecting materials, products, and services from suppliers in a sustainable way. In applying sustainable sourcing, organizations integrate social, ethical, and environmental factors into selecting their suppliers. An entire value chain of an organization needs to be committed to the cause of sustainability.
Are these two terms different and is there an inter-play between them?
Yes, this is a very pertinent question and there is no straight answer since one complements the other and only one is not complete without the other. From the way you look at the words, they do look and feel the same. But just like most words, the difference can be seen in their actual meaning or execution.Ethical sourcing is the art of selecting the suppliers based on how ethically and responsibly they have produced or procured their products / services as well as their suppliers. Sustainable sourcing is the process of looking for a sustainable solution to keep up with the demand for a certain product including managing the value chain (life cycle) of those products / categories in a circular manner.
What is the role of supply chain (or sourcing) in this equation?
Sourcing is one function, which is uniquely positioned to contribute to meeting a corporation's sustainability goals because of their overall control and span of responsibility. Few key elements…
Sourcing leaders and teams should review their spend and identify categories in which sustainability efforts may achieve success.
They should build a program that defines and adopts common methodologies and approaches. Focused effort should be made to promote the program and create awareness.
Sourcing operations group should develop sourcing policies (Governance), which become their SOP (Standard Operating Procedures). These policies should clearly explain the corporation's sustainability goals and expectations from their suppliers.
The sourcing compliance group can then govern and score suppliers according to these policies. They can build questionnaires, surveys, reviews, site visit audits, scorecards, and the like to measure how their suppliers are complying with the stated goals and how well sourcing has aligned with the corporation's sustainability mission.
Finally, sourcing organizations should benchmark and compare their own mission, policies, and achievements with other organizations/ vendors in the same industry.
What are the silent benefits of Sustainable and Ethical Sourcing?
Primary benefits of sustainable and ethical sourcing are:
Is there a “shifting” mind-set on sustainability and ethical procurement in last 3-4 years?
Yes indeed, there is a clear sign that top class multinationals are moving the needle in the right direction insisting on sustainable and ethical procurement practices with their major vendors, their tier-I and Tier-II suppliers. This is helping the organizations to change the mindset of consumers who are more aware and conscious of the brands they purchase. The young cohort (Gen X and Gen Y) make decisions that support environmental and sustainable enterprise in a serious manner. According to (SIG) Sourcing Industry Group Survey (2021), these are some of the interesting statistics.
67% of consumers prefer to work for socially responsible companies.
56% of consumers will pay extra for products and services from socially responsible companies.
52% of consumers made at least one purchase in the past six months from socially responsible companies.
52% of consumers check product packaging to ensure sustainable impact.
49% of consumers prefer to volunteer/donate to organizations engaged in social and environmental programs.
How do customers react to ethical and sourcing strategies by an organization?
In recent years, sustainability has become the front and center for both consumers and brands to reduce the impact and effect of climate change. A big part of these sustainability initiatives includes the use of ethical sourcing. According to a survey conducted by Software giant OpenText (2021), 81% of customers value and prefer to buy from organizations who embrace sustainable and ethical sourcing.
What is even more interesting is that 25% (of 81%) respondents said that the mindset changed since last 20-24 months, clearly indicating that customers indeed have started to re-evaluate their stance on ethical / sustainable sourcing. Another interesting survey result was 71% of respondents said that businesses have a responsibility to ensure their suppliers abide by an ethical code of conduct. And this is something that we have seen garnering a lot of attention with F100 organizations.
Another survey statistics highlight that nearly 60% of respondents indicated that (Governance) government needs to introduce regulations, which hold businesses more accountable for responsible & ethical sourcing. This can get a bit tricky when considering how consumers feel about governmental oversight into their daily lives. But, in 2019, the Trump Administration stopped imports of clothing, gold, diamonds, and other items believed to have been produced with forced childlabour by companies based in Brazil, China, and Malaysia, as well as some gold mined in eastern Congo and diamonds from Zimbabwe. Nearly 88% of survey respondents said when shopping online after the pandemic, they will prioritize buying from companies that make it clear the organizations have ethical sourcing strategies in place not just on paper but in their operations (example - last mile delivery).
What is the next frontier for Sustainable & Ethical sourcing?
The terms Sustainable and Ethical sourcing will continue to evolve in a serious manner. Ethical sourcing is not just like checking a box. Instead, the phrase represents the culmination of several coordinated efforts, suggesting that an organization is committed to enforcing sustainability, ethical behaviours as well as a serious awareness to social responsibility. While cynics might once have dismissed sustainability and ethical sourcing as catchy buzzwords, they have become an essential element of any risk mitigation strategy.
Holding your organization and its partners to a high standard is not just good ethics, it is good business which fuels customer loyalty and brand building blocks. For organizations without the resources or vision to kick off comprehensive initiatives, a more sustainable and ethical approach can begin with something as simple as behaving more transparently with trust and strong operational processes in dealing within their supply base to start with. Then, on the demand side, they can invite their consumers to provide their feedback, engage more directly within their distribution network, and reach out to competitors as peers to leverage open data which can be shared. You do not need to change the world (or even the foundations of your company) to make sustainable & ethical sourcing a reality. This is an evolutionary process, which will not happen tomorrow, but it will happen one day if the leadership stays committed and strong in their execution.
Kanishk Negi, Sustainable Procurement Director, Schneider Electric- "Think of sustainability as a transformation measure for your organization. Companies need to constantly innovate and upgrade to respond to the evolving trends in our operating environment. You can’t stay static. These are way too powerful trends to ignore. So, treat it as a lever to drive change and just go with it."
How do you see sustainable procurement and how does Schneider Electric approach it?
If we look at the strategic mission of Global Procurement at Schneider Electric, sustainability is one of the core pillars along with bottom line and other key impact areas. Generally, we not only focus on the achievement of business targets but equally analyse how these targets are achieved. And our sustainable procurement strategy, which is a subset of the global procurement strategy, provides us with this framework.
Sustainable procurement for us is to ensure an ethical and compliant supply chain, where we not only engage with our suppliers to avoid malpractices on environmental and social aspects but also review the premise/selection/ composition of materials that are purchased. We have special programs with our suppliers on different thematic areas, guided by our sustainable procurement strategy.
On the topic of climate action, we launched The Zero Carbon Project on 2021 April. And now we’ve formally onboarded more than 1000 suppliers globally and are working together to reduce their overall operational emissions by 50% by end of 2025.
On circularity, we are working with our raw material suppliers on material innovation and development, to make the materials more sustainable, for example, with lower environmental footprint, throughout their whole life cycle including when being disposed. We are also revamping our packaging to make sure that we phase out all the single use plastics and use only recycled cardboards in packaging by end of 2025. We are pushing the boundaries of working conditions and expect all our strategic suppliers to follow decent work practices, in addition to auditing the high-risk suppliers.
Besides being audited by statutory auditors as part of our annual financial disclosure, the performance of above areas together with several other commitments are linked in the financial incentives of the senior leadership. As a result, I can confidently say that sustainability has been embedded in the DNA of procurement at Schneider Electric.
How do you ensure a uniform implementation globally in a global organization?
Schneider Electric’s sustainable procurement strategy guides and identifies the thematic areas of intervention and the Sustainable Procurement team develops supplier engagement programs for each area with operational details and specific KPIs. These programs are adopted in the annual working plans by the procurement teams globally and implemented with suppliers. Performance on sustainability programs is a key area of review for procurement teams, along with productivity and quality parameters.
The recent IPCC report suggests that we are falling behind in efforts to limit climate change and 2030 has been declared as the decade of action. How can procurement contribute to this and what is Schneider Electric doing in this regard?
It’s a very important question. As a global society, we are not meeting the pace of action required to prevent the catastrophic climate change. The emissions from upstream and downstream of the supply chain are significantly higher than the company’s own emission and that’s why procurement’s role becomes extremely crucial.
Procurement team can engage suppliers and influence them to reduce their emissions. Without active participation of suppliers, we cannot make significant improvement on the climate action. Schneider Electric launched the massive “The Zero Carbon Project” on 2021 April to engage and onboard more than 1000 suppliers globally and reduce their operational emissions, which is part of our upstream emissions, by 50% by 2025. This program is part of the overall Schneider Electric ambition to operate Net Zero carbon emission supply chain by 2050.
It is indeed an ambitious program, can you share insights on how you are approaching The Zero Carbon Project and what have been your learnings?
The strong relationship between procurement teams and our suppliers provided a very concrete foundation for this initiative. Without their efforts, we could not have launched this program. One interesting insight that came from the Carbon Maturity Survey, which was conducted to understand the stage of decarbonization of our various partners and how much effort they need to take to meet the requirements, was that more than 70% of participating suppliers are at very initial stage and they just started the discussion around carbon emission. This called for intensive engagement with our business partners to help them get familiar with the sources of emissions, calculation process and actions required to reduce the emissions within a limited timeframe. To support our partners in this endeavour, we developed and deployed an elaborate supplier support framework. This framework comprises of 4 quadrants:
The first one is extensive training, curated at different levels of support required. Last year, we conducted 8 technical training sessions across multiple geographies, time zones, in different languages, pulling experts from different functions of Schneider Electric to explain decarbonization, actions implemented by Schneider Electric (Schneider Electric reduced its operational emissions by more than 50% between 2017-20). This assured our suppliers that Schneider Electric has already walked this path so with proper planning it is possible to achieve large decarbonization in limited period. To complement this big picture, we also provided extensive support to initiate carbon footprint calculation. More than 50 sessions were conducted to provide practical guidance on process of calculating the carbon footprint, data sources and collection, emission factors, etc. Additionally, more than 40 one-on-one handholding sessions were conducted with various suppliers who asked for additional support, to solve the inquires raised by suppliers.
We also initiated a series on peer-to-peer experience sharing, during which we invited some of our partners (and internal experts) who are leading the decarbonization journey to share their experience. All of these engagements comprise the ecosystem of multiple formats of training, coaching, which are currently extended and are available for our suppliers, making sure they could get a head start in this journey.
The second quadrant is the self-help mode. We have developed a dedicated web portal, which is available exclusively for our participating suppliers and contains multiple training modules, thought leadership, and new research on decarbonization. The web portal makes all the information available for the partners round the clock for them to move forward with their actions. We are also working to include premium content into this web portal, which is about to release soon.
In the third quadrant we look at making the expertise of Schneider Electric available to our suppliers, from the experts at our own manufacturing locations as well as Sustainability Business division, who can offer advice services on decarbonization.
The last quadrant focuses on developing customized solutions that leverage incentives available across the board. This includes leveraging local government support on decarbonization to Schneider Electric partnership with CDP to make ensure additional training and resources available to the partners. Many more initiatives are in progress.
What, according to you, is the “sustainable” model for the success for companies?
It’s ironic that this topic is still part of discussion today, although a little less. Our experience on this has been very clear that companies who follow responsible business practices, will perform better than the companies who do not. This point has also been resonated by various rating agencies in their studies, and there are reasons for that.
If we ask the question at the very fundamental level, what is sustainability, it’s all about efficiency – efficient use of resources, efficient use of raw materials, and efficient use of energy, water, reducing the waste. It’s also about switching from conventional carbon intensive sources to clean sources, which require innovation. Of course, you need to be strategic, approach it in a planned way, but all these actions – if implemented in a right way, pay you back with positive returns.
If we talk about our own experience, more than 50 of our facilities globally, by the end of last year were 100% operating on clean energy sources. They have completely phased out the fossil fuels and the RoI has stayed within the regular consideration for financial decisions.
Another point is early adoption. Keeping sustainability lens helps the leadership take a long-term horizon in decision making. It helps to identify the future trends at an early stage, so to enable an early preparation.
Another important consideration is the drastic evolution of the environmental regulation globally, over the past decade. Several new regulations have been introduced that mandate the corporations who are operating global supply chains responsible for the actions of their suppliers and to require sustainability due diligence, public report on the hot spots and remedial actions. In many cases, countries link these disclosures to financial instruments. All these regulatory shifts are making sustainability as a baseline now for procurement operations.
Ashwin Kak, Procurement & Sustainability Head - India & Southeast Asia, AB InBev- "We must stop thinking that sustainability is something which the sustainability team does, it has to be embedded within the organization, engage your employees more, your shareholders more, your consumers more and talk about it at the top of your voice. Silently doing it in a corner and not talking about it will not make people learn from those successes."
What is supplier diversity to you and how does it affect sustainable and ethical sourcing?
I think it's important to realize that probably an incident like the Rana Plaza, which happened a decade back, acted like a flashpoint when it comes to D&I in general in supply chain. I think from that point if you see how far we have progressed now and what really is happening in the larger corporate space in which we are in is immense, the kind of changes that have taken place now when you look at diversity, I am also intentionally adding inclusion because those are two sides to the same coin. I'll probably take 2 examples to explain how we probably address it in a supply chain. When you look at the work that we do with barley farmers in India, we are very clearly looking to ensure that the farmer soil test results capture what input to apply, and they are not excessively applying something. That's probably one way we are working with them in a 360-degree approach. We also ran a pilot last year on responsible sourcing principles (RSP), which is an embedded principle where we started reaching out to the women farmers in the family because we realized that although women in the family are doing most of the work when it comes to farming, they are not officially registered anywhere as farmers. So, they probably have lack of access to finance, and we did a pilot in the state of Haryana and parts of Rajasthan. The response that we received was immense in terms of those women farmers completely embracing this initiative and starting their own micro entrepreneurship journey. That was probably one way we started looking at it from our farming ecosystem.
When you look at the packaging space, it's very interesting, the industry we are in, we have returnable glass bottles, and we have cans. There are ways in which we work with our suppliers or intermediary partners to either increase the returnable content, returnability of those bottles that are there for increasing the recycled content in the cans but somewhere in getting those numbers right. What is important for us also to understand is that the way these bottles and cans return in our supply chain. They pass through probably 7 or 8 layers and the first mile in the supply chain is the waste picker or the waste handlers. I will give you a startling fact here… waste pickers in the country have an average life span of 39 years, which is half of the average lifespan of a general population. We started working with our bottles and cans suppliers and now we are looking at how can we address the needs of these first-mile collectors in the supply chain. That's how we look at the entire sustainable and ethical sourcing merging together within the procurement function and getting embedded because a lot of what I'm talking about is not being implemented by people who carry sustainability designations, but these are procurement category leads or the agriculture team, which is implementing all of this.
Is there any other function that you need to have a corporate social responsibility kind of a structure overarching, that will drive this, what do you what's your take on this?
Different corporates have different structures or the way they address it. There are certain corporates, which would either have an integrated team, while there are others, which would have a separate CSR team or a separate corporate affairs team. In some cases, the HR or the peoples’ team in the plant itself is implementing it, so I would say, looking at it agnostically in terms of what the structure is, these teams will need to work with each other. At AB InBev also, we work very closely with our corporate affairs team, which also has the CSR professionals. We collaboratively work when it comes to implementing these initiatives and it would be the same when I was in my previous organization in Pidilite where we were implementing a foundation-based approach to CSR, but we were working with a lot of technical experts, which would otherwise have been in the sustainability. Integration & merger will be the future, which is hopefully the present in most of the corporates.
Are there any quantifiable benefits for me as a consumer of being sustainable and ethical sourcing player and these benefits are applicable to whom – to customers to the buyer or to the seller?
Talking about quantifiable benefits, I would look at ethical sustainable sourcing in the supply chain and its final impact on the consumer from three perspectives – Consumer, Employees, and Shareholders. From a consumer’s perspective, one of the points, which was probably in my mind was the Premiumness of sustainability in general because a lot of times, I hear pushback from certain innovators in the field, certain startups who are trying to do something innovative and they're saying this is something sustainable, but this costs like 10% more, but then my question back to them always is but have you found out if the consumer is also willing to pay 20% more for this. I think that is very important and that's where I would say a lot of start-ups, which are coming up with innovative ideas, should not be bogged down because in many cases, we are seeing consumers who are actually willing to pay premium also for sustainable brands.
Coming to the second aspect of Employees, we see it constantly in all of our internal surveys, all of the great places to work surveys that our own employees are number specifically calling out their happiness or their positive association with better world or sustainability initiatives that we are doing but I would say more importantly are also in those surveys calling out a lot more ideas on what we can do and so that is literally a quantifiable metric that we see internally in terms of our own employee engagement, which is literally when I'm talking about the employee engagement score. When I'm talking about an audience, which is also our consumer, which is the Gen Zs and the millennials, we see an internal validation also of it, people accepting it, and wanting more of it.
The third and the most interesting side and in which we have grown the most in the last five to six years is the Shareholder’s perspective. Why is this important? There are now dozens of surveys, which are showing investors willing to pay more for companies, which are sustainable stocks, which are being rated much better on stock exchanges, which are authentically reporting, which are having the proper disclosures in place, having the right actions in place, etc. In our own organization, for the Asia Pacific zone, of which India is a part of, we have taken a 500-million-dollar loan, the interest rate of it is completely connected to our ESG performance. The better our ESG performance, the lower will be the interest on that would be for us. It's incentivizing again not just the sustainability team but the entire ecosystem to help deliver on those ESG and sustainability metrics. That's literally something quantifiable in terms of P&L impact also that we are seeing in front of us. These are a few ways we can look at and how the quantifiable impact is embedded in our ecosystem.
What are the top two or three biggest social barriers that you can talk about achieving sustainable growth in the procurement?
I would say externally the biggest barrier would be certain sectors or categories where we are trying to bring about a change from a sustainability and ethics perspective and it's very unorganized. Classic example being the returnable glass bottles category - when you are trying to create a full supply chain impact, you need buy-in from six to seven different intermediary layers. One clear challenge we are facing is in the way those sectors are organized. The other one if I look internally and I think it's time for us also to be a bit more introspective and sceptical, it's also the traditional procurement mindset. We understand we are progressing and we understand in the last one decade itself, we have progressed a lot, but I think somewhere the more we have to make the supply chain sustainable and ethical, the less we have to start thinking of just from a cost control mindset but actually start looking at it from a cost optimization mindset, start looking at how procurement as a function can also value add to increasing the net revenue. I think within procurement, getting that larger business case commercial concept to actually embed and sell these cases much better within the business that will really help. I would say that would be an internal social mental barrier in that sense within organizations that has to be transferred. It's the lack of transparency in the entire supply chain right now, it could be something as simple as actually knowing what's your baseline in terms of scope 1, 2 and 3 emissions. We have also started doing the supplier carbon baseline assessment and we want to probably take the full year to do the first pilot of it because we realize it's not something, which can happen overnight. Covering and jumping over that data barrier, which exists right now of, actually knowing what your baseline is, so that then your interventions can be addressed accordingly.
How much does (Technology) education and language play a part in that?
To give you an instance, we were trying to create more transparency in a returnable glass bottle supply chain, we created this nice application with a bunch of intelligent start-up participants. It was all in English and Hindi, but then we realized that we must do the pilot in South India. So, at some level, I think the way we are also looking at transparency through digitization will need to embed multiple languages within it. That would be one thing, which was an important learning for us, which stood out for us. The other thing is for a lot of MNCs like us, we have strong global guidelines and global SOPs, but a lot of time they just get embedded into a contract in that same English language, which I don't know how many of the suppliers as an addendum to that agreement would really understand fully, and the scope of what is being talked about there when it comes to certain responsible sourcing practices. More and more these languages of different global best practices, which exists, must be customized and that's the only way forward now.
Vinay Chauhan, Head Procurement – Emerging Markets, Bridgestone- "Sustainability is an opportunity, go grab it."
Can you provide an example of ethical sourcing?
Since I come from a tyre industry and we are all consumers of tyres, let me start with a base by decoding what a tire is. Basically, tyre is made up of number of components, of which 50% is rubber and out of this 50%, 25% is natural rubber and 25% is synthetic rubber. Then we have 23%, which is carbon black – partial combustion of oil. So synthetic rubber and carbon black come from the oil industry. Then we have got polyester, which is again a petrochemical product. Then we have steel wire, belt wires, lead wires, which are coming from the steel industry, iron mining and coke and then we've got multiple chemicals – organic, inorganic, oils – which are mixed and that is how a tyre is prepared. Now let me take the example of natural number because nature rubber is composing of 25% also natural rubber sources are limited in the world, which are coming from Southeast Asian countries, West Africa, South America, and these are in the rainforest areas. Now what happens in this industry is 85% of the land holders are smallholders, so they've got very limited voice.
Bridgestone continues to work to support these farmers by educating them in the ways to improve productivity, better farming techniques to reduce soil degradation & fetch with superior Breed seeds.
We are also founding members of Global Platform for Sustainable Natural Rubber (GPSNR) which has the small form owners, OEM’s, NGOs, and tyre manufacturers as members. The agenda is to drive capacity building, sustainable sourcing & tracing, Small farm holders’ representation & a shared responsibility working group so that the burden of developing sustainable natural rubber production practices does not fall disproportionately on a single node.
Do end users and customers really care that Bridgestone is indeed sustainable and ethical in their sourcing strategy? Does it necessarily reflect in your top line and bottom line or especially when you go to Nasdaq, do you do you get any kind of preferential awards?
To answer a question, we must see it from multiple perspectives – from the customer’s perspective and from the stakeholders’ perspective. If I talk about the stakeholders’ perspective or management perspective, the answer is an empathetic YES. Everybody is aligned, in fact, Bridgestone has gone ahead and now we are calling ourselves as Sustainable Solutions company. So, sustainability is something, which is at the core of the operations and the strategy. If I talk about the consumers and that is where I slightly disagree with some of the panellists, what they mentioned. The question is whether it will hit the bottom line or the top line. To hit the top line, if your cost is going up, your price gain should go up, then you will have the top line increase without hitting the bottom line. If you can't increase the price, will your volumes go up sufficiently enough to reduce your fixed cost and thereby giving you a better bottom line or a combination of these things? It's not very easy to say yes or no because there are shades of grey. There are different levels of maturity of people, different levels of evolution of countries and their perspectives are different. Coming to the Indian perspective, if I can take the example of Amazon Great Indian Shopping Festival period, we find they sold 4 billion dollars in that period while their annual sale was 13 billion dollars. So, 30% of their sale is coming from that segment of offer, which they are offering during the festival. That means the price sensitivity of the customer is still very high. So, the people who are there, who are aware, who are mature, do they add up to the level of scale where companies can go and invest and charge premium. That is still a question mark. In fact, we also have some products, which are fuel efficient, but the wear life is less, and they are not selling to the extent just because the awareness is not there and the price is high, though eventually the value of the money is much better using those products. So, the question here is, should we discard sustainability or should the companies pursue sustainability? The answer is yes, sustainability is about existence. If you are not working on sustainability, your existence will be under threat. Take for example the electric vehicles, we all know that tesla became the number one automotive company in the world in a very short span of time. Had the other companies not invested in electric vehicles, they would be looking at a very bleak future. Though the cost of electrical vehicle was high, yet people continued to invest in electric vehicles and the future is of electric and renewable energy itself. Similarly, if you take example of solar energy, initially the solar energy was much expensive, yet investment kept going into this innovation, and eventually today the cost of solar energy is much lower than the fossil fuel or coal energy. The question – why is this happening? The answer is very simple… we have 195 leaders of the world coming together and stating that we will reduce our NDCs by so and so volume. Why is that happening? Because the situation is very alarming. If we don't act right now, it will change the paradigm. These leaders are setting the targets and these targets will come out in terms of policies & framework and people who are working on sustainability will get the definite advantage over here. Sustainability is key to the operations; it may not reflect in short term. It will reflect in the long term. You must continue working on sustainability and keep on innovating so that you are able to bring down the cost of operations and prove that sustainability is sustainable in operations as well.
What is climate finance which was addressed in the cop26 convention?
That's a very interesting question. Every year we have this assembly of leaders, and which we call as the confederation of parties and this was the 26th meeting, which took place just recently. Before this, an important meeting took place in 2015, which was Cop21, also known as Paris agreement and there they realized that whatever the NDCs, which have been proposed by the respective governments, if they abide by those NDCs, the climate temperature will increase by more than 2.7 degrees. As of now, the temperature increase is 1.3 degrees and the target is to have it well below 2 degrees and ideally, target is to have at 1.5 degrees. That is the whole thing about why we need to be so aggressive in our approach towards sustainability and climate finance. Now the question is how we achieve those finance and there the principle was common but differentiated responsibility and respective capability. It is a well-known fact that since the Industrial Revolution, the developed countries have contributed significantly towards the greenhouse emissions and thereby they own the major responsibility. Also, they have a significant capability to finance because of their status of affairs and the developing countries or the small island nations would require that support in terms of finance to work on the sustainability models. Therefore, at the Paris agreement, it was decided that the developed countries will contribute 100 billion dollars per year, which they could not do it, they were able to reach up to 70-80 billion dollars. The discussion is still going on to re-fine-tune that figure, and which will subsequently come to us in the next Cop27 meeting. It is also worthwhile to note that though they could not contribute hundred billion dollars but when we had three storms in the US, the US Government had to invest 256 billion dollars to recover from that situation. Also, there is a study which says that in 15 years, post-Paris agreement, we will have to invest 90 trillion dollars for the infrastructure to control the climate change, which means approximately six trillion dollars per year and no government, in any world, can contribute that kind of amount of finance. Therefore, the government, the private companies and individuals have to contribute to this mission of controlling climate change.
Peter Woon, Senior Director – Supply Chain, Cushman & Wakefield- "Start the leadership thinking about sustainable and ethical sourcing, don’t wait till the customers come after you. It’s okay to start small. Learn to crawl before you walk and learn to walk before you run."
Can you explain this whole focus on responsible sustainable and ethical from a procurement standpoint and what does it mean to the end customer?
Responsible and ethical procurement is not new and yet it’s not old in the way the procurement organizations have been traditionally linked with a cost saving, getting the best cost from system, getting best value out of that cost, and so on. Recently what we have realized that in supply chain, another area that has gained a prominent mention is that of Risk Management and Compliance.
Ethical sourcing came about from the need for risk management for the company, which is primarily aimed at protecting its product & services and trying to ensure that whatever sourcing activity that they do for the company to manufacture products & deliver services they offer, must be obtained through a sustainable and responsible methodology. This process ensures that every company protects its brand so that if there's any negative reporting vis-à-vis sourcing, doesn’t impact the company in a long run.
This is getting more important with new age consumers taking the reins of buying ethical products. They are beginning to get more aware about the sustainability initiatives around the world. They are demanding that manufacturers and service providers get more responsible in their sourcing strategy and deliver a sustainable and ethical product to them.
How do you do as a procurement person to develop ethical sourcing strategies if you have a massive scope? Is there any SOP available or is it something that the procurement function needs to write?
I wish there was a standard SOP. If you look at it today, our suppliers’ portfolio is wide & varied, ranging from multinational companies to SMEs to mom & pop shops within the country and local regions and local countries. They possess different levels of maturity and capabilities. Having said that, this is also a fact that the scope of ethical and sustainable sourcing is very wide, be it climate change, deforestation, human rights violations, forced labour, etc. Ethical & responsible focus can be very wide from company to company and industry to industry. What is important to succeed in this area is to have a top-down approach from the leaders of the company. They need to set an example as to how they view the company should be doing, taking the cue from not only within the leadership or the company but also taking the cue from the customers’ requirements. Some customers mandate that you do certain things in the area of ethical and responsible. So, you take the queue from there to deliver what the customer expects of and sometimes also take leadership to demonstrate to the customer that you also are doing it as your own initiative. You have to start off with the basics first because the range of suppliers’ maturity is very wide, creating awareness, what is your scope and your program, what's important to your company, how is it important to your company and to your supply base, you need to emphasize whether is it climate change, deforestation or decarbonization or whichever aspect that you choose and then you have to prioritize as you can't really tackle all at once.
The process needs to be step by step, starting from basic and graduating till advance level. Companies need to learn how to crawl first before they start walk, learn how to walk first before running. Only then you're able to measure your emissions target. You need to also put in an implementation monitoring and assessment methodology and again you can't do this for 50,000 suppliers. You must demarcate your critical suppliers having high impact on your processes and start with them to derive the tangible benefits rather than taking a big bang approach. You also need to segment your supply base and then work on different segmentation with different implementational strategies. I think these are the few areas that need to be looked at in different ways. We cannot have a one-size-fits-all approach. We must customize it according to the needs of the suppliers. We must segment it and we should take a gradual approach. We must take the segments of our partners, segment of our suppliers, which are much more critical, initially engage them, chart the path for their journey, how will they move from stage one to stage two to stage three and then we graduate and evolve to extend the coverage to the other segments, which are available.
How would a B2B environment versus a B2C environment, that segregation strategy would work? How should a procurement professional take into consideration?
It’s a tough question… A B2B environment tends to be a bit tricky because when you're dealing with business where someone is supply based, it doesn't really come under your control and purview unlike where you are doing your manufacturing and you have your supplies directly under your control. The best way to look at it is to take the cue from the top management leadership to understand if this is important for the company, an important aspect that is needed to make the company to deliver a unique selling proposition for the company and its important clients, then we then go and approach it from a strategic point of view, how to then roll it out within the company and then within the supply base and then within the open ecosystem throughout. Within the company with the customers within the company and then with the supplies, so it's a whole ecosystem supply chain for the internal customers and then to the supply base.
How easy it is to transform your supply chain or your valuation from a linear to circular?
This is one of the interesting new thinking processes that a lot of companies are beginning to explore. Typically looking at it from a linear perspective again can be complex as we're not just talking about supply chain within certain geographies or region or industry, we are talking about literally supply chains across industry and right now there's a new terminology we're talking about – Supply Web, which is not just a chain but web in the whole ecosystem, so looking at it from a supply web means it's not just one supplier but suppliers’ suppliers and so on. That tends to be quite a massive network, which may be quite challenging but looking at it from a circular economy space and circular approach, primarily what it essentially shares with you is the basic tenet of three Rs – Reduce, Reuse and Recycle. Companies need to look at any of the current inputs that goes into the process and whether that process can then be reduced or recycled throughout the supply chain such that you minimize the wastes associated. Similarly, it's not just a raw material, but also a resource around it and this resource can be a precious material, that also could lead to decarbonization initiative. That leads us into a different level of thinking process and different level of maturity. Not many companies today can really explore into this area of circular supply chain. Those who can do it, will probably be able to simplify as much as possible and that they target certain specific areas.