Tag Archives: greenhouse

“COP-Out”- The Durban Climate Talks and the Tragedy of the Climate Commons. Will Business Innovation Save the World?

15 Dec

Feeling a bit like the holidays for sure.  And I feel like humanity just got “scrooged”.   A year ago, I wrote about the COP16 U.N. Climate Conference in Mexico City and how governments were playing “kick the can” with climate policy. I noted that there was “some progress on establishing more robust means to appropriate and distribute micro-finance funds to support development of technologies in developing countries that lack the dollars themselves to manage their own greenhouse gas footprints.”  I also noted that many companies, rather than countries were taking unilateral initiatives to reach deep into their supply chain to develop innovative, new products that are less impacting to the environment and that can help developing-nations likely to be hit hard by global warming.

Based on what has (or has not) transpired at the recently wrapped up COP17/CMP5 in Durban the past two weeks, I am left feeling that global consensus on this issue, while not completely out of the question, is getting closer.  But the incremental, baby step pace of progress is (according to most climate scientists) insufficient to avert seemingly unstoppable rise in year over year average global temperatures.  It’s not the science that appears in question, rather it appears that there appears to be ongoing hesitancy to bear accountability and resolute responsibility on the part of those who carry or deny the mantle of developed nation status (hint: United States, China, India).  Despite the last minute efforts of the 194 nations in attendance and working past the official end of the conference, hopes for a meaningful and comprehensive global agreement appeared to be faltering.

As an example, the recent article in the Guardian stated that “The EU has found it hard to push through its “roadmap” that would establish an overarching, legal agreement committing all countries to emission cuts”.    So, the EU got what it wanted.  Also, according to an African delegate, “The US has what it wants. There is no guarantee that the new agreement will legally bind governments to cut emissions.”  The U.S. indeed got what it wanted. China and India continue to maintain they are still too undeveloped on the whole to be accountable in the same manner as western, industrialized nations and also claims they are implementing what they have already pledged to do at prior UN conferences.  Um…show me.

The one big victory I did hear that came out of the past two weeks was on an agreement on establishing a $100 billion/year climate fund to help developing countries address climate change.  But before we celebrate that breakthrough, there’s a small outstanding issue …there is no clear mechanism for how that money will be raised. In the recent words of GOP candidate Gov. Rick Perry… “Oops”.  In addition, rich countries would be allowed to offset their emissions by making payments to poor countries which protected their forests.  Is this a bilateral effort or are poorer counties expected to bear 100% of the burden of making that happen.  What is thought to be enough isn’t.  Tim Gore, policy adviser for Oxfam, stated “Governments must really get to grips with the climate crisis.”  That’s an understatement if I ever heard one.  Gore summed up his take on the winners, losers and likely impact on the poorer nations here.

So, while COP17 by most measures succeeded where prior UN gatherings failed, the agreements on which progress will be measured (using the 2015 and 2020 yardsticks established at Durban) may not be swift enough to stem the slow bleed that climate change is bringing on around the world.

Supply Chain Sector Gets Some Attention

Going into the climate conference, two key supply chain sectors, aviation and shipping, were targeted for discussion. According to the Civil Air Services Navigation Organization, “After a number of days of tough negotiations on aviation, there was still no decision on some of the key aspects of Common But Differentiated Responsibilities (CBDR) and how they relate to aviation and shipping, and the ability for countries negotiation under the UNFCCC to tell negotiators at ICAO what to do.

In the final agreed Durban Platform text on aviation, there was a brief placeholder text:  “International aviation and maritime transport Agrees to continue its consideration of issues related to addressing emissions from international aviation and maritime transport;”

Basically, there was no agreement was reached …end of story.  That being said, I have written countless posts on the administrative and technological advances underway by large intermodal shippers and transporters and the aviation industry to quell fuel use and has been exploring how to develop sustainable aviation biofuels, including in developing countries to meet the Climate Fund goals established in Durban.  Aviation and transportation stakeholders have concluded that “agreement amongst nearly all countries [is] that [International Civil Aviation Organization] ICAO is the most appropriate place to deal with aviation emissions. The industry will continue to engage with ICAO to ensure that an ambitious work program can deliver an outcome on aviation emissions by the next ICAO Assembly in 2013”.

Moving past Durban

The Huffington Post summarized the main outcome of COP17, the so-called “Durban Platform”, including the “establishment and empowerment of an “Ad Hoc Working Group” to develop a new protocol and to “complete its work … no later than 2015 in order … [for the new protocol] … to come into effect and be implemented from 2020.” The new protocol is to be a “legal instrument or an agreed outcome with legal force” with this critical stipulation: “applicable to all Parties.” Nowhere in this agreement do the words “common but differentiated appear.” (Full details in this draft document: “Establishment of an Ad Hoc Working Group on the Durban Platform for Enhanced Action.”)”

Writer and author Marc Gunther summed up the positive and negative spins on the Durban conference, and suggested that perhaps the evolution of climate negotiations will transcend universal treaties, relying more on regional, collaborative agreements and technological advances as the primary means of progress.  Gunther nails the takeaways by suggesting that “First, those companies that worry about climate change need to bring their voices more forcefully to the policy arena; they can’t assume that governments are on the right track. Second, companies ought to prepare for climate change–when they site new facilities, for example–because it’s unavoidable.”

The Durban Platforms emphasis on more dialogue, more planning and lack of clear immediate is tragic.  Not for the planet.  No sane person can look me in the eye and say with a straight face that seven billion people, with all their wants and needs, have not affected the global ecosystem.  But despite all the perversities and ravages that we’ve inflicted on Earth, the planet will survive.  But for us, the larger mass of humanity, we hold our own fate in our hands …and we are blowing it.  Why?  Because there are nations (the EU, United States, China and India among them) that cannot…or will not…move past their “self interest”.  They are just kicking the can down the road.

The Tragedy of the Commons

In 1968, ecologist Garrett Harding published “The Tragedy of the Commons in the journal Science. I was introduced to Hardin’s theory many times during my undergraduate and graduate environmental law studies. His highly controversial and criticized theory presented a hypothetical situation involving herders sharing a common parcel of land, on which they are each entitled to let their cows graze. Hardin theorized that it was in each herder’s “self interest” to put more cows onto the land, even if the quality of the common is damaged for all (through overgrazing). The herder receives all of the benefits from an additional cow, while the damage to the common is shared by the entire group. Further if all herders make the same choice, the common will be depleted or even destroyed, to the detriment of all.  Systems ecologists called this an exceedance of “carrying capacity” resulting in other tragedies likie overfishing, depletion of forest resources, water supplies and arable land.   And while the acts of an individual or one corporation may singularly have little impact, the cumulative effect can be overwhelming and often leave irreversible impacts.

Hardin’s theories have been widely criticized from an economic point of view.  Political scientist Elinor Ostrom, the first woman to win the Nobel Prize for Economics (2009), showed that the “Tragedy of the Commons” (its overuse and destruction) doesn’t happen, at least when all the people who share the commons can get together and talk about it.   Ostrom found that, when there are no internal or external forces preventing the “commoners” from a free, open and robust discussion of how they should agree to govern and limit their use of it so it doesn’t get overgrazed and thus ruined for all, then the commons goes on thriving.

And that, dear friends and readers is the tragedy of the Climate Conference in Durban…the political process and governmental self interest appeared once again come up short, co-opting the outcomes “to the detriment of all”. As noted in a National Public Radio broadcast in 2009, “Every nation wants to act in its own interest but that may not be the same as the global interest.”

Innovation, Technology and a Collective Conscience

I believe now, as I believed and wrote about during COP16 in Mexico City and after COP15 in “Nope”nhagen that governments were putting off today what we can technologically achieve now. What happened?  Has humanity lost its mojo…or is something else going on?

In a fascinating article by venture capitalist Roland Van Der Meer, Holding Off the Tragedy of the Commons, he describes some of the underlying factors that he believes have contributed to the global decline in natural resources, and lack of environmental stewardship…and it comes down to innovation.

Both governments and corporations are institutions that exist for the reason of self promulgation, actualization, and advancement (to further itself, to continue to exist, to not change). The methodologies that they deploy and back is their best practice, it is what they believe, what they will hold on to and how they will exist and thrive. And this is the failure point. It is not meant to change. Its very survival depends upon the lack of change.

What is missing is a catalyst for change. Why change? Because what worked best 100, 50,  20 or even 10 years ago is no longer the best methodology or practice.

The institution is good at doing what it was designed to do and it stubbornly holds on to that design at the expense of its own destruction or the method it protects. Change is needed.

The incumbent companies and regulations are stuck in a process and framework which prevents and disincentivizes change. They even go further to lock out or block change because it would lead to their own destruction…. it is our collective resources that are at stake. We need to be open and create the new enterprises that will create, invent and adapt in the basic resources areas.

I believe, as do organizations like the Responding to Climate Change (RTCC) that the private sector can “pick up the slack” in tackling climate change where government agreements have (up to this point) failed.   However, to effectively incentivize innovative technologies, the private sector must continue to be a part of the larger policy debate.  There is a way out of the mess we have made and one of my personal life influencers, Amory Lovins, has a plan.  In his new book, Reinventing Fire- Bold Business Solutions for the New Energy Era offers “actionable solutions for four energy-intensive sectors of the economy: transportation, buildings, industry, and electricity”. The Rocky Mountain Institutes Lovins states “business can become more competitive, profitable, and resilient by leading the transformation from fossil fuels to efficiency and renewables. This transition will build a stronger economy, a more secure nation, and a healthier environment.” Imagine if this approach can be applied at a global level, with a combination of government/business and monitored, measurable multi-national collaboration and a collective common conscience. What have we got to lose?

When it comes to real action on climate change, the upside of heretical innovation is huge…and the downside unthinkable.

With a Change in Workplace Comes Reflections on Society, Sustainability and a Balanced World

30 Nov

Source: http://www.flickr.com/photos/tsa1/5543988340/

You may have noticed that this space has been “dark” of late.  Why, since I’ve been gone and the world has spun round and round: the Occupy Wall Street launched (and perhaps corporate social responsibility entered the public eye), Kim Kardashian got married AND divorced, Libya fell, the St. Louis Cardinals won the World Series,  the debt ceiling crisis…well that’s still with us.   No, I didn’t disappear into the abyss after my Africa trip in August.  No, I didn’t burn out or give up.  Instead, I’ve moved forward a notch in the journey.

I’ve always maintained to family, friends and colleagues that “change is good”, and that it continues to drive us to continually improve on a personal and professional scale.  As I announced in early October to 800 of my closest personal friends and colleagues on LinkedIn, I recently started a full time position as Associate Director- Environment, Health & Safety (EHS) for Elan Pharmaceuticals, Inc. in South San Francisco, CA.    A long time client of mine, Elan is at the forefront of neuroscience based biotechnology.  Elan’s work includes research and development activities for neurodegenerative diseases, such as Alzheimer’s disease and Parkinson’s disease and autoimmune diseases, including multiple sclerosis.   I am proud to be aligned with a company that is focused on tackling some of the most troubling and challenging diseases of the mind and body, some of which have affected members of my own family.

With my days (and occasional evenings) fully committed with Elan, I’ll be placing ValueStream Performance Advisors on hiatus. Despite the change in venue, my enthusiasm and passion for heretical thinking, innovation, systems-based management and organizational sustainability, remains the same.  I’m happy with what ValueStream was able to accomplish through from 2009-2011 along with my many collaborators and clients

However, while my social media presence may change in the months and years ahead, I will nonetheless continue to be an ardent advocate for organizational sustainability, and proactive EHS compliance and management (which Elan has graciously endorsed as well).  I am truly appreciative of all of the support you, as readers have given me and continue to value the business relationships that we’ve established. To date, over 90,000 (!!!) visits have been made to this site to learn, share, argue and discuss key ideas and issues focused around sustainability.

Managing Change and Life’s Risky Balance

Like my change in workplace, you will also see some changes in the look and content of this site as well, starting with the banner photo.  This was a shot of the iconic acacia trees that I took while on a mini-safari this past summer in the Spioenkop Nature Reserve in the Drakensberg, KwaZulu Natal, South Africa.  Riding on horseback among the roaming wildlife (among them rhinos, giraffe, zebras and hartebeests) I was reminded of how critical it is that we all take a moment to reflect on the nature of humankind, how far we have come in a relatively short period of time on this planet, and how easily we have drifted away from lifes precious balance.    Not far from the ancient cave dwellings of the aboriginal San people, I realized how out of step humanity is with what’s around them, and what a ruinous course we may be on.  We are perhaps the species most at risk.  I also noted in my related post following that South Africa trip discussing environmental, health and safety, that ” companies must take care of basic HSE issues and lay a firm foundational framework for continual improvement first before they can progress along the sustainability journey.  …Regarding sustainability, it makes little sense force feeding a business approach that has little immediate bearing on managing organizations immediate risks.”  This is one of many reasons why I elected to refocus my career work on managing basic EHS issues to assure that a solid foundation is in place to support systematic sustainability efforts.

We are at a critical juncture on this fragile planet of ours.  We all have a moral imperative to passionately recast our “lot” in a much larger, infinitely complex global ecological system.  As Gregory Reggio so eloquently and powerfully captured in his epic 1982 film, “Koyaanisqatsi”, we live in a world…a life, out of balance.  How ironic that the United Nations COP17/CMP7 International Climate Conference has convened this week in  Durban, South Africa, to discuss  the most critical “out of balance” issue of our lifetime, climate change. …just a few short hours away from where the banner shot on this page was taken.

Humanity has the combined technical capability to use science, politics,  innovative technology and cultural awareness  to reshape the global natural, social and economic environment  to a point of balance and equity.   Do we have the collective wisdom to use that knowledge to achieve and maintain that balance?    I think we do, but like the sustainability journey we are on together,  it’ll take many steps and the political will to get there.

Please take a moment to add my new email to your contact list. I’ll retain dmeyer@valuestreamadvisors.com  address as a general professional networking address, or you can reach me here or at Elan — my new contact details are pasted below. And of course, you can still find me on Twitter and my commentary on Sustainable Business Forum, Sustainable Plant, Kinaxis Supply Chain Expert Community, and other media sites.

All the Best!

Dave R. Meyer, Associate Director- Environment, Health & Safety

Elan Pharmaceuticals Inc.

800 Gateway Blvd., South San Francisco, CA 94080

Direct: +1 650.877.7624

Email: david.meyer@elan.com

Meeting Basic Health, Safety and Environmental Risk Before Sustainability- Watch Your Step

25 Aug

This week has been all about “R-I-S-K”.  Risk that my three flights around the globe to South Africa will be on time. Risk that my luggage will accompany me.  Risk that I will meet my driver.  Risk that he will be a safe driver, negotiating darkness and harrowing roads full of heavy trucks travelling between Durban and Johannesburg.  Risk that my digestive system can handle all the amazing foods I’ll sample while at the NOSA-sponsored NOSHCON 11 conference.  Risk that my talk on integrated sustainability management systems will go off without a hitch.

Risk (noun): A situation involving exposure to danger

Risk (verb): to expose to danger or loss

The Setting Tells a Story- “From Stone Age to Hard Won Democracy”

Risk.  We all live with risk and all are in position to control and influence its outcome.  This week’s conference was devoted to exploring risk in the workplace and its related effects on worker safety, health and environmental impact.  South Africa is the perfect place to explore this issue, because of all of the social, political, economic and workplace/environmental challenges that this special country has endured over the generations.  Throughout the two-day conference I have become painfully aware of the risks that exist amid the beauty of the KwaZulu Natal and Central Drakensberg region of South Africa.

View from my Guest House Looking Toward Champagne Castle

This great place of beauty has seen wars fought over land and water for thousands of years and countless generations, between indigenous tribes first, then between the Zulu and the Dutch Afrikaners, then the British and Boers and finally blacks and whites through the practice of “apartheid”.  This place has seen the likes of King Shaka, Gandhi and Mandela walking its ground.  This is historic ground where people took incredible risks to protect what they believed in, and suffered enormous costs and joyous victories.  I won’t use this space to opine on that matter just to say that issues run deep and wounds take generations to heal.  But all citizens of the Rainbow Nation are trying their very best to level the playing field.  But all along the way, all the players in this real life drama have had to manage risk.

Snakes!!

To illustrate how risk is all around us in the workplace and at home, NOSHCON brought out the snakes…yes, snakes.  Not the safe variety…I mean the pythons and puff adders.    Through a safety company called Unplugged Communications, the idea of “Snakes for Safety” was presented to a fascinated, but somewhat skittish audience of 600.  The analogy is that puff adders are like accidents waiting to happen…they hide, camouflaged in the bush and only strike when you are right on top of them.  By then the damage has been done, injury’s result (and it the case of the puff adder, you have seven minutes to call a loved one and say goodbye!).  Cobras on the other hand represent a hazard that is harmless when small, but if left unchecked, the hazards can grow to an unmanageable point when great harm can occur. Snakes.  Risk.  Managing the basics of health, safety and the environment (HSE) in developing economies like South Africa is foremost in businesses minds and correctly so.

Risk Management and Meeting Basic HSE Needs First

“There are risks and costs to every program of action.  But they are far less than the risk and costs of comfortable inaction”- John F Kennedy

Last year I wrote a two piece series on risk management and accountability in the aftermath of the BP gulf oil spill and Massey coal mining disaster.  In the second post on risk, I noted that a continuous risk management process helps organizations understand, manage, and communicate risk and avoid potential catastrophic conditions that can lead to loss of life, property and the environment. Briefly, risk management helps organizations:

  • Identify critical and non-critical risks
  • Document each risk in-depth
  • Log all risks and notify management of their severity
  • Take action to reduce the likelihood of risks occurring
  • Reduce the impact on  business, life, and the environment

In this post I laid out a typical six-step process to achieve effective risk management and failure mode control.  I also noted ”What will be … fascinating will be the lessons learned and if businesses truly embrace risk management planning and implementation as a central function of business, take it seriously and hold themselves accountable.”

Takeaways from Far Away- Sustainability May Have to Wait

The author with a less venomous snake

My talk focused on integrated management systems and how they can leverage risk and liability and support sustainability in the business marketplace.  The audience was attentive to be sure, and I listened and observed NOSHCON delegates listen to several other fantastic presentations on corporate social responsibility, carbon management and sustainability.  My impression however is that while there are pockets of excellence in sustainability focused companies, South African businesses are just beginning to think about sustainability as a value-added aspect of their businesses. Perhaps rightly so, many companies in the mining, agricultural and heavy industry sectors continue (especially the majority small to medium-sized and under-resource companies) are focusing on the basic critical issues of life safety in the workplace, education and meeting basic environmental compliance operations first.  To meet this pressing need, organizations like NOSA have developed world-class frameworks of occupational, health, safety and environmental  risk management.  And despite rampant complaints of lax enforcement of labor and environmental protection laws, the South African government has implemented its King III corporate governance policies (similar to the U.S Sarbanes-Oxley provisions) that recognize CSR and reporting obligations.

I am firmly of the belief that companies must take care of these basic HSE issues and lay a firm foundational framework for continual improvement first before they can progress along the sustainability journey.  The central themes I heard about how this can be accomplished are through increasing monitoring, education, awareness building, management accountability and trust.  Regarding sustainability, it makes little sense force feeding a business approach that has little immediate bearing on managing organizations immediate risks.  One must be able to manage the snakes; you know….one by one and step by cautious step.

Be patient South Africa.  You have such great resources, professionals hungry to learn, and have fantastic opportunities to excel in the sustainability space in the years ahead.  I have been truly blessed and humbled to have been able to participate at NOSHCON and hope to be able to hear of great things coming out of South Africa in the coming years.

“Baie Dankie”. “Ngiyabonga kakhulu”. Thanks very much!

Nothing Says “Green Supply Chain’ Like Innovative, Sustainable Packaging

8 Jul

Courtesy Tiny Banquet Committee under CC License

The pea pod is possibly the greatest sustainable packaging design nature can provide.  It packs a lot in a small space, efficiently uses the minimum amount of resources…and best of all its compostable…well sort of unless I eat it!

And like the simple pea pod, few sustainability attributes in a supply chain come together across the value chain than packaging.  Packaging and repackaging is ubiquitous along every step of the chain, from product design, prototyping, procurement production, distribution, consumer end use and post consumer end-of-life management.  And the more parts that are in use in making of a product, and steps along the way to deliver the parts, the greater the packaging (and hence environmental footprint) involved along that chain.  And for every packaged part that comes from someplace else to make a product, a similar carbon, energy and resource use can be measured.

That’s why sustainable practices in packaging are so important in driving supply chain efficiency…and why innovation in the ‘green’ packaging sector has been “white hot” the past several years. A study by Accenture found that retailers can realize a 3 percent to 5 percent supply chain cost savings via green packaging initiatives. So if you extrapolate that type of savings out across multiple tiers of supply chain activity, where packaging is the common denominator, the efficiencies and savings can rack up quickly.

A new report from research organization Visiongain finds that because of a variety of drivers such as carbon emissions, extended producer responsibility and waste reduction targets plus advanced packaging technologies, the sustainable and green packaging market’s worth is expected to reach $107.7 billion in 2011. Their report shows varying degrees of growth from developed to developing nations; however what’s striking is that the growth trend is weathering the slumping global economy and higher production costs.

Sustainable Packaging 101

Sustainable packaging solutions deliver around two colors according to the Accenture report: black (deliver reduced costs) and green (reduce environmental impacts). Sustainable packaging relies on best engineering, energy management, materials science and life cycle thinking to minimize the environmental impact of a product through its lifecycle.  Given the past decade or so of science and engineering work around sustainable packaging, there are some discovered and tested attributes, such as:

  1. Reducing packaging and maximizing the use of renewable or reusable materials
  2. Using lighter weight, less toxic or other materials which reduce negative end-of-life impacts
  3. Demonstrating compliance with regulations regarding hazardous chemicals and packaging and waste legislation ( such as the European Directive 94/62/EC  on Packaging and Packaging Waste)
  4. Optimizing material usage including product-to-package ratios
  5. Using materials which are from certified, responsibly managed forests
  6. Meeting criteria for performance and cost (e.g., minimize product damage during transit)
  7. Reducing the flow of solid waste to landfill
  8. Reducing the costs associated with packaging (i.e., logistics, storage, disposal, etc.)
  9. Reducing CO2 emissions through reduced shipping loads

Best in Class Examples

I have seen companies stress the importance of the 6 R’s of sustainable packaging (refill, reduce, recycle, repurpose, renew, reuse;  Walmarts 7 R’s of Sustainable Packaging (Remove Packaging, Reduce Packaging, Reuse Packaging , Renew(able), Recycle(able), Revenue (economic benefits), and  Read (education);  and even the 10 R’s eco-strategy (Replenish, Reduce, Re-explore, Replace, Reconsider, Review, Recall, Redeem, Register and Reinforce).

Associations are stepping up to the plate as well as manufacturers in a variety of consumer product markets.  In March of this year, the Grocery Manufacturers Association (GMA) announced the results of survey research by McKinsey that indicated elimination of more than 1.5 billion pounds (800 million pounds of plastic and more than 500 million pounds of paper) since 2005, and another 2.5 billion pounds are expected to be avoided by 2020.  Over 180 packaging initiatives were identified and evaluated.  The GMA estimated that the reduction would be equal to a 19 percent reduction of reporting companies’ total average U.S. packaging weight.

In the fast moving consumer goods category Coca Cola’s packaging efficiency efforts just in 2009 avoided the use of approximately 85,000 metric tons of primary packaging, resulting in an estimated cost savings of more than $100 million.  The company rolled out of short-height bottle closures, reducing material use, implemented traditional packaging material light weighting; and used more recycled materials in packaging production.  At the end consumer point, the company has also supported the direct recovery of 36% of the bottles and cans placed into the market by the Coca-Cola system and continues to work with distributors on increasing recovery efforts.

In the electronics space, Dell Computer committed in 2008 to reduce cost by $8 million and quantity by 20 million pounds of packaging by 2012 centered around three themes (cube, content, curb):

  • Shrinking packaging volume by 10 percent (cube)
  • Increasing to 40 percent, the amount of recycled content in packaging (content)
  • Increasing to 75 percent, the amount of material in packaging to be curbside recyclable (curb).

As an example, Dell wanted to find a greener, more cost efficient way to package its computers by eliminating foams, corrugated and molded paper pulp.  The solution was sustainably sourced bamboo packaging certified by the Forest Stewardship Council.  So far, Dells efforts have resulted in eliminating over 8.7 million pounds of packaging, and they have nearly met their recycled content goal.

Perhaps most significantly, WalMart took a huge step in 2007 to seek supplier conformance around packaging.  Since then, despite the initial uproar, there has been an uptick in design and innovative product activity by thousands of key suppliers in response to the mega-retailers challenge.  By reducing packaging in the Wal-Mart supply chain by just five (5) percent by 2013, that would 1) prevent 660,000 tons of carbon dioxide from entering the atmosphere, keeping 200,000 trucks off the road every year (that’s a green attribute) and save the company more than $3.4 billion (a black attribute).  Walmarts bottom line was to put more products on its shelves in the same space, and also recognized the sustainability attributes that change would make.  They also knew that most consumers (me included) just despise excess packaging.  Here are two examples of Walmart supplier efforts from a small and large supplier:

Alpha Packaging: the company has a new bottle design for Gumout Fuel Injection Cleaner.  The company concentrated the product and switched from PVC bottles (which are not recyclable) to much smaller bottles made from PET (which is recyclable and has 30% post-consumer recycled content).  This led to 1) reduced product weight by up to 51% and 2) capability to transport a truck filled with new 6 oz products (formerly 12 oz) equating to 153,600 bottles as opposed to 61,000 originally.

General Mills: the company took a novel approach and they looked at the product first.  They straightened its Hamburger Helper noodles, meaning the product could lie flatter in the box. This, in turn, allowed General Mills to reduce the size of those boxes.   According to the company, that effort saved nearly 900,000 pounds of paper fiber annually.  The company effort also managed to reduce greenhouse gas emissions by 11 percent, took 500 trucks off the road and increased the amount of product Wal-Mart shelves by 20 percent.

Win-Win-Win.  For the environment, for manufacturers and suppliers, and for consumers.

Full Circle Collaboration is Vital to Drive Sustainable Packaging

What makes sustainable packaging compelling is that it’s one of the key elements of a product that consumers can see, touch and feel.  Over packaging or improper packaging can produce high reaction levels, right? (remember last year’s noisy Sun Chips compostable bag dust up?)  But in an interesting post last year in Packaging Digest by Katherine O’Dea of the Sustainable Packaging Coalition, she mentioned the critical importance of collaboration between brand owners and retailers. What was a scary statistic is that “brand owners and retailers may have direct control over as little as 5 percent of the environmental impacts of packaging and only indirect control over the other 95 percent.”  On the other hand another study conducted by the market research firm Datamonitor showed of U.S. consumers surveyed, 49% felt that packaging design has a medium or high level of influence over their choice of food and drink products.

Just as there are challenges to drive consumer acceptance of more sustainable types of package designs (especially aesthetics), there are equally challenging design factors (such as package strength, permeability, and other physical factors that may compromise product integrity during shipment.

Opportunities to Leverage the Supply Chain from Design to Post Consumer Package management

High performing manufacturing companies are clearly using sustainable packaging design and manufacturing as a way to lever efficiencies through the product value chain.  Companies are finding that using less complex packaging helps cut sourcing, energy production and distribution and fuel costs across the supply chain.  The glory days of corrugated packaging as the one stop solution are being replaced with reusable packaging options.  Also, reducing the consumption of raw materials, carbon emissions and waste generation reduces manufacturing costs.

Since disposal by consumers is one of the largest waste streams in the supply chain, using less packaging of direct-to-consumer shipments also offers great opportunities for supply chain optimization.  The previously mentioned Accenture report recommends that through route planning and sourcing software, “collaboration across the companies in the supply chain is necessary to maximize freight utilization. In particular, retailers need to proactively encourage vendors to provide pallet or “trailer feet” specifications for collecting shipments… retailer’s planners can determine the optimum transportation mode and look for multi-stop opportunities.”

Optimized Supply Chain (Accenture)

As shown in the accompanying diagram, Accenture suggests there are opportunities to reduce the packaging/un-packaging cycle by addressing the product life-cycle and optimized material use.   Through ongoing recycling and the use of alternative materials throughout the product value chain, opportunities are created to reduce the volume of packaging waste. Also, take back programs create a two-way transportation flow, with reusable packaging materials being sent back up the supply chain rather than to a landfill.

Remember too that there are several key association and initiatives that can be tapped into, including:

  1. Sustainable Packaging Coalition: http://www.sustainablepackaging.org/default.aspx
  2. Greener Package: http://www.greenerpackage.com/
  3. Sustainable Packaging Alliance: http://www.sustainablepack.org/default.aspx
  4. Sustainable Biomaterials Collaborative http://www.sustainablebiomaterials.org
  5. Reusable Packaging Association: http://reusables.org/

Some final pointers to consider when designing packaging and using the supply chain to drive sustainability:

  • Source alternative sustainable packaging materials- the innovative options are plentiful.
  • Evaluate product life-cycle impacts as a way to discover design options that could lead to less packaging.
  • Anticipate the total energy and resource use over an entire products package life
  • Evaluate materials disposal and post consumer end-of-product life opportunities
  • Design products for efficient transport
  • Schedule and optimize transportation networks
  • Collaborate, Collaborate, Collaborate!

A Systems Perspective on Sustainability, Supply Chain Management- The Intelligent Choice

18 May

As we approach the mid-point in 2011, the tea leaves of the economic recovery have ‘sustainability’ in supply chain planning and management firming up as a key “rebuilding” block in company activities.  Two recent studies from two different continents bear that notion out.  First, consultancy BearingPoint Ireland has released a report which says two-thirds of companies surveyed in Europe believe that a green supply chain is a strategic priority. The report, entitled Green Supply Chain: from awareness to action, is the fourth of a series of “supply chain monitors” from the private consultancy.  The study was conducted among about 600 European decision-makers by Novamétrie between 2010 and 2011, with a position within Supply Chain, Sustainable Development or Industrial Divisions.   Key industries captured includes: consumer goods, transportation, construction, automotive, industrial goods, retail, energy and utilities, chemicals, IT/electronics and pharmaceuticals, among others.

The goal of the report, according to the authors was to summarize “the evolution over the past two years in terms of mindset, maturity and actions efficiency [and] explores the green Supply Chain practices in Europe, in order to identify the significant improvements in the most representative industries. The results clearly underline a growing interest of executive managements in developing products with a low environmental impact. What was seen as a constraint is now considered as an opportunity.”

Executive Management Mandates, Reputational Risk Management Are Key Drivers

A notable “inflexion” occurred between this survey round and prior surveys.  For instance, in 2008, findings suggested that supply chain ‘greening’ was primarily being driven by important environmental and regulatory developments (such as REACH, WEE, RoHS or the European Union Emissions Trading Scheme).  Now, with compliance programs associated with these initiatives firmly entrenched or in initial development, the drivers appear to be shifting toward meeting internal executive management commitments and addressing reputation management and/or consumer demands.  In other words, according to the report, “Environmental actions presently address new constraints and motives, which are more mature and integrated to companies’ decision processes.” Key findings from BearingPoint’s report include:

  • 70% of surveyed companies declare that green Supply Chain is a true economical lever.
  • For 47% of the companies, the return on investment of a green Supply Chain is reached within 3 years.
  • More than half of European companies now use environmental criteria to assess their Supply Chain performance: share of recycled packaging material, CO2 emissions.
  • Two-thirds of companies adopted or plan to adopt a green policy for their purchases.
  • Manufacturers must be able to measure and reduce their carbon footprint if they are to succeed on export markets
  • Over half of the respondents in the survey said they did not renew contracts with suppliers who did not respect their green charter.
  • Buyers are preferably choosing suppliers with certified processes such as ISO 14001.

According to Bearing Points recent press release, Irish Exporters Association chief executive, John Whelan, said: “There is no question that Irish businesses which produce transparently environmentally positive products, delivered by carbon neutral logistics services will succeed on international markets.”

Sustainability Drivers Both Inside and Out the ‘Four Walls’

In yet another study, Prime Advantage, a buying consortium for midsized manufacturers, unveiled its seventh (2011) Prime Advantage Group Outlook (GO) Survey.  This survey queried small and midsized North American manufacturers, and found that more than 80 percent of North American companies surveyed indicated that they developing more sustainable or energy-efficient products largely driven by customer requirements and compliance regulations.  According to the study, “the biggest driving factors behind these changes are customer requirements (80 percent), followed by compliance regulations (53 percent) and shareholder directives (12 percent). In addition, 57 percent of respondents have also started buying more sustainable indirect products for internal consumption.”

A Systems Perspective Breeds Competitive Intelligence

The Bearing Point study made a statement that caught my eye and for which I wholeheartedly agree.  Identifying with a systems-based mindset that recognizes the intrinsic and realized value sustainability-focused business management is a critical fulcrum for green supply chain practices. I noted in a post last fall that The Fifth Discipline and The Necessary Revolution author Peter Senge argued (in the October Harvard Business Review) that to make progress on environmental issues, organizations must understand that they’re part of a larger system. Senge also makes a great point that companies will be in a better competitive position if they understand the larger system that they operate within and to work with people you haven’t worked with before.

I’ve cited companies like Hewlett-Packard and Danisco as supply chain innovators in their product sectors.  These companies, among other innovators like Intel, P&G, IBM, GE and others, who’ve viewed supply chain in a systematic or holistic manner, organizations successfully have been applying that “big-picture thinking” needed to be truly innovative. Doing so can create leverage points that companies never realized they had before with their suppliers.

Clearly, the environmental (and often the social) footprint of a product extends beyond the four walls of the company who “brands” the product.  This footprint extends upstream and downstream, and must capture, control or influence inputs and outputs all along the way.  Some of the largest footprints (like energy and carbon) lie upstream or in the final hands of the consumers.  This is why leading companies are rethinking the global extents of their supply chains, exploring local sourcing options and implementing other operational efficiencies.

The results of the recent surveys indicate that companies in a wide number of sectors are waking up to the fact that sustainability is more than business innovation- it’s business intelligence.

Consumerism & Supply Chain Meets Sustainability in the Chemical Industry

10 Mar

Next week, I’ll have the honor being the dinner keynote speaker at the European Petrochemical Associations 2nd Interactive Supply/Demand Chain Workshop in Brussels, Belgium. This years’ theme is “21st Century Supply Chains for the Chemical Industry”.  The topic is timely given how there’s been so much talk concerning over-consumption, consumer behavior, corporate social responsibility and increased growth of sustainability in manufacturing and supply chain management.  And the chemical industry indeed plays a large role in much of what we consume.  It reminds me of the old Monsanto commercial…”without chemicals, life itself would be impossible”.  It’s just that these days, chemicals in the global marketplace appear to be getting ‘greener’.

Consumer Demand for Sustainable Products

Consumer demand appears to be contributing (at least in part) to some of the gains in eco-friendly and sustainability focused design and manufacturing progress that’s being made in the global marketplace.  There is certainly a higher degree of consumer awareness and understanding of the need to make healthier, socially conscious and eco-friendly products.  However, the Green Confidence Index, a monthly online survey (~2,500 Americans by GreenBiz.com) noted last year that U.S. consumers cite price and performance as the principal reasons for not buying more green products- the flat growth was partially attributed to stale economy.  The slow economic growth of 2010 appeared to also be slowing widespread innovation by small to medium-sized businesses focused on green manufacturing.

In contrast, the consumer business disconnect appears to be alive and well in other parts of the world. In fact, it’s my thinking that businesses are significantly underestimating consumer interest and awareness in sustainability and green issues.  For instance, consumer demand for sustainably manufactured or ‘green’ products and services in China, India and Singapore are outstripping supply (according to an independent survey conducted by TÜV SÜD Asia Pacific). I’ve no doubt the same is the case in Europe, often considered way ahead in terms of consumer sensitivity regarding sustainability. The TÜV SÜD Asia Pacific found that:

  1. 84% of consumers prepared to pay an average 27% premium for green products, services.
  2. Only 43% of business believes consumers to be willing to pay more  or even produce or trade green products in China, India and Singapore.
  3. 74% of businesses either do not have a policy or guideline to  minimize environmental in place or are failing to clearly communicate  they have one.

Chemical Industry Response to Sustainability and Supply Chain Impacts

Manufacturers in the chemical industry and peripheral services have progressively been responding to end-consumer and customer driven pressures. The emergence of ‘green, (or sustainable) chemistry” and restricted materials initiatives over the past half-dozen or so years have propelled the chemical industry and global consumer products manufacturers to rethink how products are made, consumer health effects and long-term eco-impacts.  Traditionally, supply chain management of hazardous products has focused more on reducing the exposure to hazards than on hazard elimination. The advent of green chemistry has provided opportunities to refine supply chain management, including procurement policies and practices, by developing safer products. Redesigned products and processes can dramatically reduce the risks encountered in manufacturing, storage, transportation and waste control by mitigating the hazards associated with them. From a risk management perspective, since it is fundamentally better to mitigate hazards than to try to protect against them, green chemistry has proven to be highly beneficial and contributes by default to greener supply chain management and supply chain-related risk management

Many manufacturers have risen to the occasion in recent years to drive green chemistry and supply chain management to lessen their eco-footprints and support development of safer products.  Global chemical manufacturer BASF chooses its carriers, service providers and suppliers not just on the basis of price, but 0n their performance in the fields of environmental and social responsibility when making our sourcing decisions. In addition to following the internationally recognized Responsible Care program requirements for environmental, health and safety, BASF has established product stewardship goals designed to reduce its overall eco-footprint.

“What counts for us is acting responsibly throughout the entire supply chain because we want to build stable and sustainable relationships with our business partners. This is why we choose carriers, service providers and suppliers not just on the basis of price, but also include their performance in the fields of environmental and social responsibility when making our decisions.”

The company also maintains several key features of its global supply chain management program, including:

  1. Safe transportation to our customers
  2. Evaluate and support partner companies
  3. Monitoring of suppliers
  4. Product types and sources important
  5. Providing advice for better services
  6. China: sustainability in the value chain
  7. Minimum social standards for suppliers

Meanwhile, DuPont’s Mission is focused on “creation of shareholder and societal value while we reduce the environmental footprint along the value chains in which we operate”.  Throughout the production-supplier-consumer value chain, DuPont strives through end to end supply chain communication to 1) manage risk and be adaptable; 2) gain efficiencies & profitable flexibility; and 3) enable sustainable product performance and verification through its entire supply chain. Sustainability efforts are tracked and managed for continual improvement through a combination of business management integration approaches and supply chain design and operation.

On the retail side, Walmart has asserted itself in the past several years, by clarifying its stance about reducing toxics in products.  In response, American Chemistry Council members have pledged to lower GHG intensity by 18% by 2012 using 1990 as a base-reporting year and has exceeded that initial commitment and has reduced carbon intensity by 36%.  In addition, Dow Chemical’s is working to harmonize the Walmart goal with its own sustainability objectives of decreasing its environmental footprint and maximizing product performance throughout the supply chain.

“Given the challenges associated with running a global chemical manufacturing supply chain, we have been focused on sustainability for a long time – not just our own but also how we address sustainability with our customers and our customers’ customers,” – Anne Wallin, director of sustainable chemistry and life cycle assessment at Dow Chemical.

Logistics Providers Stepping Up to the Challenge

Among supply chain and logistics businesses, the 2009 14th Annual 3PL Study found that shippers want to create more sustainable, environmentally conscious supply chains. The survey found a need to strike a balance between labor & transportation costs.  Surveyed 3PL’s also noted the market value of carbon-reducing processes, compressed production cycles, and less carbon intensive transportation modes that beat the competition.

Most recently, American Shipper just published its Environmental Sustainability Benchmark Study of over 200 shipping companies.  According to the study, “survey respondents clearly see environmental sustainability has an emerging impact and increasing importance in their supply chain. On a scale of one to five (one lowest; five highest) the study average ranked sustainability as 2.42 two or three years ago, 3.41 today, 3.95 in five years, and 4.17 in 10 years”. Interestingly, customer demands, at 25% percent (see graphic below) are on a par with company policies as a leading driver of environmental sustainability adoption.  Most respondents saw potential return on investment (ROI) although ROI was clearly a potential barrier to sustainability adoption.

In response, leading 3PLs and fourth party logistics providers (4PL’s) are focusing more attention on business practices that are intentionally drive business efficiencies , but (perhaps unintentionally) enhance overall environmental performance, namely:

  • In-Store Logistics
  • Collaborative warehousing & infrastructure
  • Reverse Logistics
  • Demand Fluctuation Management
  • Energy/Fuel Use Management

End consumer preference certainly has its place in deriving sustainability in the 21st century, but as I see it, the chemical industry and its shipping and logistics partners are showing proactive leadership in embedding sustainability in the “source, make, deliver and return” product value chain.

My next post will explore how competitive collaboration, or “co-opetition”, is making resurgence in the supply chain sustainability conversation.  In the meantime, I’m looking forward to next week’s conference and all the hospitality that Brussels has to offer.

Surveys Lift the Lid on Innovation & Sustainable Supply Chain Management, Uncovering Value & Leadership Traits

9 Feb

This is a tale of two surveys…one innovation focused, the other supply chain focused.  What both have in common is how the reports focused on define the traits and qualities of those who lead and those who follow in their respective business spaces.  Those who innovate tend to lead while those who follow…well, often play catch up.  That’s not too efficient and can lead to wasteful use of resources.  Trust me-as I learned last fall (see photo), it’s better to be the lead horse rider in a dusty trail ride.

The Leaders vs. Laggards Survey

In 2010, as part of its Innovation Survey Series, Cap Gemini Consulting performed a “Leader versus Laggard” study.  The goal of the study was understand the “current state of affairs regarding innovation, and … to identify what drives the success of companies that view themselves as successful”.  Over 375 companies responded to the survey.  Those reporting ‘over 75%’ of innovation efforts having a positive material impact on the company’s business results were considered “leaders” (slightly more than 11%). The ‘less than 25%’ category represents the innovation “laggard” group (nearly 25% of the respondents).  The remaining 65% percent were somewhere in the middle, innovation-wise. The primary drivers of innovation were: evolving customer needs, technological advances and changes, executive direction/internal demands, macroeconomic/external factors, globalization, and changing supplier capabilities. Innovation efforts were generally wrapped into the following five categories: customer focused innovation, new product development, incremental product improvement, business process innovation, and, business model innovation.

Innovation was considered a top-three strategic priority by more than 76 percent of the respondents to the Capgemini survey. Further, over half of the respondents indicated they have developed relationships with third parties to support their innovation efforts on an ongoing basis. The key study takeaways were:

  1. Innovation leaders have advanced beyond other innovators by having an accountable innovation executive or other form of formal innovation governance structure that deals with this kind of decision-making.
  2. Laggard companies hadn’t mastered collaborating effectively with external partners to improve their innovation results. Leaders however had been able to successfully leverage suppliers, customers and other third parties in the innovation process, including filling in missing capabilities or resources – such as technology and talent.
  3. Business model innovation will be the next big differentiator for companies aspiring to innovation leadership. Innovation leaders are allocating increasingly more resources to business model innovation.

Why is this study valuable in terms of supply chain sustainability?  Read on.

The Sustainable Supply Chain Survey

A revealing and promising study was released by the Aberdeen Research Group a couple of months ago.  The Sustainable Supply Chain surveyed 360 companies and found that sustainable supply chain management and supply chain risk management are among the top three areas for improvement in their organization for one third of the respondents.  While that isn’t a stellar number there are some positive trends.  For instance, the survey showed that 76% of the overall survey respondents have incorporated sustainability criteria into some or all of their supply chain management processes. The results provide further proof that in 2010 more companies viewed sustainable supply chain and greening as a foundational aspect of their business operations.

This survey fared compared well with another survey conducted by eyefortransport (EFT) that I reported on in a prior post).  In the EFT survey, well over 60 percent of those companies surveyed had implemented or were initiating sustainability focused efforts in 2010- ranking around 10th out of nearly 40 supply chain management project categories.   In the logistics survey, most respondents noted a far higher level of positive environmental performance in 2010 compared with 2009.

The Aberdeen survey found that two primary drivers for sustainability revolved around achieving “competitive advantage” and assurance that companies were compliant “with current and future regulations”.   Additional drivers noted by about a third of the respondents included interest in positive impacts to bottom line financials and responding to consumer demands for ‘eco friendly’ products.  These drivers, according to the reports highlighted perspectives of five different stakeholders along the end-to-end supply network: customers, suppliers, regulators, competitors and shareholders.

What makes the Aberdeen survey unique was how it distinguished business pattern between “leaders” and “laggards” (like the Capgemini report).  Two key take-aways were:

1) Best-in-Class companies were twice as likely to incorporate sustainability principles throughout all supply chain management (SCM) processes and

2) a principal characteristic of “laggards” was their lack of focus on incorporating sustainability into their SCM processes.

For example, the Aberdeen study identified a 29% spread between leaders who’ve achieved 12% emission reductions versus laggards corresponding 17% increase in emissions.  Similar polar opposite movement was found in areas related to energy consumption and operating margin containment.  And like the Capgemini study, best in class (leaders) companies were 70% more likely to establish corporate governance teams, making technology investment to collect and report metrics, and engaging their suppliers.  Think of the potential savings that leaders have realized compared to their laggard counterparts.

Logistics Providers Leading the Way

As one example, two logistics giants, FedEx and UPS have done deep dives in their business practices and implemented industry leading solutions to bake supply chain sustainability into their operations and supplier networks. UPS has deployed “package-flow” software to map out its most efficient delivery routes. Besides limiting left-hand turns, UPS estimates it shaved nearly 30 million miles off its delivery routes, saved 3 million gallons of gas and reduced CO2 emissions by 32,000 metric tons.  FedEx has deployed cleaner vehicles, sourced alternative power sources for its facilities and engaged its supply chain to promote recycling, product reuse and greener packaging to support FedEx’s operations. The company reports that they’ve improved total fleet miles per gallon within the U.S. by 14.1 percent since 2005, saving over 53 million gallons of fuel or approximately 472,700 metric tons of carbon dioxide emissions, with a goal of improving by 20 percent by 2020.  And like UPS, FedEx  is (according to its web site) redesigning its “physical distribution models to maximize the density of … ground and air shipments. This reduces the amount of fuel it takes to ship each package….”

The Aberdeen study also mentioned how the UK based non-profit Supplier Ethical Data Exchange (Sedex) has developed a secure online platform for companies to share and monitor sustainability data across supply chain.  Sedex’s mission is “connecting businesses and their global suppliers to share ethical data and enabling continuous improvement in ethical performance”.  Currently used in over 160 countries, the membership driven initiative focuses on metrics capture across four “key pillars”: Labor standards, health and safety, business integrity and environment.  Being on Sedex does not mean that a company has met any ethical standards or is in compliance with any code but it does mean that suppliers have made a commitment to continuous improvement.  Suppliers to major retailers and brand owners continue to own the data and manage its use, and keep it updated on a semiannual basis.  Suppliers’ customers then have the option to run a “risk profile” which can allow them in turn to prioritize suppliers for additional collaboration to manage the sustainability footprint of their products or practices.

The Work’s Not Done

The Aberdeen study did uncover several challenges that companies face, especially those with wide supply chain networks.   The study found that about 40% of companies outsourcing at least some of their manufacturing struggle to establish operational capabilities that yield measurable results (less than 10% efficiency).  This underscores the difficulties that many manufacturers have in effectively controlling or influencing supply chain behavior.  And while sustainability initiatives focused on improved energy use efficiency and practices to reduce environmental footprints are highly relevant in improving operations efficiencies, execution still remains challenging.

“The focus on sustainability has changed from being a philanthropic, ‘nice to have’ initiative, to the one that is core to the success of organization…Consistently adhering to the sustainability mandates established by clients as well as establishing mandates for your suppliers is an important strategy to gain incremental business value in the current environment” – Nari Viswanathan, Vice President and Principal Analyst of Supply Chain Management at Aberdeen.

Pushing the Supply Chain Envelop Requires Innovation and Leadership

Many of my prior posts have suggested that “supply chain successes are driven by those who lead through innovation and don’t procrastinate.  These organizations have vision– for the short term and long-term”.  The Aberdeen and Capgemini surveys are proof that ‘first mover’ companies are changing the way business gets done, sometimes in marked, ‘greener’ ways.

I believe that innovative companies are those who consider business operations through a “sustainability lens” by 1) developing key performance goals and metrics to make supply chain sustainability initiatives thoughtful, effective and believable; 2) implementing sustainability initiatives that create environmental and social benefit and that are aligned with the company’s financial strategies and business vision; and 3) identifying and developing value-added transparency and proactive collaboration throughout the supply chain.

Who is up to pushing the supply chain envelope, be a sustainability leader and reap the benefits?

A Roadmap to Perform Supply Chain-Focused Materiality Assessments

2 Feb

Note:  this is the final part of three-part series exploring “materiality” and  the intersection of supply chain management, sustainability and  corporate social responsibility.

Part One of this three-part series explored materiality as the “nexus” point that linked sustainability, corporate social responsibility (CSR) and supply chain management.  Conflict minerals were explored in detail and highlighted the key role that developing nations and commodity goods are playing in driving supply chain management and CSR.   The second post in this series highlighted the roots of materiality analysis in the sustainability space, case studies and highlights of interviews conducted with two key sustainability and corporate responsibility thought leaders, @Jefferyhogue and @ElaineCohen.

From a corporate social responsibility reporting point of view, a materiality analysis is an ordered, rigorous evaluation of the sustainability (environmental, social, financial) issues significant to the company and its stakeholders.  This type of analysis can provide an organization with critical, informed insight that can drive strategic direction as well as tactical change management.

Typical elements of the materiality analysis process include:

  1. Identification of a universe of relevant economic, social, environmental, and policy/governance issues for consideration,
  2. Evaluation and ranking of the level of internal and external stakeholder concerns regarding each issue,
  3. Evaluation and ranking of the potential impact on the company of each issue
  4. Development of a matrix-based prioritization of the issues, and
  5. Execution of a structured, collaborative strategy planning, implementation and reporting process.

Materiality Assessment Templates

The CERES 21st Century Roadmap for Sustainability 2010 provides a high level overview of materiality analysis.  The first step is to identify which stakeholders there are that interact with an organization. In this first phase, CERES recommends that organizations “engage with stakeholders to obtain feedback on the relevance of existing and proposed policies and to identify gaps. These policies should guide the company’s activities across its operations, the supply chain, logistics, the design and delivery of products and the management of its employees.

When engaging stakeholders, organizations should identify key business and operational issues of concern to the company and share this analysis with external stakeholders. CERES recommends that “stakeholder dialogue can be to identify additional issues, prioritize efforts, and recognize emerging risks that could become increasingly important to the business over the long-term. The company should then explore the links between identified material issues [that are considered significant to stakeholders] and the leadership team’s vision and strategy…and provide an explicit response to that feedback”.

AA1100 Assurance standard creator and international institute AccountAbility has established what they refer to as a “Five-Part Materiality Test” .  Like the CERES approach, this robust test is designed to help organizations 1) identify what issues are most material, or relevant, to their business and its stakeholders and 2) what information should be disclosed or reported in corporate social responsibility reports. The five different materiality tests (shown in the graphic below) are:

Test 1: Direct short-term financial impacts: Evaluate short-term financial impacts resulting from aspects of social and environmental performance

Test 2: Policy-based performance: Consider policies that are core to a business rather than add-ons

Test 3: Business peer-based norms: Issues that company peers deem to be important

Test 4: Stakeholder behavior and concerns: Identify issues relevance to stakeholders in terms of reasonable evidence of likely impact on their own decisions and behavior; and

Test 5: Societal norms:  Considerations taken from both a regulatory and non-regulatory point of view.

The issues of most significant concern would be vetted with stakeholders and validated by an external party and set the framework for ongoing action and demonstrated continual improvement.

8-Phase Supply Chain Focused Materiality Assessment

Taking a cue from CERES, AccountAbility, the ISO 14001 based environmental aspects and impacts process, and basic principles of risk management, I offer my eight point plan to effectively engage internal and external stakeholders in querying, assessing and prioritizing supply chain materiality.

  1. ID Key Supply Chain Products re: Environmental Loading Characteristics and Operational Practices
  2. Identify Governance, Operational and Regulatory Constraints versus Supply Chain Practices/Policies
  3. Risk Management Evaluation-Screen internal  & external supply chain issues against current  business objectives & strategy, policies, current processes  & programs
  4. Materiality Risk Ranking Matrix and Determination of Threshold Action Levels (Internal and External Stakeholder Specific & Aggregated)
  5. Development of Materiality Mitigation Action Plans- Prioritize, Assign Resources, Timeframes & Measurement Metrics
  6. Stakeholder Engagement and Issues Identification (against major supply chain variables)
  7. Management Review including Strategy Performance and Reporting, and
  8. Internal/ External Stakeholder Alignment; CSR Reporting

As a general rule when evaluating the ‘materiality’ of any issue (supply chain driven or not) , significance must consider a company’s short and long-term business objectives and strategy, policies, risks, and current processes and programs. Also, in order to factor into account resource management variables, it’s advised that companies consider the levels of control or influence they have over an existing or future issue to determine its significance, and ultimately management strategies and tactics.

Likely outcomes of using a structured continual improvement approach in addressing and documenting supply chain materiality are:

  • Targeting and prioritizing the most significant supply chain issues to manage in the short-term, at a scale that matches existing labor, financial and capital resources
  • Proactive planning to budget future resource allocations to address capital or resource intensive activities for long-term management
  • Acknowledging and integrating a wide variety of interested party concerns and perspectives into strategic business planning at an early stage
  • Providing a foundation for continual improvement through structure risk assessment, action planning, communication and reporting.

Materiality Assessments- The Sustainable Value Proposition

Materiality analysis can help organizations to clarify issues driving long-term business value; identify, prioritize and address risks; and capture new market opportunities.  Through structured efforts to align sustainability and business strategies with supply chain management, materiality assessments that account for financial and non-financial issues will not only strengthen business relationships with suppliers but forge collaborative bonds with external stakeholders.  This targeted focus on collaborative innovation, adaptive management, performance measurement and reporting has the potential to drive stronger brand reputation and competitive advantage over time.

“First Movers” Use Materiality Analysis to Link Sustainability, Supply Chain Management & CSR

25 Jan

By Dave R. Meyer (SEEDS Global Alliance)

Note:  this is the second of a three-part series exploring “materiality” and  the intersection of supply chain management, sustainability and  corporate social responsibility.

My first post in this series suggested that there was an intersection or cross-walk between sustainability, corporate environmental responsibility and supply chain management.  This “sweet spot” can be found in conducting “materiality” analyses.  Although the concept of materiality in the finance sector has a long track record in accounting circles, its application in the sustainability space is much newer.  Whereas financial reporting has taken a more short-term view and approach to handling performance and risk, sustainability generally factors in a much longer, strategic planning and implementation horizon.

Businesses have learned that in a world that has grown more transparent, they need to clearly identify what is material to their operations and stakeholders, and communicate this in trustworthy and convincing ways in order to drive creativity and innovation.  Materiality determination is a lot like the aspects and impacts analysis that is common to ISO 14001 based Environmental Management Systems.  ISO 14001 seeks to identify those elements of their activities, processes, services and products that have the greatest impact on the environment.  Materiality analysis does not only that but dives deeper into operations and stakeholder issues.  Let’s take a moment to explore materiality’s origins in the sustainability space.

Roots of Materiality in Sustainability Reporting

In 2003, The UK- based think tank, AccountAbility developed the  AA1100 Standard.   AA1000AS (2008) assurance provides a “comprehensive way of holding an organization to account for its management, performance and reporting on sustainability issues by evaluating the adherence of an organization to the AccountAbility Principles and the reliability of associated performance information. It also provides a platform to align the non-financial aspects of sustainability with financial reporting and assurance through its understanding of materiality”.    The framework for a materiality assessment is depicted in the adjoining graphic, jointly developed by AccountAbility, BT Group Plc and LRQA (The Materiality Report- Aligning Strategy, Performance and Reporting- November 2006).

The AA1100 Standard was revised in 2008.  In it, the AA1000 Materiality Principle requires that the “Assurance Provider states whether the Reporting Organization has included in the Report the information about its Sustainability Performance required by its Stakeholders for them to be able to make informed judgments, decisions and actions.”  Materiality norms taken into account by this standard are:

(a) Compliance performance (considering those aspects of non-financial performance where a significant legal, regulatory or direct financial impact exists).

(b) Policy-related performance (considering identification of aspects of performance linked to stated policy positions, financial consequences aside).

(c) Peer-based norms (considering how company’s peers and competitors address the same issues, irrespective of whether the company itself has a related policy or whether financial consequences can be demonstrated; and

(d) Stakeholder-based materiality (taking into account stakeholder behaviors and perceptions).

The Global Reporting Initiative has developed a framework for materiality determination as part of the G3 Sustainability Reporting Guidelines The GRI considers materiality as “ the threshold at which an issue or indicator becomes sufficiently important that it should be reported.”  The GRI defined a series of internal and external criteria to be considered when performing a materiality analysis.  Later in 2009, the GRI convened a to evaluate and create more specific guidance for determining materiality.  The draft content recognized that materiality analysis was one of the “least systematized aspects of reporting”:

“Identification of material issues and boundaries are core challenges for any standard risk assessment process. Despite the importance of these challenges to good reporting processes, they represent the most difficult and underdeveloped areas for most companies.” – Draft Report Content and Materiality Protocol, page 2.

The draft Report Content and Materiality Protocol review period closed last fall and is in review at this time.

Materiality “First Movers”

A number of companies have taken a “first mover” position in documenting materiality in their corporate sustainability reports.  Most have used a format similar in scope and criteria as the GRI or AA1100 frameworks, with some modifications.  Companies that have reported on materiality and that reach out to stakeholders what they find to be material to their interest and have some “reasonable control” over include companies from diverse manufacturing sectors such as automotive (Ford[1], BMW, Volvo), communications (BT), energy development (Exxon, Mobil) pharmaceuticals (Novo Nordisk, Pfizer, Johnson & Johnson), electronics and control Systems (Cisco, GE, Omron), consumer products (Gap, Starbucks) and mining (Holcim, Rio Tinto), among many others.  One such company is Danisco A/S.

I recently had the opportunity to visit with Mr. Jeffrey Hogue (@jeffreyhogue) of Danisco.  Mr. Hogue is Sustainability and Corporate Social Responsibility (CSR) Global Leader at Danisco A/S.  Danisco is a worldwide manufacturer of food and beverage products, including cultures, emulsifiers, gums & systems and natural sweeteners.  The company does business with the world’s largest food manufacturers.  Daniscos’ 2009/2010 Sustainability Report is extremely comprehensive and has been awarded some of the highest honors for corporate social responsibility reporting in the past year.  The company looked deeply into materiality issues in its report and has developed  strong operational programs to manage its supply chain in a proactive manner.  It’s web site indicates that they have developed and implemented a “new supplier management system…to strengthen our global supplier and material assessment programme through better audit portfolio management tools, detailed assessments, prioritised audits and improved collection of supplier and raw material data.”

Danisco catalogued and assessed stakeholder input from a variety of internal and external surveys and other sources, then indexed them according to their impact on its business. Issues emerging from the data were ranked according to their impact on the business and the degree of importance to stakeholders, forming the basis for the Materiality Matrix (see Figure 1 below).  The company strategically decided to address sustainability risks and opportunities identified as having “medium-to-high impact” on its business and being of “medium-to-high” interest to our stakeholders.


I asked Jeff if he could shed some insight on the company determined materiality and its resulting high ranking for supply chain (criteria, indicators etc).  I also asked Jeff if he’d share his thoughts on the critical nature of supply chain management relative to triple bottom line based materiality (as well as risk management).

“I think that there are three dimensions of this subject and why our supply chain is very important to our success.


Risk reduction – With a supplier base of over 3000 key suppliers it is crucial for us to manage any risk that may be present in our upstream value chain to eliminate the impact on our operations and our customers.  Therefore it is a baseline requirement that we scrutinize our supply chain and develop robust and systematic programmes to address and mitigate risk. Most of our customers expect it — and although it is in a lot of ways a compliance programme, we do derive value in knowing that we will maintain consistent raw material quality, avoid issues related to labor and human rights, and supply security.  We also have the ability to anticipate and mitigate other sustainability related endpoints like the impacts on agricultural raw materials from climate change, water scarcity, regulation, etc.

Opportunity harvesting – We also see the need to understand the potential synergies between our organization and our suppliers.  In many cases we do this to provide shared value in terms of capacity and livelihood building for our suppliers alongside our need for more secure raw material sources.  We often do this on a case by case basis — mainly on a regional level where it makes sense

Value chain pressures and expectations – We are experiencing a world where retailers and our largest customers see these issues in the light of their entire value chain and are actively seeking ways to reduce their indirect impacts.  This of course is cascaded down their supply chains through our organization to our suppliers.  We also see a tremendous opportunity in this area to be first movers and to act now based on how the retailers are moving.  This will put us in a position where we can be proactive and are faster to respond to value chain pressures.”

Materiality in CSR Reports of the Future

I also had the pleasure of several e-mail exchanges with Ms. Elaine Cohen (@elainecohen).  Elaine is a well known CSR consultant, Sustainability Reporter, HR Professional (and self-avowed ice cream addict).  She’s  the Founding partner at BeyondBusiness Ltd (www.b-yond.biz/en) and consults to companies on CSR strategy, processes and sustainability communications. I asked Elaine what trends she has seen in CSR reporting these past few years where supply chain has been classified as having “high materiality” to a company’s operations and to their stakeholders.

“I believe supply chains have been becoming increasingly more important over the past few years, as the effects of inadequate supply chain accountability are more and more visible in our market place. We can split these issues broadly into two: the human rights issues in supply chains and the sourcing issues in supply chains.  The HR issues surfaced mainly with the apparel issues in the late 90’s. But the last five years have been characterized by significantly greater transparency  due to the spread of the internet and ease of access to information.”

“… Additionally, I believe the increasing focus on Human Rights and the work of John Ruggie [Special Representative of the United Nations Secretary-General on Business & Human Rights], have been clear about squarely placing the responsibility for clean supply chains on the manufacturer. There is almost nothing more material for apparel suppliers than human rights in their supply chains – just take a look at some of their Sustainability reports. Regarding sourcing, this has also become a major issue – Starbucks and Ethiopian coffee farmers, Unilever and others in palm oil issues, Nestle and the Greenpeace KitKat campaign . Manufacturers are getting clearer that sourcing decisions are now much more visible than in the past, and much more risky. So for these companies, raw materials sourcing is most definitely high materiality. Sustainability reports are reflecting these trends and the space allocated to human rights, responsible sourcing and factory auditing is significantly greater that it was some years ago.”

Trending forward in 2011, I asked Elaine to read the tea leaves on supply chain management, CSR and materiality.

“I believe these issues will continue to maintain high-profile and ultimately move towards cross sector alliances to resolve issues that affect all players in a sector such as the Round Table on Sustainable Palm Oil , work done by the apparel sector and the electronics industry  to determine common standards. We might see multi-company collaboration on third-party factory inspection and evaluation. We might see a set of industry wide agreements on core issues….countries such as China and India are also aware of risks, and greater legislation and enforcement in these countries may help resolve some issues.

Takeaways on Materiality in the Supply Chain.

Jeff related to me that a key NGO with a critical stake in Daniscos’ supply chain affairs remarked that supply chain management and sustainability go hand in hand and is basically a foundational aspect of business operations and risk management.   The challenge, according to Jeff, is in finding the “shared value proposition” that is often difficult to achieve, especially across multiple layers of an often globally distributed supply chain.  Finding localized suppliers and establishing multi-stakeholder collaborations hold promise as models where stakeholder interests and large-scale products manufacturers can find the needed common ground to advance supply chain sustainability.

Elaine summed up our dialogue with the following suggestions: “For manufacturers, don’t underestimate the importance of high-quality supply chain management – get it right before it gets you right, learn from the mistakes of others, think of supply chain management as a core business issue which goes to the heart of strategy and brand decisions, not just something that is tacked on to a new project as a deliverable…In terms of materiality, make sure you “engage, engage, engage” at [the] local level with a wide range of stakeholders, so that you are not demanding deliverables which are not reasonably  feasible. Report transparently on all aspects of supply chain because, if nothing else, this will assist in identifying hidden costs and areas of potential risk.”

Thanks Elaine! I couldn’t have said it better myself.

In Part 3 of this series, I’ll lay out the business case for materiality assessments to strengthen supply chain management and a straightforward framework for materiality analysis.


[1] Ford’s 2008/09 Sustainability Report includes an interactive materiality matrix that categorizes issues based on two dimensions: the degree of stakeholder concern and the extent of the current or potential impact on the company.

How ‘Materiality Analysis’ Can Drive Corporate Social Responsibility & Sustainability in the Supply Chain- the Case of Conflict Minerals

19 Jan

By Dave R. Meyer (SEEDS Global Alliance)

Note: this is the first of a three-part series exploring “materiality” and the intersection of supply chain management, sustainability and corporate social responsibility.

As the ongoing Wikileaks controversy has made very clear, the political and business world is on information overload.  Some of the information that is disclosed can reveal damaging and often jaw dropping news- and somewhere, interested stakeholders either celebrate or shudder. If a company is questioned about its work practices, environmental impacts of its products or services, it’s too late to claim “it’s not my problem”.  By the time the conversation happens, it’s already a “material” issue.  We are (as former Beatle George Harrison penned) indeed “living in the material world”.

“Materiality” is a term that is frequently used in corporate financial circles, especially as it relates to corporate responsibility, risk and liability management.  A “material issue” is commonly understood in the financial industry as a factor that can have a significant financial impact on a company. These issues are generally disclosed to shareholders, quantified to a degree in annual financial reports, and addressed within the strategic planning process.

Tomorrow’s effective corporate social, environmental and economic reporting must communicate information that is ‘material’ to stakeholders in making coherent decisions and taking planned and timely actions relevant to their interests. An appropriate redefinition of materiality is therefore essential for business managers, for policy makers establishing tomorrow’s regulatory frameworks, and for those involved in their implementation and oversight.- excerpt from Redefining Materiality -Practice and public policy for effective corporate reporting (AccountAbility, 2003)

As sustainability meets supply chain networks, the issue of ‘materiality’ is taking on a new meaning.  Maintaining a “responsible supply chain” involves ensuring that human and labor rights are acknowledged along the supply chain.  Leading companies are engaging their stakeholders to assure that proactive institutional controls are in place to manage the environmental footprint of the value chain.  In addition, companies are increasingly promoting ethical business practices and fostering community based initiatives that support companies “social license to operate”.   As one example, on average, 40% to 60% of a typical consumer product manufacturing company’s carbon footprint is from its supply chain[1]. For retailers, the figure is closer to 80%, with an equally high supply chain exposure to human rights and social issues. By managing supplier and community engagement in a way that achieves and maintains the highest social and environmental standards, a company can achieve performance goals while creating a ripple effect that raises standards deep within the supply chain.

A recent report by Ernst and Young stresses a number of factors that are contributing to more companies expanding their supply chain initiatives in support of sustainability.  Key factors cited in the report are:

  • “Changing consumer preferences toward environmentally responsible (green) products
  • A call for better public availability of product data across the entire value chain
  • Major supply chain risks, including human rights, national security, environment  and  climate change, each of which individually can   collectively affect the nature of a companies sourcing activities.
  • Potential impacts of a products reputation and brand value associated with potentially harmful supply chain practices.”

It’s the last two points that touch most closely on the concepts and issues of ‘materiality’.

“Materiality” 101

As I noted above, ‘materiality’ analysis requires identifying the issues that are of high concern to your stakeholders and also of high strategic relevance to your company.  These are the issues that should be at the core of your corporate responsibility approach and communications strategy, both internally and externally. The concept of “materiality” for sustainable strategic planning widens the analytical spread to address significant environmental or social impacts—as understood by the company AND its stakeholders.

“Topics and indicators that reflect the organization’s significant economic, environmental, and social impacts, or that would substantively influence the assessments and decisions of stakeholders.” -Global Reporting Initiative G3 Sustainability Reporting Guidelines, October 2006.

Stakeholders can generally be defined as: investors, employees, customers, communities, non-governmental organizations (NGO), regulators, and (of course), suppliers. Suppliers upstream of core manufacturing operations hold a critical place in operationalizing organizational sustainability initiatives.  They can serve a key external role in determining if an environmental, social or financial issue that can be encountered within the product value chain is great and unmanageable or small and can be contained.  If manufacturers can control or influence supplier behavior, the environmental footprint of the product before it enters the production cycle, its likely that the entire product life-cycle footprint can be narrowed downstream at the point of use and end of life. Also, in softening the environmental and social “load” the residual effect would likely be greater stakeholder confidence, enhanced financial assurance and managed reputation.

The Case About “Conflict Minerals” and Supply Chain Management

Photo by Mark Craemer

Making the rounds in sustainability and supply chain circles so far this year is closer examination of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010), signed into law last July.  Within the body of this voluminous Act (page 838 of the 848 page Act  to be exact) is a six-page section that may have a marked impact on the supply chain for companies across many industries. This law and the issue of conflict minerals (and other commodity driven issues like palm oil extraction, cocoa or coffee production) is a golden example of where supply chain management meets social responsibility and ethics.  This issue sits squarely in the world of materiality, both to internal operations and to external stakeholders.

Section 1502 of the Dodd-Frank Act promulgates new requirements that will have companies reporting to the Securities and Exchange Commission (SEC) on the origins of many precious metals and minerals in their products, including gold, tin, tantalum and tungsten. The focal point of this legislation is targeted on so-called “conflict minerals”.  Most of these minerals are sourced in the Democratic Republic of the Congo (DRC).  Many of the proceeds from the sale of the minerals entering the supply chain are believed to be funding armed militia groups. The new provisions will create potential penalties for failing to comply with the SEC reporting requirements.  Also, the provisions require that companies respond adequately to customer or third-party requests for information about how these minerals are included in a company’s products or manufacturing processes.

According to a recent white paper on the Dodd-Frank Act by Supply Chain Executive and IHS, Section 1502 requires companies to make an annual disclosure to the Securities and Exchange Commission regarding whether potential conflict minerals used in their products or in their manufactur­ing processes originated in the DRC or an adjoining country. If the minerals were sourced from these countries.  Companies must report on the due diligence measures used to track the sources of the minerals if they were derived from the DRC or neighboring nations. In addition, the Act will require a 3rd party audit to verify the accuracy of the company’s disclosure. Finally, a declaration of “DRC conflict-free” must be provided to support that goods containing minerals were not obtained in a manner that could “directly or indirectly … finance armed groups in the DRC or an adjoining country”.

This Act and others like it are likely to create difficult, but attainable challenges for electronics manufacturers. The steepness of the challenge depends on the depth of the supply leading from initial extraction of materials to production and the frequency that the minerals exchange hands through the chain-of-custody.  Most surveys taken from manufacturers suggest a lack of confidence in being able to confidently trace conflict minerals to the source (excluding the likelihood that illegal extracted minerals are also blending into the marketplace).  So you could see the difficulty in companies demonstrating due diligence in tracing the chain of materials flows from point of origin.

Meanwhile, major manufacturers in sectors affected by the law already (electronics, cell phones etc) are starting to push new reporting requirements down their supply chains.  Also, a number of industry associations are working with their members to develop codes of conduct associated with conflict minerals.  They are also developing tracking tools and mechanisms to more accurately account for conflict mineral movement in compliance with Dodd-Frank.  And still other NGO’s continue to fight conflict minerals on the ground and through public action.

The second post in this series will look at the successes and challenges surrounding materiality in the supply chain and the intersection with corporate social responsibility.  I’ll present some industry leading examples of materiality analyses in corporate social responsibility reporting, and the criteria that went into determing levels of supply chain materiality .  The third part of this series will dive into how to conduct a detailed materiality analysis and best methods for engaging the supply network to create positive, verifiable benefits and leverage risk.


[1] Medical products manufacturer Baxter estimates that 38% of the company’s overall carbon footprint is represented by its suppliers. As part of its green supply chain initiative, Baxter “concentrates its efforts to green its supply chain on minimizing transportation-related emissions, procuring raw materials and other goods and services with reduced environmental impacts, and helping suppliers improve their environmental performance.”