Tag Archives: iso14001

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.

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Sir Bransons Climate Challenge to Sea Cargo Shippers- Carbon Accounting Successes & New Tools

7 Dec

In prior posts I have discussed the importance of transportation and logistics as critical elements in anchoring a sustainable supply chain (see separate posts here and here).  Last week I discussed the key linkages between supply chain sustainability and climate change.   No comes a bit of encouraging news from the Cancun Climate Summit (COP16), still in progress through this week.  A free internet database was announced over the weekend, the focus of which will list the energy efficiency of almost every ocean-going vessel, in a scheme designed to reduce shipping emissions by nearly 25%.  This effort is important not only because it recognizes shipping and transport as a backbone” of commerce, but because of the value of transparency in enhancing supply chain efficiencies.

“By eco-labelling clean and dirty ships, we hope to change the mindset in shipping and begin making gigaton-scale reductions in emissions,” said Peter Boyd, director of Carbon War Room.  The Carbon War Room was a co-founded by Sir Richard Branson.  Using publicly available data on the engine size and CO2 emissions of nearly 60,000 ships, exporters and importers, as well as holidaymakers on cruises, will be able to choose between ships that run on cleaner fuels and have other technologies designed to reduce environmental “loads”.

The initiative, called Shippingefficiency.org, rates ships on a scale from A to G in a similar fashion to ratings given to fridges or washing machines. According to the site, the Energy Efficiency Design Index (EEDI) ratings for an individual ship are calculated by assessing the values for that ship to overall average values for all ships of that type (e.g. bulk carriers) and to other ships of a similar size within this type. It will “allow supermarkets, oil and mining companies, food importers, retailers and manufacturers” to specify that their goods are sent from point to point by the least polluting ships.

The “Dirt” on Sea Shipping…

The shipping industry has been challenged for decades to find ways to efficiently deliver the majority of goods from point of manufacture to point of use.   Ocean transport carries more than 90 percent of the world’s traded goods and contributes between 3 percent and 4 percent of global emissions.  Shipping has been slow to address carbon emissions, choosing to focus on containment and control of other critical pollutants such as sulfur dioxide (SOx) and nitrogen oxides (NOx)[1]. According to the International Maritime Organization (IMO), the UN body that governs shipping, the industry has an opportunity to make substantial money by reducing the first 250 million tons of its CO2e.[2]

Shipping has a number of inherent institutional issues that hamper demand for widely available fuel-efficient technologies.  For instance, the worlds shipping fleet has been driven for years by engines designed to burn the cheapest, dirtiest “bunker” fuel, passing on the cost. Nearly 15% of the world’s ships account for about half of all the industry emissions.  In addition, most shipping lines traditionally pass on most of the fuel costs to charterers, providing few incentives to build more efficient ships (often referred to as the “landlord and tenant scenario”).  In addition, shipyards worldwide always charge an often cost prohibitive premium to operators for new designs and technologies

Also, its shipping-attributed pollution can pose serious human and environmental health risks.  For instance, particulate matter emissions from ships have been reported to contribute to an estimated 60,000 premature deaths annually (with most deaths occurring near coastlines in Europe, East Asia, and South Asia), as reported in a 2007 study published in Environmental Science & Technology.

…and What the Industry is Doing About It

Mr. Branson’s announcement in Cancun adds another initiative to the increased attention being paid to the transport industry in managing pollutants, including greenhouse gas emissions. As I recently noted in a recent post on shipping and logistics, Inbound Logistics Magazine earlier this year released its Top 50 Green Partners listing earlier this year.  Eight of the companies and organizations listed were ocean carriers.  These appear to be true leaders in implementing improved operational practices designed to lower the environmental impact of their operations.

Also, back in the early 2000’s, the Business for Social Responsibility (BSR) launched the Clean Cargo Working Group (CCWG). The group consists of over 60% of the leading multinational manufacturers (shippers) and freight carriers and forwarders (carriers).  The group is dedicated to” integrating environmentally and socially responsible business principles into transportation management”.  Unlike the new EEDI rating, the CCWG methodology is the only existing standardized approach to calculate CO2 emissions for ocean going container vessels. The data is put in the form of emissions factors to enable shippers and liners calculate carbon emissions in a consistent manner.  This allows trade routes to be compared. In addition, the CCWG annually benchmarks member lines’ environmental performance, further increasing focus and reducing environmental footprint.

Other collaborative efforts that cover other transport modes include EPA’s SmartWay Transportation Partnership, Ecological Transport Information Tool, and the GreenShip Project.  Each of these and other transportation-focused groups have made strides in developing tools and methods for different parts of the sector.

Case Studies

Reducing emissions is technically feasible using current technology, and, in the case of efficiency measures to reduce fuel consumption, can contribute cost savings that make it economically attractive with appropriate financing of upfront costs. Of those emission reductions, the first approximate 25% of reductions could be achieved “profitability”, according to the IMO GHG Study.

Big Players Getting it Done: At a transportation conference convened this past summer by the U.S. Department of Transportation, Federal Highway Administration, Lee Kindberg of Maersk Lines (one of the top 50 Green Partners reported by Inbound Logistics) reported that “… vessels are becoming more energy efficient and reducing emission. This is due to technologies, operations, the speeds we operate at, and the vessel sizes as there definitely are economies of scale. …Since 2002 [Maersk] reduced our CO2 emissions per container per kilometer by 20% and set a goal of an additional reduction of 25% by 2020.  In addition Kindberg indicated that the company was switching to a distillate fuel instead of the heavy fuel oil, resulting in sulfur oxide emission reductions of 95%, particulate matter emission reductions by 86% and the NOx emissions reductions by 6% to 12% depending on the vessels.  Reducing ship speeds, reducing ship drag, or ballast water optimization and treatment systems has also increased ship efficiencies along with improvements in ship procedures, crew training and performance measurement using independent third party environmental certifications like ISO 14001.

The Little (Hybrid) Tug That Can: Major cargo seaports are also collaborating with companies to introduce new technology to comply with stricter air quality regulations.  The world’s first hybrid electric tugboat, Foss Maritime’s Carolyn Dorothy which works in Southern California’s San Pedro Bay at the Port of Long Beach, California, emits 73 percent less soot (tugs are known high soot contributors), 51 percent fewer nitrogen oxides and 27 percent less carbon dioxide than a standard tug of comparable size.  The tug also can claim improved fuel efficiency and a quieter operation, all contributing to a lower environmental footprint.

Conclusions/Food for Thought

This past weekend’s announcement at Cancun and the slew of industry cross-sector, multi-modal collaborations are encouraging.  Whether it’s sea shipping, air cargo, rail or road transport, all modes play a vital key to solving part of the climate change puzzle.  As Maersks Kindberg stated this year at the FHWA conference, “We have to keep in mind that it’s the total lifecycle footprint that matters. Transportation is often only a small part of the total …If you focus on improvements and actually incorporate the carbon impact into business decisions, you can actually make real progress on both and perhaps also improve your business.’

It’s clear that all the nodes of a supply chain (from design to manufacturing and from point of use to end of life) and all the modal components in between want to be part of the solution, not part of the problem.  Businesses are stepping up to the challenge.

As we head into the final week of climate negotiations at Cancun, are the world’s climate negotiators up to the task?


[1]According to the Carbon War Room, the shipping industry is the largest emitter of NOx and is also one of the largest emitter of SOx.  It’s been estimated by the IMO that demand will increase, and CO2e emissions from ships will reach 18% of all manmade Greenhouse gas emissions by 2050 under “business as usual”.

[2] The IMO GHG Study 2009 estimates that eco-efficiency technologies could reduce CO2e emissions from shipping by between 25% and 75% with substantial monetary advantages.