Tag Archives: unilever

Scalable Consumption + Supply Chain + Circular Economy = Hope for Sustainable Economies

1 Mar

Consumers have unprecedented opportunity to be active shapers of the products and services they buy and use, rather than passive receivers, taking whatever companies provide.  Apples most recent litmus test on corporate social responsibility with its key Chinese supply chain manufacturing partner, Foxconn, and resulting consumer outcry is but just one example of the power that consumers have to sway products manufacturers to alter their business patterns.

At the recent World Economic Forum (WEF) in Davos, Aron Cramer (CEO and President of Business for Social Responsibility or BSR) observed at one workshop the “fast-changing relationship between businesses and consumers. The question on the minds of many of the business executives in the room was “is this good or bad for business”. The answer to this particular either/or question is undoubtedly both. Companies that stay ahead of this curve by involving consumers in product design; providing transparent information about the social and environmental content of these products, and looking at new models to provide value in new ways will prosper. Those that don’t will find growth hard to come by.”

Scaling Consumption in a Smart and Sustainable Way

The WEF has devoted a great deal of attention to the issue of scaling consumption sustainably as the world economy shifts both demographically and economically. WEF examines these issues in a report entitled: More with Less: Scaling Sustainable Consumption and Resource Efficiency. The study properly takes a “systems view” of sustainable consumption.  In other words, rather than focusing just on the demand side, WEF looks at the challenges and possible solutions through a value-chain centric lens of what they describe as:

  • consumer engagement (demand)
  • value chains and upstream action (supply)
  • policies and an enabling environment to accelerate change (rules of the game).

“Making your business sustainable in today’s world is an absolute imperative. The business case for sustainable growth is clearer than ever and the urgency of the issues we face means that business leaders have no choice but to act. ” Paul Polman. Chief Executive Officer, Unilever

As WEF explains, “The main outcome is the identification of key focus areas for business leadership through concrete goals and collaboration across industries”.  For this report, WEF engaged with chief executive officers, business leaders and experts worldwide, seeking answers and thoughts centered six key questions:

  1. What are the key trends in sustainable consumption?
  2. What is the size of the opportunity for countries, companies and consumers?
  3. What are the barriers to scaling existing models of sustainable consumption?
  4. What does getting to scale look like?
  5. What new solutions are needed to get to scale in sustainable consumption?
  6. How can we achieve scale by working collectively and creating action on new fronts?

 Barriers, Mind Sets and Complexities- Oh My!

To no surprise, the report identified a number of internal and external barriers to staving and influencing scalable and sustainable consumption, notably (according to the report):

  • Consumers lack incentives for sustainable consumption and are confused by mixed messages. The study noted that one survey of British consumers indicated that 70% were uncertain about the environmental performance of the products they buy.  I have seen similar surveys here in the United States that compare with the British results
  • Supply chains are complex, opaque and interconnected. Deep supply chains, like Apples or the textile industry, create many complexities that place  limits to in certainties sustainable sourcing
  • Technology remains costly and inadequately deployed.   The study notes that “Fewer than 20 facilities in the world are certified to melt down and recycle the cathode ray tubes of old television sets, and all are in Asia. E-waste, which at present largely originates in the US and Europe will travel across multiple countries and continents for recycling – putting the environmental benefits into question and causing additional social concerns”.  That being said, more collaborative enterprises across industries and economies can replace the linear economies that characterize western industrial nations, and create more opportunities to expand technologies further and wider.
  • Policy incentives remain weak. The report notes that “trade systems and tariffs rarely differentiate between unsustainable and more sustainable alternatives, preventing a potential increase of 7–13% in the traded volumes of sustainable products
  • Short-termism dominates the landscape, and traction in fast-growing markets remains low. Typical of capitalism and free enterprise, most companies growth targets rarely look out father than a few years, and seek short term gains to keep shareholders happy.  The WEF report noted that “55% of FTSE 100 company sustainability targets were to be achieved within 1–2 year timeframes, while only 18% looked out to 2018–2020”.

The graphic below suggests some strategies in the report to overcome these barriers along the three key value-chain points as described above.

Solutions for Scaling Economies (Source, WEF, 2012)

Moving Toward a Circular Economy

Something else also happened “on the way to the Forum” (well actually at the Forum) that may offer some insights and solutions that are discussed in the WEF report.  At Davos, Ellen MacArthur, head of the non-profit Ellen MacArthur Foundation, suggested that while” rapid technological evolution across all major industry sectors,{was taking place] … very little change within the economic model itself {has been occurring]. The economy is still based on a linear “take, make and dispose” model.”  A new report Towards the Circular Economy, analyzes the international business case behind the idea of shifting from a linear to a more circular economy.

“The essence of the circular economy lies in designing goods using technical materials to facilitate disassembly and re-use, and structuring business models so manufacturers can reap rewards from collecting and refurbishing, remanufacturing, or redistributing products they make. In this model all things are made to be made again, ultimately using energy from renewable sources[and in a less toxic manner]. Companies shift to focusing on selling performance in the place of product, and consumers now become users.” – Ellen MacArthur

Make sense?  Well if Ms. MacArthurs numbers are correct, “embracing the circular economy model could lead to an annual economic opportunity of up to $630bn a year towards 2025.”  Where do I sign up!!??  Still interested?  Read more about the circular economy, ways to leverage the entire supply chain and build sustainable, scalable consumption here and view a fascinating video here. .

As Aron Cramer mentioned in a GreenBiz article in January, the time for sustainable consumption is now.  “The need to develop new consumption patterns is the mother of all innovation challenges. The race to dematerialize is on. Some of this will come from the digital revolution, as newspapers can now be delivered wirelessly to e-readers instead of plopping dead trees on the doorstep. But some of the innovation will come from redesigning business models.”  Perhaps Mr. Cramer and Ms. MacArthur are onto something.

Are you, as consumer, as manufacturer, product designer or corporate executive, or even as fellow Planet-eer, ready to help make that change?  We can change the rules of the game together, for a stronger, more circular economy. As Captain Planet says, “The Power is Yours”.

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This One’s for Ray- Reflections on the Passing of a Sustainability Giant & Radical Industrialist, Ray Anderson

8 Aug

Ray Anderson died this week.  Most of us in the business just called him “Ray”, because he really was such an approachable guy.  I saw him speak in San Diego three years ago, and even to a business green business veteran like me, he was sage-like.  To most outside the world of sustainability in business, the name hardly rang a bell.  But to those of us within its three concentric circles, Ray was an icon.  As many know, Ray Anderson ran InterfaceFLOR.  As the leader of a major global carpeting brand, which at that time relied on heavy use of industrial chemicals, hydrocarbon based products, energy and water use, InterFaceFLOR, like other carpet manufacturers was enduring a major challenge to rethink how its products were being made.

By the mid 1990’s when Ray had become the company’s CEO, more customers were asking questions about the company’s sustainability efforts.   In 1994, Ray had an awakening of sorts (his so-called  “point of a spear into my chest” moment), when after having a number of meetings and discussions with his staff and reading Paul Hawkens the Ecology of Commerce,  he became an enlightened, radical industrialist. He had come to the  conclusion that the environment was at risk and a lot of that was caused by industry and companies such InterfaceFLOR  that were based on petrochemicals and energy.

I, myself, was amazed to learn just how much stuff the earth has to produce through our extraction process to produce a dollar of revenue for our company. When I learned, I was flabbergasted. We are leaving a terrible legacy of poison and diminishment of the environment for our grandchildren’s grandchildren, generations not yet born. Some people have called that intergeneration tyranny, a form of taxation without representation, levied by us on generations yet to be. It’s the wrong thing to do.-Ray Anderson

The Radical Industrialist Takes on the Supply Chain

Ray was simply on a mission- for InterfaceFLOR to not only cut waste, but to be a leading, responsible business.  He became the face of the “radical industrialist” (the title of his last autobiographical  book which I received signed by him just two months ago is called Confessions of a Radical Industrialist) and in 1994 launched InterfaceFLOR into a first mover role to reduce its environmental and social footprint.  The data is quite extraordinary in the 17 years since the company launched its many environmental initiatives. Of course, Ray started with a plan- one that by necessity started small- but was across the board, an overhaul affecting every link of the supply chain.  Ray also smartly knew that go get his shareholders on board, he needed “obliterate costs/footprint associated with waste; silencing the shareholders that were uncomfortable with the risk involved with completely revolutionizing your company”.

We began to tackle the face of mountain we identified as waste. We defined waste, by the way, as any cost that we incurred that does not add value to our customer and that translates to doing everything right the first time, every time. It’s not just waste material, scrapped and low quality and so forth. If you send something to the wrong destination and have to get it back and reship it — that’s waste. If you incur a bad debt — that’s waste. So we defined waste very broadly and over time we actually said that any energy that comes from fossil fuel by our definition is waste and we need to eliminate it. We really began to think in different ways about our business in terms of climbing this mountain and it became very clear very quickly this was the smart thing to do. Not only did we start to generate answers for those customers, they embraced us for what we were trying to do. The goodwill in the market place has just been stunning. The rest of the business case is pretty simple. I cost it down not up. – Ray Anderson

According to Lindsay Parnell, InterFaceFLOR’s CEO for Europe, the Middle East, Africa, and Asia, the company has “reduced waste to landfill by 80 per cent since 1996, curbed water use by the same amount, reduced energy use per unit of production by 43 per cent, and cut greenhouse gases 44 per cent, partly by generating 30 per cent of its energy from renewable.  But what also stands out (and what made Ray such a business visionary) was that there was a phenomenal financial payback that could be realized from “going green”.  According to Parnell, “We could see that the millions of dollars were stacking up.  Between 1995 and 2010 we have saved $433m – that is a huge amount for a company with revenues of around $1bn. There is no way we have invested $433m in this, but that is what it has saved.”

It’s not just the right thing to do, it’s the smart thing to do. – Ray Anderson

Climbing Mount Sustainability

Rays efforts were noticed for sure.  Time Magazine featured him in an article this past spring and Fortune Magazine called him “America’s greenest CEO”.  He went out and “evangelized” over 150 times a year, until his fight with cancer started to finally slow him down.  The awards and honors bestowed on Ray and the companies over the past two decades are too many to mention here. Recently, Interface ranked 11th worldwide in the 2010 Sustainability & Innovation Global Executive Study & Research Project by MIT Sloan Management Review and The Boston Consulting Group.  They ranked second behind Unilever in the 2011 Global Sustainability Leaders Survey from GlobeScan Inc. and SustainAbility Ltd.  Suffice it to say though that InterfaceFLORs efforts disruptively changed the way the carpet, building materials and textile industry operate today as compared to 20 years ago.

Meanwhile, in the last couple of years the company launched its highly ambitious  Mission Zero ™  sustainability strategy, which aims to turn InterfaceFLOR into a zero-impact organization.  Ray often spoke about how climbing the sustainability mountain in business was akin to climbing Mount Everest and that there were seven paths or fronts to get there:

  • Eliminate Waste: Eliminating all forms of waste in every area of business;
  • Benign Emissions: Eliminating toxic substances from products, vehicles and facilities;
  • Renewable Electricity: Operating facilities with renewable electricity sources – solar, wind, landfill gas, biomass, geothermal, tidal and low impact/small scale hydroelectric or non-petroleum-based hydrogen;
  • Closing the Loop: Redesigning processes and products to close the technical loop using recovered and bio-based materials;
  • Resource-Efficient Transportation: Transporting people and products efficiently to reduce waste and emissions;
  • Sensitizing Stakeholders: Creating a culture that integrates sustainability principles and improves people’s lives and livelihoods;
  • Redesign Commerce: Creating a new business model that demonstrates and supports the value of sustainability-based commerce;

Making the Business Case

When you are being asked to make the business case for sustainability – perhaps ask them to make the business case for being un-sustainable. – Ray Anderson

You see, for the past 30 years I’ve been evangelizing like Ray for organizations to make “the business case” on behalf of reducing waste of any kind (be it over-consumption, generation of waste, human productivity waste, etc) so the bottom line is optimized and employees, communities and the environment are protected.  To me it’s a “no brainer” and for folks like Ray it took an epiphany to make that realization.  Since Ray’s awakening in 1994, and especially in the past half decade or so, more CEO’s and manufacturers with local to global reach are coming to their own realizations and drawing their own conclusions.

Ray stepped out of his comfort zone to challenge the status quo.  He forged a new business normal that called for a respect of the land, responsible use of resources, smart design and innovative end of life (cradle to cradle) management of products.  Mission Zero will continue for the many thousands of employees of InterFaceFLOR around the world- all because of one man’s vision. All because of Ray.

As Ray said back in 2008 when I saw him, “There are noble fortunes to be made in the transition to sustainability.” That inspirational quote stands right up there with my son’s from back in 1991 when he introduced me to his pre-school class as the Dad who “saves the planet”.   Sometimes, being radical is not such a bad thing.

Mr. Anderson…er, Ray, thanks for all the inspiration- this one’s for you.

“Continual Improvement” Using Sustainability Metrics Takes Planning, Accountability & Resources

23 Jun

"Jump Start" by Jenny P (CC License)

Note:  This post marks the 75th since I started writing in early 2009.  When I launched ValueStreaming, I did so with the intent of providing timely, relevant, quality content over quantity.  The feedback that I’ve consistently received  is that this blog gives readers detailed, value-added content and thought leadership in the sustainability, supply chain and environmental policy space.   I humbly thank you all for your readership and support…you are the sustaining “wind in my sails”.  Paz, Dave

“On your mark, get set”…BANG.  As a competitive swimmer in my youth, I learned the rhythm of a good start off the blocks, kept my head down and paced myself through to the finish line.  I never won the “big” race, but always went for my personal best.  It’s that way with sustainability initiatives. Having a good baseline and pushing the limits to improve to the next level

Back in the late 1990’s I was working with one of my many semi-conductor clients on their ISO 14001 Environmental Management System.  A hallmark of ISO 14001 is “continual improvement”, focused primarily on going beyond compliance to reducing the overall environmental impacts and footprints of operations.  This particular company had identified hazardous waste generation as a “significant aspect” of its operations and developed some programs and targets intended to reduce generation.

One of the facility engineers was very excited one day when I showed up at the facility, proudly telling me that the company had managed to reduce waste generation by 25% over the past several months since he’d started tracking metrics.  “That’s great!” I said. “How’d you do it?”  He responded, “Well I ‘m not sure exactly”.  So I prodded.  “How has production at the plant been the last quarter?” “Well, it’s down…um, about 25%”, he answered in a muted tone.  See a problem here?  The company didn’t “normalize” the data (pounds of waste generated per number of units produced, for instance).  So in effect, there was no “continual improvement.  Oh well, back to the drawing boards!

Setting the Sustainability Mark…and Missing It

So it was interesting to read a summary of Green Research’s latest report, “Setting and Managing Sustainability Goals: Trends and Best Practices for Sustainability Executives.  I had the pleasure of meeting Green Research’s founder, David Schatsky, at the recent Sustainable Brands ’11 Conference in Monterey,  California.  In this latest report, David seems to have touched on some issues which get to the core of a value-added sustainability initiative…that being, demonstrating “continual improvement”.

As  this week’s by Mr. Schatsky article in Environmental Leader notes, while a flood of public and private companies (across many sectors) are “increasingly using public goals to signal their commitment to sustainability and their superiority to rivals…many are unprepared to meet those targets”.  The report suggests that sustainability planning, implementation, and performance measurement are still in an early maturation phase compared to financial and other operational goals.  Some of the key findings were:

  • A quarter of the 32 sustainability executives surveyed in Europe and North America for the study say their companies have set “aspirational” sustainability goals and lack a clear plan to achieve them.
  • Over 40 percent said progress on sustainability goals is reported to senior management only semi-annually or annually.
  • 57 percent of respondents characterized at least some of their sustainability goals as “stretch goals” – that is, challenging but probably achievable – and 54 percent said at least some of their goals are “realistic”.

 “Despite the best of intentions, even some excellent companies are challenged to execute on the sustainability goals they announce,” said David Schatsky, principal at Green Research

As I noted back in August 2010 in a post on Environmental Leader, there are two old axioms:

1)      “You are what you measure”, and

2)      “What gets measured gets managed.”

As Green Research’s study revealed, without an effective strategy to establish an internal benchmark for continual improvement, it becomes harder to innovate, advance and proactively respond to stakeholder expectations. Finally, good metrics if applied properly will foster innovation and growth.  Therefore, it’s vital that there be a systematic process in place that maintains focus on continual improvement.  Continual improvement is the primary driver for monitoring and measuring performance. If metrics don’t add value, they will not support continual improvement and eventually will not be used.  It’s a vicious cycle that can be avoided if the proper system is firmly implanted in organizational strategy and operations.

Setting Goals That Matter

Many times over the past several months, I’ve been asked by colleagues and clients”what can I measure that means something”.  And I answer them usually by asking “what matters to your organization and its stakeholders”?  “I see what your saying”, they say “but I can’t always see the payback”.  Well, sometimes the “payback” is hidden and can’t always be realized in tangible, hard dollar terms. Sometimes, especially if companies are not water, energy or resource intensive, or don’t produce a lot of waste byproducts, you need to peel off some layers.  What this often means is looking at other production, operational or worker activities that can’t be measured in hard dollars but in terms of “efficiency”.  Sometimes metrics can be measured in terms of avoided costs rather than actual expenditures.  As an example,  a client of mine “avoided” $2.4 million in accrued fines and violations (over a three year period) due to enhanced sewer infrastructure maintenance and reduced response times to effluent spills when they occurred.

"Bullseye" by TimSnell (CC License)

As the Green Research found, many companies initially establish said that “targets for realistic or stretch goals…through a bottom-up process, beginning with a baseline of current performance.”  I view this finding as similar to what I coach my clients to do in environmental management system or sustainability engagements- perform a risk-based evaluation of what poses the greatest environmental, social or governance risk and establish measurable (and achievable) objectives and targets.   Some of my clients like the Natural Step “back casting” process too , which attempts to envision a company’s “desired state”, measure a baseline “current state”, and fills in the gaps with programs and activities intended to reach the desired state.

Remember, when companies establish sustainability objectives (whether they are social, environmental, operational or financial) and define their targets, here are a few simple things to remember about metrics.  They must be:

  • Representative
  • Understandable
  • Relevant
  • Comparative
  • Quantifiable
  • Time-based and Normalized
  • Unbiased and Validated
  • Transferable

Staying on Track Within the Four Walls and in the Supply Chain

As I mentioned in last year’s post, once organizations decide what’s important to measure to meet sustainability related objectives, they needed to assure that they actually track metrics, report, calibrate and keep on measuring.  It’s called keeping your eye on the ball.  And this applies to supply chain management as well.  As I have reported in this space many times before, supply chain sustainability and responsible sourcing are two key ingredients for an organization to consider itself to be “truly” sustainable.  Many of an organizations greatest product and operations related impacts (like carbon emissions, resource or toxic chemical inputs, etc.) actually come from within its upstream supply chain.

Photo by HeraldMM (CCLicense)

A few tips to get your continual improvement process started:

  1. Measure things that add value to organizational decisions. Measuring for the sake of measuring is a waste of time.
  2. Make goal-setting a 360-degree exercise- Look inward through the organization rank and file for innovative ideas.  Seek advice and input from external stakeholders too (your suppliers and customers matter too!).
  3. Commit to what you can control or influence.  Don’t make broad declarations that you cannot achieve because you’ve no influence. Don’t over commit ( although a few heretically goals here and there aren’t too dangerous)
  4. Get some quick wins under your belt.  This will enhance the momentum behind the effort.  Remember to scale performance incrementally in line with the financial and labor resources that you’ve budgeted
  5. Own the goal and be accountable.  It’s not likely that organizations will succeed in meeting their goals without someone keeping track.  Make sustainability performance part of personal or group performance evaluations.
  6. Measure, Report, Repeat.  Don’t stop at the first sign of success or trouble.  Look for ways to press on, raise the bar and continually improve.  Report progress regularly (sometimes monthly, sometimes quarterly.  It all depends on what is being measured. 
  7. Go Short, Go Long.  Set some targets as short term goals, but think long term too (three to five years out), and in alignment with corporate strategies.  Most large companies like my client (Johnson & Johnson), Unilever, Sony and many others usually set five to eight year planning horizons.
  8. Measure things that compare well but slightly differentiate yourselves from your competitors. Novel and unique metrics are just as important to differentiating you as your products.
  9. Seek out globally-recognized metrics (like the Global Reporting Initiative) to assure that multi-national companies who also measure sustainability metrics can apply the data to their own goals.
  10. If you are a large company with multiple department, divisions or sites, the metrics of the subordinate organizations must be able to be “rolled up” in a way that addresses the entire organization but still meets site or department specific needs. 
  11. Report the Bad with the Good:  No one’s perfect and a little self deprecation, even in business can pay handsomely from a reputational point of view.  In this WikiLeaks era, information moves swiftly.  Stay ahead of “the story”, own up to the shortfalls, you’ll be forgiven and given more credit for your successes.
  12. Build off of prior continual improvement initiatives to track perform over longer periods of time.  It’s not like you flicked on a switch one day and became the sustainable organization that you aspire to be.  It takes time.

On second thought, I did win a “big” race.  My freshman year in high school I placed first in a 100 yard Individual Medley event against an arch rival high school in the Chicago suburbs.  That was my greatest moment in the pool…for a race many said I wouldn’t even finish.

“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.

Solving the Sustainable Sourcing & Green Supply Chain Management Puzzle: A 2010 Rewind

22 Dec

2010 is nearly ‘in the books’, and I vowed that I would not fall prey to the endless lists and recounting of annual accomplishments.  However, never in my 30 years in the sustainability and environmental business has there been so much attention paid to the influence of supply chain management and its role in the greening of business.  2010 has been truly remarkable in a number of key areas of green supply chain management from a number of perspectives, including: policy and governance, operations and optimization, guidance and standardization and metrics.  The green pieces of the supply chain and sustainability puzzle appear to be nicely falling into place.  Key themes that I can glean from this most incredible year are:

Big Industry Movers and Government Green up the Supply Chain- over the past year, observers and practitioners read nearly weekly announcements of yet another major manufacturer or retailer setting the bar for greener supply chain management.  With a much greater focus on monitoring, measurement and verification, Wal-Mart, IBM, Proctor and Gamble, Kaiser Permanente, Puma, Ford, Intel, Pepsi, Kimberly-Clark, Unilever, Johnson & Johnson, Herman Miller among many others made a big splash by announcing serious efforts to engage, collaborate and track supplier/vendor sustainability efforts.  Central to each of these organizations is how vendors impact the large companies carbon footprint, in addition to other major value chain concerns such as material and water resource use, and waste management.  Even government agencies here in the U.S. (General Services Administration) and abroad (DEFRA in Britain) have set green standards and guidelines for federal procurement.  More and more companies are jumping on the green train and the recognition is flowing wide and deep.

Supply Chain Meets Corporate Social Responsibility- Adding to many companies existing concerns over environmental protection, large products manufacturers such as Nestle, Corporate Express, Danisco, Starbucks, Unilever and the apparel industry stepped up in a big way to address human rights, fair labor and sustainable development in areas in which they operate throughout the world. Each of these companies and others like WalMart have embraced the “whole systems” approach that I’ve previously written about in this space and that underscore transparency and collaboration the “value” in the supply chain.  Each company recognizes that to be a truly sustainable organization, it must reach deep beyond its four walls to its suppliers and customers.

Emerging Sustainability Standards Embrace Supply Chain Management- This year, the international Organization for Standardization (ISO) unveiled its ISO 26000 Corporate Social Responsibility guidance document.  In addition, two prominent organizations, UL Environment and Green Seal unveiled and vetted two sustainability focused product (GS-C1) and organization (ULE 880) standards, both of which may markedly affect supply chain behaviors in the future.  Central to all these standards and guidelines is how important supply networks are in supporting the entire product ‘value chain”, not only from an environmental perspective, but from a social and community focused perspective.

Transparency and Collaboration Take on a Green Hue– in April, I had the honor of addressing C-suite supply chain managers and practitioners at the Aberdeen Supply Chain Summit in San Francisco.  A central theme of this conference involved the critical importance of collaboration throughout supply networks to enhance efficiencies and optimize value.   My talk (linked here) focused on how the most successful greening efforts in supply chains (like those used by Unilever, Herman Miller and Hewlett Packard) were based on value creation through the sharing of intelligence and know-how about environmental and emerging regulatory issues and emerging technologies.  Suppliers and customers can collaboratively strengthen each other’s performance and distributing cost of ownership.  Practitioners have found “reciprocal value” through enhanced product differentiation, reputation management and customer loyalty. And the continuing Wikileaks controversy is boldly reminding the business world that accountability and transparency and corporate social responsibility is vital and may even be a game changer in how products and services are made and delivered to the global marketplace.

Logistics Turning to Greener Solutionsnumerous studies and surveys conducted by peer organizations this year underscored how sustainability among carriers and shippers was central in the minds of most logistics CEO’s.  Whether it was by land, air or sea, shipping and logistics embraced sustainability as a key element of business planning and strategy in 2010.  I also had the pleasure of visiting briefly with FedEx’s Vice President, Environmental Affairs & Sustainability (@Mitch_Jackson) this fall and learned of the myriad of operational innovations and sustainability focused metrics that the company is tracking throughout its operations and maintenance activities. And UPS even mentioned its efforts to manage its carbon footprint in its catchy new brand campaign “I Love Logistics”.  Finally logistics companies are partnering with manufacturing to support reverse logistics efforts designed to manage end of life or post consumer uses of products or resources.

Lean Manufacturing Meets Green Supply Chain as manufacturing continues its slow rebound from the Great Recession, companies are recommitting themselves to implementing less wasteful production as a way to leverage cost and enhance savings.  Parallel efforts are in play also to incorporate more environmentally sustainable work practices and processes.  Enhancing this effort to lean the product value chain is recognition of upstream suppliers and vendors work practices and possible impacts they may have on manufacturing outputs. Lean efforts have been demonstrated to yield substantial environmental benefits (pollution prevention, waste reduction and reuse opportunities) as well as leverage compliance issues.  More and more, companies are exploring the overlaps and synergies between quality-based lean  and environmentally based ‘green’ initiatives.

Supply Chain and Climate Action Rounding out the year, the climate summit in Cancun (COP16) produced modest results (given the low expectations all around, what was accomplished looked huge by comparison to Copenhagen).  Activities at COP16, especially by the private sector were geared toward identifying key linkages between supply chain sustainability and climate change.   Perhaps the biggest news to emerge from the two-week conference was an effort by apparel manufacturers to enhance supply chain social responsibility and an internet database that will list the energy efficiency of most ocean-going vessels, in a scheme designed to reduce shipping emissions by nearly 25%.  As I noted, this effort is important not only because it recognizes shipping and transport as a backbone” of commerce (as other industry sponsored programs have recognized already), but because of the value of transparency in enhancing supply chain efficiencies.

Looking Forward to 2011

Yes indeed, it’s been a big year for supply chain management and its intersection with sustainability.  I see little for 2011 that will slow down this upward green trajectory, and naturally I am glad.  I am glad that more businesses “get it” and don’t want to be viewed as laggards in leaning towards a business ethic that values sustainability and socially influenced governance. I am glad that more companies are seeking out green innovation through new technologies and being ‘first movers’ in their respective business spaces.

And I am glad that you (my readers) and I am here to be part of the change.

Seeking Links Between Supply Chain Sustainability, Logistics & the U.N. Climate Conference (COP16)

30 Nov

As the world’s nations converge on Cancun this week for the two week UN Climate Change Conference (COP16) a few statistics are in order to put the supply chain and related logistics industry into perspective.  It’s a pretty sure bet (given poor results at COP15 in Copenhagen and recent Congressional elections here in the U.S.) that it’s unlikely that any major binding agreements will be reached on setting measurable and verifiable targets for greenhouse gas (GHG) emissions cuts for industrialized nations.  What is at least hoped for is that there will be 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.

Logistics and Transportation Share a Big Piece of the Carbon Pie

But the fact remains that logistics is a major source of CO2 emissions, accounting for 13.1% of global greenhouse gas emissions, according to the Intergovernmental Panel on Climate Change (IPCC, 2007) – although, this figure also includes passenger transportation.  The “transport sector’ sector as a whole is responsible for 24% of global CO₂ emissions!  So as the logistics industry grows and expands to respond to the ever changing demands by global commerce, so will energy consumption and GHG emissions related to daily logistics.  To that end, in a report issued this fall by Deutsch Post/ DHL, “Delivering Tomorrow: Towards Sustainable Logistics[1], a study of more than 3600 companies found that “two-thirds, i.e. 63 % of business customers, believe companies will regard transportation as a key lever to reduce their carbon footprint”. And while the report suggests that low-carbon logistics solutions and flexible transport modes are not yet widely available, there are a few market-ready technologies or solutions today that can meet the specific needs of the transport and logistics sector.

“We want to take a significant step forward to improving carbon efficiency and do our part to facilitate a low-carbon economy,” says Chief Executive Officer of Deutsche Post DHL Frank Appel. Deutsche Post DHL was the first logistics company worldwide to commit to a carbon efficiency target – 30 percent improvement by the year 2020 compared with 2007.  Other companies such as UPS and FedEx are implementing similar programs designed to optimize operations in a sustainable manner.

The report also cited that “70 % of respondents believe that legislation is needed in order to bring about a substantial shift towards a sustainable logistics industry.” The study shows that carbon pricing mechanisms can likely accelerate a market-based dynamic toward more sustainable solutions. Once there is a real price tag attributed to carbon emissions, the environment will be an integral part of investment decisions.    Customers in Asia in particular appear quick to accept that sustainable solutions may cause higher prices, according to the study. For example, 84 percent of consumers in China, India, Malaysia and Singapore say they would accept a higher price for green products – compared to only 50 percent in Western countries.  This type of hesitancy on the part of Western countries falls in direct line with the ‘foot dragging’ that has occurred at past climate conferences.

The report concluded by suggesting seven key developments that are likely to take place that can largely be influenced by the ways that logistics can affect global commerce:

1. Logistics counts – it is not a commodity. Logistics is not only a chief catalyst of global trade and a defining component behind value creation – it is also a business of strategic importance in the move towards a low-carbon economy.

2. Technological change will be achieved through a concerted planning and implementation effort between private companies, governments and financial institutions.

3. Collaboration will increasingly be seen as an enabler to attain sustainability even between perennial competitors. This will especially be the case as greenhouse gas emissions reduction becomes a priority for suppliers, business customers and logistics companies.

4. Business models of logistics companies will change as sustainable innovations and technological advances create new opportunities.

5. Carbon labeling will become standardized. Carbon ‘tags’ offer ways for customers to compare environmental impacts of products. This increased product ‘transparency’ can raise confidence among logistics customers and end consumers when making climate-friendly choices.

6. Carbon emissions will eventually have a price tag, whether it’s mandated by law or not. Already, carbon accounting has become part of companies accounting, decision making and corporate reporting practices in many market sectors. Increasing movement in this direction, with possible government or free market intervention will only increase the demand for a price to be attached to CO2 emissions.

7. Carbon pricing will lead to more stringent regulatory measures.  However companies will only accept a price tag on carbon emissions if governments ensure a level playing field across industries (and more challenging will be across economies).

Companies are not Waiting Around

Already, big product manufacturers and retailers like Unilever and Walmart are reaching deep into their supply chain to stock shelves with less harmful products.  Gavin Neath, senior vice president for sustainability for Unilever says that this approach not only helps the company cut costs, but create new products that are less impacting to the environment and expand in developing-world markets that are likely to be hit hard by global warming, he said. With efforts to secure a global climate treaty barely inching forward “big companies like ours, which have very extensive supply chains, reaching across all continents and 60, 70 countries, can make a difference,” Mr. Neath explained.

That brings us back to COP16.

UPS Carbon Neutral Shipping Program (courtesy Logistics Management Magazine)

It’s been suggested by some practitioners and policy makers that at COP16, a binding agreement is more likely to occur when countries take ownership of their entire life-cycle emissions and when such agreements are based on data that attributes emissions fairly.   It’s also been proposed that national inventories be generated by adopting measurement tools that follow the principles established by existing carbon accounting methodologies already used by corporations and at a product level.   Supply chain wide carbon accounting (at the product design, manufacturing and distribution levels) is a vital ingredient to achieve this result.

I’ll be watching COP16 developments closely in Cancun these next two weeks and will offer additional insights about what potential policy driven outcomes these negotiations may have on supply chain logistics.


[1] The study on sustainable logistics was developed with experts from MIT, Potsdam Institute for Climate Impact Research, National University of Singapore and the Technische Universität Berlin, Deutsche Post DHL, and manufacturers/retailers like Fujitsu, Henkel, HP, Unilever, and Walmart.

Unilever & New Global Report: How Voluntary Sustainability Initiatives & Supply Chain Transparency Can Make a World of Difference

24 Nov

Two items caught my eye recently.  One is a new report called the State of Sustainability Initiatives (SSI) Review 2010.  This review was a collaborative effort by the International Institute for Sustainable Development (IISD), the International Institute for Environment and Development, Aidenvironment, the United Nations Conference on Trade and Development, and ENTWINED–Environment and Trade in a World of Interdependence.

The focus of the SSI Review 2010 is geared specifically to agricultural commodities, specifically the forestry, coffee, cocoa, tea and banana sectors.  What is interesting is that the review focuses on “voluntary sustainability initiatives” (VSI) and how they can impact overall market performance, governance, criteria coverage and implementation practices.  More interesting is how the report treats supply chain dynamics and decision-making.  In a nutshell (no pun intended!) the report reveals that major voluntary initiatives are altering the way supply chain decision-making is made by “providing civil society and developing country stakeholders with a more active role in setting trade rules and production practices”.  Further the report underscores how increased levels of stakeholder pressure and transparency in the marketplace are reshaping collaboration across and between supply chain networks.

Embracing the Triple Bottom Line

The SSI report indicated that companies are embracing triple bottom line aspects of their products in managing inputs and outputs along the value chain, focus within the three primary sustainability spheres:

  • Environmental criteria are strongest related to integrated pest management and use of restricted substances or prohibited chemicals, though less so on issues related to energy conservation and greenhouse gas management
  • Social criteria revolve less around gender, employment benefits, community involvement, and humane treatment of animals and more towards around International Labour Organization (ILO) conventions, (mainly coverage of health and safety and employment conditions).
  • Economic criteria are less likely to be addressed across the agricultural sectors although focus on product quality requirements and minimum wage requirements are gaining steam.

Focus on “Radical” Transparency

Growth across voluntary sustainability initiatives is also being driven by growing demands for transparency in global supply chains. There are generally three types of transparency evaluated in this report[1]:

  • Information Transparency: the act of making accurate, useable and substantial information available to stakeholders.
  • Participatory Transparency: the act of selecting the information to be made available based on user needs and input (i.e., “participation”).
  • Accountability Transparency: the act of presenting information that is neutral, objective and balanced, allowing stakeholders to reach their own conclusions regarding performance or evaluation.

The SSI Review reveals that “voluntary initiatives are playing an important role in improving supply chain transparency by bringing more credible systems for monitoring, enforcing and reporting on good practice.”  Specifically, key findings include:

  • 70 per cent of the initiatives reporting compliance with ISO 65[2] or application of an independent accreditation system;
  • almost all of the initiatives surveyed applying an annual audit process to ensure compliance with specified criteria, although there is considerable diversity in the degree of flexibility with which such processes are implemented; and
  • 70 per cent of the initiatives surveyed managing a separate Chain of Custody standard and a majority of initiatives applying some form of segregation of compliant products to allow for traceability.

This tendency toward additional transparency in the supply chain is lessening the potential for false product claims, although ‘greenwashing’ remains a constant threat to consumers looking for the “real deal” when purchasing environmentally responsible or eco-friendly food or consumer products.

The report further goes on to state that “transparency improves what we know about markets and the institutions that drive them. Improved access to information helps everyone in the market better understand the implications of their investments and dealings within the market. By enhancing information flow, transparency can promote market efficiency, social welfare and cost internalization, all core principles of sustainable development. Improved information also allows stakeholders to participate more knowledgably in the governance processes—thereby promoting participatory governance, also a core principle of sustainable development.”

Unilevers “Big, Bold” Example

Almost simultaneously to the release of this report comes a huge announcement last week of Unilevers plan to reduce its environmental footprint by 50% by the year 2020.    According to the article in GreenBiz.com by @marcgunther, the Sustainable Living Plan “breaks new ground for a number of reasons.

  • It is comprehensive, setting more than 50 social, economic and environmental targets.
  • It is rigorous; the company says it has measured the carbon, water and waste footprints of 1,600 products, representing 70 percent of its volume.
  • It’s far-reaching, taking into account the full life cycle impact of its product, from “seed to disposal,” as one executive put it.”

Unilevers plan is big, “hairy” and audacious- just what companies need to do stay ahead of the competition by implementing VSI’s that respond to consumer needs.  As part of the plan, Unilever plans to source 100% of its agricultural raw materials “sustainably” by 2020.  This will include aggressive supply chain outreach, monitoring and measurement (the metric will be raw or packaging material sourced from verifiable (certified and some self verified sustainable renewable sources or materials made from recycled materials (% by weight)).  Tea and palm oil are already in the queue with additional materials to be added as part of a sustainability focused program in place for the past 12 years. They also began to assess their environmental impact across the supply chain from sourcing raw materials to production, distribution, consumer use, and disposal.   Unilever has also implemented a Business Partner Code to ensure their suppliers meet their expectations on social and environmental impacts.

Supply Chain Value Recognition

The SSI Review and companies like Unilever are motivated by recognition that improved understanding of customer behavior, recognition of sustainable development challenges faced in a global marketplace and effective policy initiatives are vital to business success and societal vitality.  Doing so in a deliberately transparent and collaborative way stimulates innovation, better design and effective flow of goods and services across and through networks, continents and communities (from resource extraction to production, to distribution, to consumer and back again if possible).

Great lessons and cues on supply chain sustainability practices can be taken from the SSI report and Unilever regardless of what market sector you operate in.  You don’t have to be a coffee producer or banana company to gain an understanding as to how voluntary sustainability initiatives can improve your business and how driving these initiatives through your supply chain can gain great competitive advantage.


[1] J. M. Balkin, 1999, “How Mass Media Simulate Political Transparency,” Cultural Values, 3(4), 393-413.

[2]ISO 65 is the International Standards Organisation (ISO) guideline ‘General requirements for bodies operating product certification systems’. It is a general guide for product certification and has been referenced or used as a base for most organic norms and regulations (especially in Europe, Japan, Canada etc.)