Collaboration with other companies and stakeholders is required to drive ethical standards in raw material supply chains
When a Greenpeace report alleging that prominent footwear companies were sourcing leather from illegally deforested areas of Brazil grabbed the headlines in June, not many would have predicted that three months later cooperation between the campaign group and industry would have yielded progress that seems to be to the satisfaction of all parties.
But the fact that the report – Slaughtering the Amazon – which caused embarrassment to companies including Timberland, Clarks and Nike, has fostered such cooperation highlights a key element in achieving higher ethical standards in raw material supply chains: collaboration.
Whether it concerns cotton or soya from Uzbekistan, leather or beef from Brazil, or minerals extraction or cocoa cultivation in west Africa, as companies pursue higher social and environmental standards further down often complex supply chains, cooperation appears to be essential.
That is not to say that every programme aimed at raising standards has to be a formal, multistakeholder initiative. Such initiatives have certainly proliferated, but there is scope within purely company-based programmes for the involvement of third parties, such as the Cadbury Cocoa Partnership.
Engaging with NGOs
David Croft, sustainability director at Cadbury, says engaging with NGOs such as Care, World Vision and VSO has been a key part of the partnership. “What we’ve tried to do is set up within the partnership a broad group of people all working towards the same end – a vision of thriving rural communities – but which come from different backgrounds and harness different expertise,” Croft says.
Croft points out that as the ethical sourcing agenda has moved from primary suppliers further down raw material supply chains, companies have found themselves dealing with challenges that are simply harder to meet on their own. “Cadbury is not a development organisation, or a development expert,” Croft says. And so the company wants to work with people who are, sharing expertise to develop solutions to some of the challenges that farmers face.
Industry-level coalitions have also sought to engage with NGOs, government agencies and other stakeholders as they bid to tackle some of the ethical challenges posed by raw material supply chains.
The Electronics Industry Citizenship Coalition (EICC) says industry partnerships are more relevant than multistakeholder collaboration for the challenges it faces.
John Gabriel, chairman of the EICC and supply chain responsibility manager at IBM, reiterates that for work specifically on raw materials, collaboration among companies is important. “Unless a brand company has an exclusive pipeline for raw materials, this is an area where collaboration is important and necessary in order to make meaningful progress,” he says. In conjunction with the Global e-Sustainability Initiative (Gesi), the EICC has funded work to develop a supply chain traceability model for tin, tantalum, and cobalt.
However, Gabriel points out that in the area of mineral extraction EICC seeks out external stakeholder involvement. Regarding current EICC/Gesi work on extractives, “the current project does involve external stakeholders who have specific insight into the issues being studied,” he says.
By the same token, footwear companies have demonstrated a preparedness to engage with Greenpeace over leather sourcing in the Amazon. Indeed, Greenpeace forest campaigner Sarah Shoraka says she is “quite impressed with how the shoe companies have responded” since the Slaughtering the Amazon report was published.
All the footwear companies named in the report have now told their Brazilian leather suppliers they must certify they are not sourcing leather from deforested areas or their contracts will be cancelled. Greenpeace has also secured commitments from two of the three largest beef processors in Brazil – Bertin and Marfrig – to support a moratorium on the purchase of cattle from farms involved in new deforestation.
A similar announcement by the market leader, JBS, is also expected. Meanwhile, the Leather Working Group (LWG), an industry coalition set up to monitor tanneries on environmental criteria, is also looking into extending its activities to cover raw material traceability.
Given the complex nature of raw material supply chains and the sustainability challenges they present, it is not hard to see why roundtables and multistakeholder initiatives (MSIs), such as the Responsible Cotton Network and the International Cocoa Initiative, have proliferated.
In fact, sustainability work on raw materials follows the progress many companies have made with their primary supplier networks, particularly in relation to labour standards. MSIs, such as the Ethical Trading Initiative in the UK and the Fair Labour Association and Social Accountability International in the US, have figured prominently in driving this progress.
But while they have an important role to play, MSIs have had their critics, and are certainly not seen as a panacea, even by their supporters.
“Collaboration for the sake of it isn’t the solution,” says Peter McAllister, executive director of the International Cocoa Initiative (ICI), a multistakeholder organisation set up in 2002 to address forced and child labour in west African cocoa supply chains. The key, McAllister says, is “strategic” collaboration allowing an organisation to advocate, influence policy and “show models of change”.
Sean Ansett, founder of sustainability consultants At Stake Advisors, believes MSIs have a “critical” role to play in creating more ethical and sustainable raw material supply chains. “But they also need to continue to evolve and be innovative and not bogged down in governance processes and procedures,” he adds. “Also, very important is to have truly representative stakeholders at the table including critical voices. This healthy friction leads to innovation.”
Ansett cites the Responsible Cotton Network, a coalition he helped set up to address the issue of forced and child labour in the Uzbek cotton industry, as a good example. The organisation includes companies, NGOs and unions but also “non-traditional MSI actors” such as industry associations, employers’ groups and socially responsible investors.
Ansett says: “We would like to engage the banking industry, or those that finance the Uzbek cotton trade, and companies that produce the seeds, those that trade the cotton, the commodity exchanges and the machinery manufacturers, spinners and mills.” This, he says, will require a very flexible and nimble network to maintain momentum and drive positive change. “There are trade-offs to any decision and we need to understand these when setting strategy.”
ICI has two key assets, McAllister believes: a strong corporate membership and breadth of experience among all its stakeholders. “It’s absolutely clear no one group could solve it on its own,” he says.
McAllister argues that government has the mandate and the responsibility but often lacks the resources and innovative approaches. Civil society, he says, might have the innovation and some of the ideas but doesn’t have the resources, and industry has the resources but doesn’t work in a human rights environment.
The strong industry representation, meanwhile, gives vital leverage when negotiating with governments. The governments of Ghana and Ivory Coast are more likely to take notice when they see that “the large bulk of their clients take it seriously”, McAllister says.
Lessons from Fairtrade
When addressing how raw material supply chains can be made more sustainable, attention is inevitably drawn to the Fairtrade movement. However, the example of Fairtrade is arguably as instructive for the scale it cannot provide as for what it has achieved in equitable and ethical supply terms for smallholder farmers. As Croft points out, certification schemes are helpful but “are very difficult to scale up across huge supply chains”.
He adds that while Cadbury’s recent move into Fairtrade was helping with the activities of the Cadbury Cocoa Partnership and was “part of the solution”, setting up the partnership “had to come first” for simple reasons of scale.
McAllister adds: “Fairtrade is fantastic but it’s not easy to see how that will reach the whole cocoa sector. It’s probably not a mainstream solution.”
However, Peter Williams, NGO coordinator at the Ethical Trading Initiative, believes the introduction of Fairtrade cotton products by major UK retailers has had a positive impact on their mainstream supply chains. “They’ve had to apply stricter controls at every point, principally to ensure traceability,” Williams says. He believes that experience can only help companies as they look to raise standards throughout their conventional supply chains. “Fairtrade has raised the stakes for all the other processes.”
Honing best practice
Knowledge appears to be the key to how individual firms can best approach these challenges. Ansett says: “I think the most important thing at the moment is that companies begin the learning now. Traceability, due to issues like Uzbekistan, carbon counting and perhaps labelling, will be the name of the game in the next five to 10 years.” Rather than being reactive, dealing with future campaigns as they arise, companies should proactively begin a learning process now, he argues.
While most companies may have commodity raw material they need to pay particular attention to – such as cocoa for Cadbury or leather for a footwear company – there is a host of other raw materials that are less prominent in the consumer consciousness. However, if the pattern of increasing scrutiny of raw material supply chains is set, companies will progressively have to pay closer and closer attention to where it sources everything. Deciding which to focus on while developing systems that may eventually be applied to all raw materials is therefore likely to be important.
Cadbury, for example, has prioritised eight key ingredients, with cocoa and sugar the most prominent, and is, according to Croft, “progressively working through the different aspects of the supply chains through a sustainable agriculture template”. The template was developed following dialogue with a range of organisations, including NGOs and the UK’s Department for International Development, Croft explains, and was informed by what those organisations considered to be the economic, social and environmental pressures that farmers face.
There are also pragmatic considerations when prioritising which raw material supply chains to focus on. “Your action is going to be dependent on a number of things,” Croft says. “First of all, the scale of [your] involvement in it; secondly the level of issue within it; thirdly your ability to influence [it] individually.”
Technological advances are also certain to provide help in traceability in the future. “There is emerging technology that can help organisations track and trace commodities,” Ansett says. “While different for each sector the technology has broken the myth that tracing is impossible to do. These technologies, and my guess is that there will be more on offer in the next couple of years and at lower cost, will lead the way to traceability, and once one knows where products come from then responsibility will kick in.”
Peter McAllister likens the pursuit of an ethical raw material supply chain to quality control, in that it is not simply the challenge of establishing sustainable systems but, in constantly changing environments, maintaining standards. “If you want to maintain that level of transparency, clarity, ethical behaviour, it’s a 24/7 thing,” he says.
And the learning process also never stops. “The more progressive [companies] are consistently saying ‘do we know enough?’, ‘do we understand the business risk?’, ‘do we understand the reputational risk?’ Immediately you stop asking that, you’re back in the risk category.”
As Mark Goyder, head of UK thinktank Tomorrow’s Company, puts it: “This is the nature of values-driven business. You never quite know when your principles are going to be put to the test and you certainly can’t write all the answers in advance.”
Like so many people, Goyder comes back to the idea of working collaboratively and learning from other stakeholders. “It’s a basic principle that your relationships are your nerve ends – that is your life blood. So why on earth would you not, as in every activity in business, reach out and learn everything you can from relationships whether they are positive or negative in appearance?”
The progress seen in recent months on Brazilian leather sourcing underlines that cooperation and collaboration are central to the challenge of creating more sustainable raw material supply chains. But how that coming-together is structured and organised is best determined by the nature of the supply chains themselves, which differ hugely in their defining characteristics and the issues they raise.