The complex supply chains of the modern world economy are stretched across the globe. With better data, the flows of commodities can be mapped and analyzed, giving companies and others a tool to follow up on sustainability ambitions.
In many ways, companies are stepping forward as the doers in the pursuit of a climate neutral future. Symptomatically, companies gave a clear message when the official US stance on climate change shifted, culminating with the country’s June 2017 decision to leave the Paris agreement; hundreds and hundreds of them joined cities and organizations under the “We are still in” parole, committing themselves to keep working for a carbon neutral economy.
Many of them described the decision as a competitive necessity. Climate efforts and credibility in sustainability issues has become a business opportunity for companies. Customers demand it, and it creates stronger brands, improves public relations and makes recruitment easier.
Global problems require global solutions
It is natural that companies take center stage when the process moves from politics to solutions; they have the capability to innovate, develop technology and implement it. But companies have another structural advantage over countries: they are often natives on the global arena, crossing borders naturally in their everyday operations. Carbon dioxide emissions are a global issue, blind to borders between countries and regions. Emissions in one place does not affect the local environment much, but add up to become a looming disaster for the world. This makes it difficult to combat with local measures. In the modern, globalized economy it is companies and corporations that have a similar global reach, with supply chains and transport networks encompassing the globe.
Today, about 80 percent of the world production is handled by multinational companies and the global supply chains they manage. The fragmentation of production across borders generates growth and improves cost efficiency – and it offers a mechanism to distribute clean technology and environment-friendly innovation. But the world trade is also complex and covers vast distances, and the supply chains are often difficult to monitor even for the companies themselves.
80 percent of emissions happen in the supply chain
Supply chain emissions are on average four times as high as the ones generated by a company’s own operations. With increasing awareness, many companies have begun to require sustainable practices from their suppliers. The office furniture company Kinnarps, for instance, has set up a web based system to gather information from their suppliers and enforce minimum standards – while the company itself has to meet stricter and stricter sustainability demands from global corporate customers. According to the Global Supply Chain Report 2017, companies are saving more and more emissions through active efforts in their value chains. The emission savings of the supply chains in the study were bigger than the annual emission volume of France. A group of market leaders also emerged, making demands on emissions, deforestation and water issues.
A Stanford study dated February 2018 describes the situation as “a glass both half-full and half-empty”: half of the 449 analyzed companies had implemented some sort of sustainability practice in their supply chain, with measures ranging from certifications to supplier education. Still, the sourcing practices often addressed only a single tier in the supply chain. Many companies simply lack information on their suppliers’ suppliers.
Sustainably produced commodities
A substantial part of a product’s environmental impact lies in the origin of its raw material. Many companies have high ambitions to use sustainably produced commoditites that does not contribute to deforestation, and to work with suppliers that live up to sustainability and certification standards. In practice, however, it can be difficult to assess the situation in the far end of the supply chain, linking a commodity to what happens at a specific plantation in Brazil, Congo or on Borneo. Setting up standards and requirements is one thing – enforcing them in every tier is something else.
A bag of cookies on the supermarket shelf contains ingredients that has travelled from all around the world, processed and refined along a complex supply chain. The transparency required to decide whether the palm oil in that particular package has been produced sustainably has so far often been lacking.
Palm oil shows the complex reality
Palm oil is the world’s most used vegetable oil. It is the perfect example of an environmental issue that can’t be reduced to a simple black or white; on one hand, the production – centered in South East Asia, but involving millions of farmers – is strongly associated with problems such as deforestation, monoculture practices and even social conflict. On the other hand, the growth in palm oil production is because it has unique advantages, primarily an extremely high yield, five times higher than alternative oil crops. It can also be used instead of partially hydrogenated fats in the food industry. These properties have made it a bedrock of the world’s food supply, essential for processed food, cosmetics and an important cooking-oil in emerging economies. The production also provides an important source of employment for many.
To address the problems, it is hardly feasible to replace palm oil or boycott product’s that include it. The solution has to be to encourage responsible production methods and prioritize producers with sustainable practices. The Swedish Food Industry, for instance, has made a committment to use only certified palm oil in all of their products. Such initatives stimulate transparency, and increase the demand for sustainably produced palm oil. But to guarantee that the production lives up to the standards and to verify the origin, new transparency tools are required.
New tools for supply chain transparency
The Trase initiative (Transparency for Sustainable Economies) is a good example. It is a tool developed by Stockholm Environment Institute (SEI) and Global Canopy Programme (GCP) to trace and visualize the origin of commodities that contribute to deforestation in various parts of the world – such as palm oil and soy – in order to provide both companies, consumers and organizations with the information they need to make informed choices.
Satellite and remote sensor data can be stitched together with delivery logs, transactions and trade flows to map the production in near real-time to deforestation effects, making it possible to hold producers accountable and trace commodities through the value chain. The emerging trend is that modern technology, data and visualization methods are employed to try to bridge the information gap between sustainability ambitions and the depths of the supply chains.
The demand for sustainable supply chain practices is growing, both from consumers and investors. Companies are beginning to equate sustainability work with business value – but the capacity to project the goals across the supply chain is still lagging. With better data, increased transparency and better tools, the origins of commodities will be more apparent, and it will be easier to enforce strict standards.
The article was published in February 2018.