Chain reaction: Sustainability cascading through the value chain

Companies have extended their focus beyond own operations to include impacts in their wider value chains. Scaling supply chain sustainability will mobilise a vast number of small firms in communities across the globe.

In 2000, the boundary of responsibility for companies was largely limited to what they could directly control and manage internally, and often did not include upholding human and labour rights, environmental performance and anti-corruption issues in the value chain.

Corporate supply chain programs have evolved since then as a result of efforts to open up and bring greater transparency to global supply chains. This development is also a result of efforts to better understand the complexities around what is being sourced from where, and by whom.

Sophisticated supply chain programs are developing as many large companies recognise that the risks they are exposed to in the supply chain, whether relating to labour conditions, GHG emissions or risk of corruption, in many cases exceed the risk stemming from their own operations. More advanced approaches are moving beyond issuing requirements and demands to suppliers, towards collaboration and engagement.


INTEGRATION INTO SUPPLY CHAIN MANAGEMENT

A clear trend in the past 15 years is the increasing number of supplier codes of conduct covering all issue areas, and there is more monitoring of supplier performance and engagement with suppliers.

The number of survey respondents reporting they have policies and practices applying to suppliers has risen considerably. The most notable change has been a 23 percentage point increase in those reporting that their labour policies and practices apply to suppliers, from 37 percent in 2008 to 64 per cent today. However, according to the survey only 31 per cent of respondents consider labour issues in their supply and subcontracting agreements.


CHALLENGES REMAIN

Most companies are yet to examine their value chains and issues relating to them. No single multinational company operating in today’s global marketplace can confidently state that they are fully aware of every potential supplier, contractor or sub-contractor.

Businesses still also grapple with understanding and identifying boundaries of control, influence, and responsibility when it comes to value chains. For example, limited progress has been made by business in implementing systems that ensure respect for human rights is upheld, both across operations and the value chain.

“One of our main focus areas is to align our supply chain with the ten principles of the Global Compact. Polarisation in economic development is very unsustainable. We work with small communities around Mexico to help them develop and produce products in a better manner, so that we can source directly from them. In that way, we’ll help build up local economies and lift people out of poverty.” 
FEDERICO BERNALDO DE QUIRÓS CEO, RESTAURANTES TOKS

THE ROLE OF THE UN GLOBAL COMPACT:

EXPANDING BUSINESS SPHERE OF INFLUENCE

As companies are expanding their sustainability responsibility to the broader value chain, what has been the Global Compact’s role in catalysing change?

A key contribution of the Global Compact has been the introduction of the term ‘sphere of influence’ in the preamble to the ten principles, stating that companies have ‘a responsibility to embrace, support and enact a set of core values in their sphere of influence’, and thereby signalling from the outset that business responsibility goes beyond direct or immediate operations.


ADVANCING BEST PRACTICES

Companies participating in the Global Compact are encouraged to engage with their suppliers around the ten principles, and thereby to develop more sustainable sourcing practices.

To assist companies in better managing supply chain risks and opportunities, the Global Compact launched a separate work stream on supply chain sustainability in 2010. The program aims to explore critical issues, and practically develop tools and guidance clarifying good practices in identifying, monitoring and improving performance in supply chains. Notable examples include the guide on fighting corruption within the supply chain, and the self-assessment and learning online tool.

Moreover, Global Compact engagement platforms like the CEO Water Mandate, the Caring for Climate initiative and the Food and Agriculture Principles all include a specific focus on supply chain management as a key element of how companies shall demonstrate stewardship and leadership on the different issues.