Sustainability and Climate Change - Lesson 6: Sustainable Supply Chains

Sustainable Supply Chain

Learning Objectives

  • Examine the concept of sustainable supply chain and its environmental, social, and economic dimensions.
  • Evaluate the benefits and challenges of sustainable supply chain management.
  • Appraise sustainable sourcing strategies and supplier relationships.
  • Discuss the role of standards, certifications, and regulations in driving sustainable supply chain practices.
  • Analyze the applications of the principles of circular economy in businesses.

Examples of Unsustainable Practices

  • Exploitative Labor Practices:

    • Child labor use by suppliers.
    • Starbucks sued for allegedly using coffee from farms with rights abuses while touting its 'ethical' sourcing.
    • The lawsuit calls for the coffee chain to end its “unfair and deceptive” trade practices and argues that the company is aware of the child and forced labor on some of its supplier farms.

  • Deforestation:

    • IKEA furniture destroys some of Europe's last remaining ancient forests.
    • Furniture manufacturers producing for IKEA are sourcing wood from some of Europe's last remaining old-growth forests in the Romanian Carpathians, including in Natura 2000 protected areas.
    • A Greenpeace investigation revealed that seven manufacturers producing IKEA's products are linked to the destruction of high-conservation value forests.
    • At least 30 different products from these suppliers were found in IKEA stores in 13 countries.

  • Waste:

    • Investigation uncovers Amazon UK warehouse destroying millions of unsold stock items.

Supply Chain Definition

  • The entire process of making and delivering a product—from sourcing raw materials to getting the final product into customers' hands.
  • Key stages:
    • Raw materials sourcing
    • Manufacturing and production
    • Warehousing and storage
    • Transportation and distribution
    • Retail and sale
    • Customer use and end of life

Sustainable Supply Chain Definition

  • “Supply chain sustainability” is the management of environmental, social and economic impacts, and the encouragement of good governance practices, throughout the lifecycles of goods and services.
  • Circularity means raw materials and/or products in a supply chain are renewed or re-used, rather than wasted. A circular supply chain is more sustainable than a linear, non-circular one.

Business Case for Sustainable Supply Chain

  • Planning with supply chain sustainability in mind delivers on the triple bottom line: people, profits and the planet:
    • People:
      • Attracts young consumers who are more sustainable-minded
      • Better recruitment and retention of talent
    • Profits:
      • Attracts sustainable investors
      • Differentiate company’s brand and build reputation to increase revenue and profits
      • Minimise business risks from environmental, social and economic impacts
    • Planet:
      • Maximises resource usage
      • Minimises wastes production

Examples of Industry Sectors with Extensive Supply Chains

  • Textile & Garment
  • Furniture & wood
  • Chemicals
  • Building Materials
  • Construction
  • Electronics
  • Mining/minerals
  • F&B

Activity: Supply Chain Mapping and Risk Identification

  • Task: Choose one of the industry sectors and map out its supply chain, listing key stakeholders.
  • Identify potential social & environmental risks in the supply chain.

Key Elements of a Sustainable Supply Chain

  • Transparency and Accountability:
    • Ensuring open communication and accountability throughout the supply chain, allowing stakeholders to track the origin and journey of products.
  • Sustainable Sourcing:
    • Prioritizing suppliers who adhere to environmental and social standards, ensuring responsible sourcing of raw materials.
  • Energy Efficiency:
    • Implementing energy-efficient practices and technologies to reduce energy consumption.
  • Waste Reduction and Recycling:
    • Implementing strategies to reduce waste generation and promote recycling and reuse of materials.
  • Compliance with Environmental Regulations:
    • Ensuring compliance with environmental regulations and standards.

Challenges of Supply Chain Sustainability

  • Increased Costs
  • Difficulty in Monitoring Complex Supply Chains
  • Lack of Procurement Options for Sustainable Raw materials or components
  • Lack of Alignment in Responsibility and Sustainability Framework Across Supply Chains
  • Longer lead time may be required for sustainable processes
  • Lack of eco-friendly logistics systems that promote sustainable development

Sustainable Sourcing and Supplier Engagement

  • Sustainable Sourcing

Supplier Tiers

  • Tier 1 supplier: Direct suppliers of the final product.
  • Tier 2 supplier: Suppliers or subcontractors for tier 1 suppliers.
  • Tier 3 supplier: Suppliers or subcontractors for tier 2 suppliers.
  • Note: Supplier tiers can go beyond 3 levels depending on how many suppliers are needed within the supply chain to create the final product or service.

Importance of Knowing Your Suppliers

  • Ensure product quality.
  • Reduce risk to business’ reputation by association with suppliers with unethical practices.
  • Avoid legal issues arising from suppliers’ business operations.
  • Setting environmental sustainability as a criterion when vetting potential vendors.
  • Cybersecurity

Engagement with Suppliers

  • At a minimum, a company should expect suppliers to comply with national laws and to take proactive measures to avoid environmental and social harm.
  • Consider establishing Codes of conduct -> critical to establishing and managing expectations for both customers and suppliers

Topics and References to Consider in Writing and Adopting a Supplier Code of Conduct

  • This list does not represent a comprehensive record of all existing issues. Companies may need to consider additional areas depending on circumstances.

Case Study: Nestle - Responsible Sourcing

  • Nestlé Responsible Sourcing Core Requirements describe the requirements that need to be complied with by all actors forming, directly or indirectly, part of their supply chain.
  • These requirements contribute to the implementation of Nestle's commitment towards various guidelines and frameworks, including:
    • UN Guiding Principles on Business and Human Rights (UNGPs)
    • OECD Guidelines for Multinational Enterprises on Responsible Business Conduct
    • International Bill of Human Rights
    • Principles concerning fundamental rights set out in the International Labour Organization's Declaration on Fundamental Principles and Rights at Work
    • Nestlé's Human Rights Framework and Roadmap
    • Nestlé's Net Zero Roadmap
    • Nestlé's Agriculture Framework
    • Nestlé's Forest Positive Strategy

Tools for Engaging with Suppliers on Sustainability

  • Setting Expectations: Communicate your expectations, incorporate expectations and code of conduct into contracts
  • Monitoring and Audits: Ask suppliers to self-assess their sustainability performance
  • Remediation & Capability Building: Ask suppliers to address issues of poor performance, provide training, resources and support to improve sustainability management and performance
  • Partnership: Support supplier ownership to address the root causes of poor sustainability performances
    • Deep Engagement
    • Broad Engagement

Role of Standards, Certifications, and Regulations in Driving Sustainable Supply Chain Practices

1. Standards
  • Standards establish best practices for sustainable supply chains. They act as guidelines for ethical sourcing, environmental impact, and fair labor.
  • Key Standards:
    • ISO 14001 (Environmental Management) – Helps businesses reduce waste & emissions.
    • ISO 26000 (Social Responsibility) – Focuses on ethical business & fair labor.
2. Certifications
  • Companies can get certified to show they meet sustainability standards. Certifications act as trust signals for customers, investors, and stakeholders.
  • Key Certifications:
    • Fair Trade – Ensures fair wages & ethical sourcing for farmers & workers.
    • Rainforest Alliance – Promotes sustainable agriculture & biodiversity.
    • B Corp – Certifies businesses that meet high social & environmental standards
    • Green Mark Certification (Singapore) – Assesses buildings on their environmental impact and performance, promoting sustainable design, construction, and operations
3. Regulations
  • Governments and international bodies enforce regulations to make sure companies follow ethical and sustainable practices. These laws prevent exploitation, pollution, and greenwashing.
  • Key Regulations:
    • EU Green Deal – Requires businesses to cut carbon emissions & use sustainable materials
    • Modern Slavery Act (UK & Australia) – Forces companies to report on anti-slavery efforts
    • Environmental Protection and Management Act (EPMA, Singapore) – Addresses pollution control across air, water, and land
    • Workplace Safety and Health (WSH) Regulations (Singapore) – Ensure safety of workers who are exposed to chemicals at the workplace

Circular Economy in Businesses

  • Linear VS Circular Economy:
    • Linear Economy:
      • Cons: Depletes raw materials, restricts products to single-use, generates large amount of waste
    • Circular Economy:
      • Pros: Emphasis on the reduction of waste, reuse and recycling, waste in a circular model is converted back into products, more resource-efficient, protects the environment and biodiversity, creates stable businesses and jobs

Circular Economy Approach

  • A circular economy approach will require measures to be taken across the entire value chain.
Examples of Circular Economy Approach
  • 1. Sustainable design:
    • Design products to be more durable and repairable to lengthen lifespan.
    • Create products with materials/components that could be taken apart easily to increase ease of recycling.
    • Reduce packaging waste. (Example: Apple)
  • 2. Sustainable Consumption
    • To promote more sustainable consumption, we need to do more and better with less.
    • This can be achieved by having a reduce and reuse mindset, and by shifting towards the use of green products.
    • Examples:
      • Choosing reusable instead of single-use plastic bags for grocery shopping
      • Eco-friendly products to reduce on disposable plastic waste
      • Unpackt, a home-grown social enterprise offering package-free bulk food, products and daily necessities for a zero waste lifestyle
  • 3. Sustainable Waste and Resource Management
    • Gardens by the Bay

Activity: Matching Circular Economy Approaches to Examples

  • Circular economy approaches:

    • Reducing
    • Recycling
    • Remanufacturing
    • Repairing
    • Refurbishment

  • Examples:

    • Returning used plastic bottles which have been cleaned to reverse vending machines
    • A pre-owned handset is returned and restored to good working order so it can be resold
    • Collecting used equipment from the market, remaking it and re-selling it with the same high-quality guarantee as original products
    • Fixing old laptop before disposing and buying new one
    • Copy documents on both sides of the paper instead of single- sided copying