Corporate Social Responsibility in the Supply Chain

May 14, 2012
Manufacturers are expected to fully disclose where they source their products, or suffer the PR backlash. Just ask Apple.

Corporate social responsibility (CSR) reporting, sometimes referred to as the triple bottom line (for "people, planet and profit"), has seen significant growth in the past five years, nearly tripling from 2,000 in 2007 to almost 6,000 in 2011, according to Corporate Register. Manufacturers in particular have taken to releasing these reports, if for no other reason than to keep their customers happy or at least informed about the nature of their sustainability initiatives.

An entire cottage industry of auditors and consultants has emerged to advise manufacturers on the numerous regulatory efforts in place or on the horizon, and virtually every industry sector has its own "green" initiatives and causes (e.g., free range, conflict-free minerals, Fairtrade, LEED, etc.). Companies are expected to be able to track the carbon footprint not only of their own manufacturing activities, but also their transportation, distribution and procurement activities, while monitoring the related activities of their extended supply chains as well. They're also expected to adhere to diversity and inclusion in their hiring practices.

That's not to say, of course, that all CSR reports are created equal, especially when it comes to nailing down exactly how a manufacturer reports its CSR activities. Companies that excel in the third P of the triple bottom line -- profit -- tend to be rewarded by Wall Street even if they come up a bit short on the people and planet side. However, such is the momentum toward full disclosure that even the biggest and most successful companies are being held accountable by stakeholders for incomplete reporting.

"If theres a production process that can be made safer, we seek out the foremost authorities in the world, then cut in a new standard and apply it to the entire supply chain."
Tim Cook, CEO of Apple Inc.

The poster child for how not to reveal CSR activities is high-tech giant Apple Inc. Despite a well-deserved reputation for supply chain excellence, Apple (IW 500/14) has come up short in recent months due to its reluctance to fully disclose how it measures its carbon emissions and how it monitors the activities of its global suppliers. Apple, for instance, declined to participate in the Carbon Disclosure Project (CDP), an independent global system for companies to measure, disclose, manage and share climate change and water information. While more than 3,700 companies worldwide participate in the CDP, Apple does not (making it the largest IT company in the world to not participate). Having cultivated a cachet with the counterculture for decades, Apple's nondisclosure was viewed as a thumb in the eye to many of its adherents, especially after The New York Times criticized the company for effectively turning a blind eye toward the substandard labor practices of Foxconn, a Taiwan-based electronics manufacturer that assembles many of Apple's most popular products (iPads, iPhones, iPods, etc.).

Compounding matters, when Apple produced a 2012 progress report on its supplier responsibility, the company revealed that almost two-thirds (62%) of its suppliers do not comply with its limit of 60 hours per week in the factory. Also, more than a third (35%) of Apple's suppliers do not meet its standards for workplace safety, while nearly a third (32%) do not comply with Apple's hazmat management practices. To stem the rising tide of criticism, Apple CEO Tim Cook announced earlier this year that it had joined the Fair Labor Association (FLA) as an associate member, the first high-tech company to do so, and that the FLA will independently report on Apple's supply chain activities.

Speaking at a recent technology conference, Cook said, "We don't let anyone cut corners on safety. If there's a production process that can be made safer, we seek out the foremost authorities in the world, then cut in a new standard and apply it to the entire supply chain."

Ben & Jerry's Scoop: Fully Fairtrade by 2013

While Apple's secrecy is legendary, at the opposite extreme in terms of outspokenness is ice cream maker Ben & Jerry's, a wholly-owned subsidiary of consumer packaged goods giant Unilever Group (IW 1000/57). The company has been championing environmental causes dating back to before terms like "green" and "sustainability" ever appeared in corporate reports. One of the company's major commitments is to go fully Fairtrade across its entire global flavor portfolio by 2013, which means all of the ingredients in its ice cream products will be certified by FLO-CERT, which audits companies to ensure that farmers in Third World countries (primarily in Africa) are not being exploited, and that environmentally sound practices are being used to harvest crops in a sustainable manner. Many of Ben & Jerry's products already bear the Fairtrade seal on its packages. On top of the FLO-CERT auditing, Ben & Jerry's also uses a third-party independent auditor that audits the audit.

"This isn't a feel-good operation," explains Jostein Solheim, CEO of Ben & Jerry's. "Our biggest challenge is, there are something like 114 different cocoa varieties. So for each of those, we have to ensure tight quality specifications and the chain of custodianship and our obligations in terms of paying a fair price for the cocoa and that we pay a social premium that will be reinvested in the community of the smallholder farmers. That whole process is why we need partners like Fairtrade International and FLO-CERT to support us."

Quality is always a paramount concern to Ben & Jerry's, and nothing that doesn't meet the company's quality standards will ever go into production, Solheim states. "That's why we build backward in our supply chain, and that's where the overlap in audits comes into play. In terms of supply chain security, there are a lot of benefits in engaging many smallhold farmers because we have a much broader base of suppliers to work with. But clearly, where we can add the most value to the farmers is to move them up the value chain so that they produce a higher quality product and deliver it in a better state to their suppliers, where it then goes into our supply chain."

Unilever Shifts its Supply Chain to Emerging Markets

In November 2010, Unilever announced its Sustainable Living Plan targets, which included the goal of purchasing 100% of its palm oil from certified sustainable sources by 2015. However, in April 2012, the company announced it had already met that goal, through its purchase of GreenPalm certificates, a trading program endorsed by the Roundtable on Sustainable Palm Oil. Palm oil is a basic ingredient found in roughly half of all products sold in a typical supermarket, from margarine, cereal and cookies to soap, detergent and cosmetics. Palm oil is grown in tropical rain forests, largely in Southeast Asia, and like the FLO-CERT program, the GreenPalm program audits the plantations where the palm oil is grown.

Having reached its initial target, Unilever has now set a new goal: it plans to purchase all its palm oil from certified traceable sources by 2020.

"What this means is, we'll be able to track the palm oil that we use in a factory, let's say, in Brazil, back to the plantation on which it was originally grown," explains Gavin Neath, Unilever's senior vice president of sustainability. He adds, though, that achieving this new goal will be both difficult and complicated.

"First, we buy a lot of palm oil, roughly 1.5 million tons," he says. "Also, the bulk of our usage is not in so-called 'straight palm' [i.e., vegetable oil], which might be the case for a cookie manufacturer, but as a feedstock to make certain kinds of oleo-based chemicals, which are used in our shampoos, body lotions and other personal care products."

To improve its visibility into the palm oil supply chain, Unilever plans to purchase a fractionation plant in Indonesia for roughly $130 million, which will be involved in the initial separation process of the raw palm oil. Most of the palm oil Unilever purchases comes from Indonesia. "This will give us a much better line of sight into where this material has come from," Neath says. From the fractionation plant, the palm oil will then be sent on to other chemical companies, which will do the further refining that's necessary.

In evaluating where to locate its plants, whether they're making intermediate ingredients or finished products, Unilever evaluates a whole series of factors, Neath points out. "One is proximity to market -- where is the biggest market for these products? Manufacturing is being moved from Europe and the United States toward the emerging markets because that's where the greatest population growth is. Another variable is raw materials -- where are they coming from? What are the costs of getting them to the factory? Are we dealing with perishable materials? And there are financial considerations as well. Are the governments concerned giving us any incentives to set up manufacturing in that locality?"

Paul Polman, Unilever's CEO, says, "Sustainable growth will be the only acceptable model of growth in the future." To that end, one of Unilever's stretch goals is to cut by 50% the amount of water associated with the consumer use of its products by 2020. "Our plan presupposes that society and government will move with us," Neath says. "We are stone-cold certain that in the next 10 to 20 years, people will be paying much more for water and for carbon. So integrating this kind of thinking now into our business will serve us well in the long term."

Building Credibility through Best Practices

Air Products and Chemicals Inc., a $10.1 billion supplier of atmospheric, process and specialty gases, addresses what it calls the four pillars of sustainability in its CSR report: environmental stewardship, governance, social responsibility and customer value. As John McGlade, the company's chairman, president and CEO, points out in the report, Air Products (IW 500/105) spends two-thirds of its annual R&D budget on environmental and energy-efficiency offerings. The company's environmental targets include reducing greenhouse-gas emissions by 7% by 2015 and a commensurate 7% reduction in energy consumption by 2015; a 10% reduction in water consumption by 2015; and a 20% reduction in hazardous waste shipments.

"Ninety percent of what you see in our CSR report is above and beyond what is required of us," points out Corning Painter, who as senior vice president, corporate strategy, technology and supply chain, has leadership responsibility for Air Products' sustainability organization. "There's no legislative requirement on greenhouse gas emissions, for instance.

"Water is a local issue. And while there are rules on how to handle and manage hazardous waste, it was our decision to reduce it by 20%. Like much of industry, we've done things ahead of legislation, and it's in part a feeling that these regulations are coming, so we want to be ready for what comes down the road."

In terms of best practices, Painter points to life cycle assessment (LCA), which takes a systemized approach to calculate the total environmental sustainable cost to manufacture a product, and then offers alternative production processes. In particular, he recommends ISO 14040 as an already-existing framework for LCA, rather than having manufacturers continually reinventing the wheel on things like carbon reduction.

"The more all of industry consistently follows these types of best practices, the more credibility we're all going to have," he says. "Because if 90% of us do it well but 10% don't, and some environmental group finds them out, it will make everybody skeptical of anything that any of us say.

"I think, though, that industry has a story to tell here, and it's a good story. We just need to be out in front of it and let people know that we've all been doing CSR type of activities for a long time."

Related Articles:
Intermodal Transportation Strategies Offer Manufacturers a Greener Way of Doing Business

Greening within the Supply Chain Still a Work in Progress

Green Movement Turns Pale at Apple's Non-Responsiveness

Shareholders Press Manufacturers to Disclose Their Sustainability Efforts

About the Author

Dave Blanchard | Senior Director of Content

Focus: Supply Chain

Call: (941) 208-4370

Follow on Twitter @SupplyChainDave

During his career Dave Blanchard has led the editorial management of many of Endeavor Business Media's best-known brands, including IndustryWeekEHS Today, Material Handling & LogisticsLogistics Today, Supply Chain Technology News, and Business Finance. He also serves as senior content director of the annual Safety Leadership Conference. With over 30 years of B2B media experience, Dave literally wrote the book on supply chain management, Supply Chain Management Best Practices (John Wiley & Sons, 2010), which has been translated into several languages and is currently in its second edition. He is a frequent speaker and moderator at major trade shows and conferences, and has won numerous awards for writing and editing. He is a voting member of the jury of the Logistics Hall of Fame, and is a graduate of Northern Illinois University.

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