sustainable supply chains

Wuppertal, 10 February 2013 Sustainable Supply Chains slide 1

Sustainable Supply Chains

possibilities and limits of private sector governance

About this Presentation

• This presentation was given at the Wuppertal Institute on February 10, 2013.

• It looks back at the 20 years I am active in sustainable supply chain management / “Stoffstrommanagement”

• From slide 8 onwards, I have only used old slides, in their original format. From before 1995, there were no digital presentations available.

• The last slide is a question. No answers have been suggested yet.



Topics

1. My work on supply chains 1990-present 2. The early 1990s: sustainable supply chains

discovered 3. The 1990s: innovative companies take the

lead 4. The 1995-2010: the trend of voluntary

certification 5. 2000s: But is there a business case? 6. 2010-present: The process of sector

conversion. 7. 2010-present: limits of private governance 8. What will be the end game?

1. My work on supply chains

1990 - present


Some of my (supply chain) projects


2. The early 1990

sustainable supply chains discovered


Dutch Environmental Policy 1990


KPMG-de Man 1994


Folie 9

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an

, Ad

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ure

au

vo

or M

ilieu

bele

id, L

eid

en N

L

Stoffstrommanagement - Vortrag in der Akademie für politische Bildung, Tutzing, 23. Mai 1995

Staat, Kette, Stoffstrom

A B C STOFF- STROM

a b gKETTE: Akteure

STAAT

Folie 10

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ilieu

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Stoffstrommanagement - Vortrag in der Akademie für politische Bildung, Tutzing, 23. Mai 1995

Die textile Kette: Akteure Chemie-

lieferant

Kon-

fektionär

Bekl.-

Handel

Einzel-

handel Au

fträ

ge,

An

ford

eru

nge

n Textil-

veredlung Info

rma

tion

en

(Beispiel, kleiner

Teil der Kette) Chemikalien für

technische Effekte

Veredelte Materialien:

techn. u. modische

Eigenschaften

Bekleidung: modische

Eigenschaften zentral

Mode: Individualität /

Symbole .... Ökologie??

Themen auf

den Schnittstellen

Folie 11

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r. R. d

e Man

, Ad

viesb

ureau

vo

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ilieub

eleid, L

eiden

NL

Berlin, 17. November 1999

Sechs Varianten

Kooperation

für

Nachhaltigkeit

ineffektive

Kooperation

für N.

Kooperation

gegen

Nachhaltigkeit

Konkurrenz

für

Nachhaltigkeit

ineffektive

Konkurrenz

für N.

Konkurrenz

gegen

Nachhaltigkeit

3. The 1990s

innovative companies take the lead


Folie 13

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L

Otto Versand, Umweltkoordination, Hamburg , den 14. November 1995

Typische Konstellation im

SSM

MATERIAL-PRODUZENT

HERSTELLER DES END-

PRODUKTES

(VERSAND) HANDEL

Material-wissen

Produkt-wissen

Markt-macht

Sheet 14

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Chain of Custody for Paper Products, Paper & the Environment, Berlin, May 31, 1999

A Closed Chain of Custody

Check logging

site

FOREST DATA LOGGING SITE

Norwegian

Measurement

System

DELIVERY NUMBER

Fibre Flow

Model

ROLL NUMBER

Norske Skog

Information

Systems

Forestry Logging Wood Paper Printed

Item

Sheet 15

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Chain of Custody for Paper Products, Paper & the Environment, Berlin, May 31, 1999

The Paper Production Chain becomes a

Forestry Products Communication Circle

Forest Owner

Wood

Buyer Buyer Paper

Producer Paper Seller Printer

Paper User

Paper Production Chain

Paper Seller

Printer

Paper

User

Forest

Owner

Wood

Buyer

Paper

Producer

4. 1995-2010:

The the trend of voluntary certification


The Hague, Febr. 1, 2013 Public & Private Governance slide 17

Initiatives for sustainable commodities / social compliance

Sheet 18

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eiden

NL

Round Table on Sustainable Palm Oil, London, September 20, 2002

Two Dimensions

1. The round table is a platform between business and NGOs for discussing standards and criteria for sustainable palm oil

2. The round table is a co-ordinator for business who want to produce products from sustainable palm oil and who need clear criteria, transparency and economically feasible ways of sourcing sustainable palm oil.

P.O.

production P.O. trade

production of consumer

products retail

environmental & social NGOs

1

2

con-

sumer

re-

tailer

producer

of end

product

processor pro-

cessor trader trader grower

financial

players

policy

legislation NGOs

palm oil chain

Institutes & consultants

London, November 10, 2003 OC meeting 20

Suitability for Palm Oil RT

SAI-platform + simple structure

+ business involvement

? NGO representation

FSC -- complex structure

- not a business initiative

+ NGO representation

MSC + simple structure

+ business involvement

+ NGO representation

Coffee - specific project structure

not suitable for our initiative

KL, January 19-20, 2004 OC meeting 21

Agenda

5 11:30 Governance structure:

a) summary of discussions, state of present discussion (RdM)

b) interests to include

6 11:45 Board

1. interests to include

2. number of Board members per interest group

3. NGO participation/representation in the Board

4. representation of additional stakeholders

7 14:30 Membership: rights and obligations

1. procedure for Board elections

2. voting rights

3. General Assembly

4. procedure for expulsion and monitoring

16:30 Membership

5. reporting

6. financial contribution (business and non-business members)

5. 2000s

But is there a business case?


Sheet 23

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ausan

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Unilever Sustainable Agriculture Workshop – Norwich, June 18

Central Questions

What activities in the supply chain are crucial to

cost control?

creation of value for consumer?

creation of value for stakeholders?

Where do we have to implement buying criteria?

Where do we have to restructure the supply chain for gaining better control?

Sheet 24

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Unilever Sustainable Agriculture Workshop – Norwich, June 18

1. describe the

existing production

chain technically

2. describe the

existing

production/value

chain organisationally

3. perform cost

analysis for all

relevant production

steps

4. perform value

analysis for end-

consumer

5. perform value

analysis for other

stakeholders

8. analyse value

potential of

sustainable sourcing

(for consumers)

9. analyse value

potential of


(for other

stakeholders)

7. analyse cost

reduction potentials

11. decision making

10. summarise costs and

value

6.re-design supply

chain for sustainable

sourcing if needed

and analyse costs of


Steps 3, 6, 7: Costs

3. Perform cost analysis for all production steps

6. Re-design supply chain for sustainable sourcing and analyse costs what criteria should be applied?

what changes are needed for sustainable sourcing?

what cost changes in the entire chain?

7. Analyse cost reduction potentials can cost increases of step 6 be off-set?

gin

gin

gin

gin

gin

gin

gin

gin

trader

trader

trader

spinner

spinner

spinner trader

spinner

textile

producer

textile

producer

textile

producer

retailer

retailer

textile

producer

gin

gin

gin

gin

trader spinner textile

producer retailer

6. Sector conversion

How to implement sustainability in entire sectors?


Cotton Market Scenario

0

5000

10000

15000

20000

25000

30000

35000

2005 2010 2015 2020

tho

us

an

d m

t

premium

proven OK

("better")

probably OK

probably not OK

organic =

<0,2%

rapidly

growing

graded

commodity

market for

“better” cotton

Awareness Company

Standards

Company

Verification Assessment Best Practice Company Roll Out

Industry /

MultiStakeholder

Initiative

Industry Sustainability

Standards

Verification by

Standard Organisation

Corn

Sugarcane

Orange Juice

WWF on water

WWF on water

WWF on water

Milk Quality Safety &

Environment

Best Practices for Milk

Producers

Linus Project

Ecosystem Fund

Barley

Hops

Company Developed

Industry Multi-stakeholder Developed

Intracompany

Better Sugarcane

Initiative

Skylark Project

MASSA Tool

Apples

MASSA Tool

MASSA Tool

Global Water Stewardship

Program

SAI Fruits

SAI Fruits

African Farmers

Ingredients SAI Arable &

Vegetable Crops

AIM Progress

RSPO

Key Stone Alliance

Beef

Ingredients

Poultry

Coffee

Potatoes

MAAP Program

MAAP Program

MAAP Program

No Beef from

Deforested Areas

Animal

Welfar

e FAI Flagship Farm

Projects

UTZ Certified

Rainforest Alliance

Sustainable Land

Management

Commitment

Awareness Company

Standards

Company

Verification Assessment Best Practice Company Roll Out

Industry /

MultiStakeholder

Initiative

Industry Sustainability

Standards

Verification by

Standard Organisation

Milk

Coffee

Cocoa

Coffee

Tea

Cocoa

Bananas

SAN and Rainforest

Alliance

Company Developed

Industry Multi-stakeholder Developed

Intracompany

The Cocoa Plan

C.A.F.E Practices

Fair Trade & Organic

Cocoa Practices

Ethical Tea

Partnership

Pineapple

Passion Fruit

Oranges

Other Fruits

Rainforest Alliance

Rainforest Alliance

Rainforest Alliance

Rainforest Alliance

Company Standards

4C Criteria

C. How shall the company implement the sustainability standard in its supply chains?

• SUPPLY CHAIN MAPPING TOOL

• market characteristics for selected input (supplier market?)

• existing supply chain model(s): direct, through suppliers, commodity, …

• existing and future quality, supply security and logistics requirements

• additional requirements for sustainability

• Checklist/Tool for Re-Designing Supply Chain (if available)

C1: What sourcing model to follow? Need for changing existing model?

• joining forces with others who source from same suppliers: opportunities and risks

• pre-competitive cooperation through industry organisations, roundtables, …

C2: (How to) cooperate with other companies in sustainable sourcing?

• identification of farmers’ and suppiers’ needs (knowledge, finance, …)

• company capacities

• opportunities to involve third party organisations

C3: How to support suppliers /farmers in implementing standard? DETAILS

• options within the sourcing model chosen

• company’s position in sourcing market

• role of stakeholders, third party organisations in monitoring C4: How to monitor implementation?

• costs and benefits of third party certification

• need for chain of custody verification / certification, availability of practical solutions

C5: Verification and role of 3rd party certification Securing Chain of Custody DETAILS

A Role for Certification ?

32

Lesson 5: Certification and On-Product Labelling …

• Certification can be useful – especially for ‘high-risk’

commodities outside direct company control.

– Its value should not be overestimated and

– its costs should not be underestimated.

– It is a second-best solution after effective government regulation.

• On-product labelling with sustainability certificates is not always useful:

– limited consumer interest; – limited communication value; – own brand often more useful.

Interlaken, Oct. 11, 2012 ICAC 71st Plenary Meeting slide 33

and/or ?

7. 2010-present:

limits of private governance


1990-2005

2005-…

inclusion in

public policy

competitive

benchmark

setting

innovation

non-

competitive

consolidation

Sustainable commodity standards

do contain criteria on land rights

Multi-stakeholder commodity standards

– original focus: ecology

– increasing focus on human rights issues, inclusion of social NGOs, social criteria

Land-use Issues included in most standards:

– land use rights / responsibilities

– indigenous people

– food security (not common yet: e.g. RSB)

Applying FSC, RSPO, RTRS, Bonsucro etc. criteria will (in principle) strengthen land-related rights, but do they really?

Washington,April 26, 2012 commodities that respect land rights .... slide 36

–

–

–

Case I: RSPO and Palm Oil land

conflicts (Indonesia, Malaysia)

In 2010 FoE and Grassroots reported serious violations of RSPO criteria by IOI in Indonesia and Malaysia – RSPO Code of Conduct 2.3

(transparent engagement)

– RSPO 4.2.4a on non-certified holdings

Grievance Procedure was the result

Mediation to produce results in 2012

IOI’s all new certifications on hold (2012)

Washington,April 26,

2012

commodities that respect land

rights ....

slide 39

Case 2: FSC and Forest Plantation

land conflicts (Uganda) 2005: NFC company acquired 50 year

licence for plantations – timber production

– CDM carbon credits

Investments a.o. by HSBC and IFC

FSC certification – at early stage (required by investors)

– granted despite land-related issues

2011 Oxfam Report – “20,000 people evicted”, “breach of FSC

criteria”

– Investigation by FSC / Certifying body SGS: “no breach”

– IFC takes issue seriously

– complaint filed by Ugandan communities with CAO

The situation today – CAO has started mediation process

– FSC and IFC waiting for outcome of CAO procedure

Washington,April 26,

2012

commodities that respect land

rights ....

slide 40


Initiatives for sustainable commodities

/ social compliance

‘private governance’: does it work?

• Yes: – Within a limited time span, pragmatic

cooperation between private stakeholders and civil society (NGOs) has resulted standards and certification systems with a a degree of acceptaton.

– If governments had been involved from the very start, this result would not have been possible.

• No: – Effective implementation of the

resulting certification systems is fundamentally dependent on the presence of functioning public governance which can be no means be replace by private certification.


‘private governance’: is it enough?

• A solution for sustainable raw materials from agriculture?

– yes: good standards have been produced for a limite number of globally traded commodities.

– no: it cannot be a sustainable solution to start a new roundtable for every single commodity.

• An alternative for traditional forms of public governance?

– yes: the roundtables are a good mechanism for producing broadly supported sustainability standards within limited time.

– no: in the end, these standards need to become part of public regulation both in producing and consuming countries.


8. What will be the end game?


sustainable supply chains

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