What you need to know - Innovation Forum

risk innovation NOVEMBER 2015 // ISSUE 01

Whatrisk you needinnovation to know THIS MONTH

CONTENTS WHAT'S NEW 01 What you need to know – all the news and analysis 06 Data digest – all the best research sifted and analysed

CORPORATE INSIGHT

Essential insight • GSK’s new supplier information exchange is expected to cut value chain emissions by 25%. • Working conditions remain the top supply chain priority for business. • While human rights is a key concern for companies, less than half have measures in place to deal with it internally. • More food and drink companies are aware of their climate-related exposure in the supply chain – but less than a quarter are disclosing supply chain emissions. • Nespresso is gambling on new production in war-torn South Sudan – which could be a $10m coffee export market within ten years. • Coca-Cola “on target” to replenish 100% of the water it uses in its production and products by 2020 through water stewardship projects.

GSK expects supplier information exchange to cut value chain emissions by 25%

A

new online informationenvironmental sustainability, Matt sharing platform set up Wilson, says that the business by the global chemicals giant established that 65% of suppliers GlaxoSmithKline (GSK) is did not have an active programme expected to result in emissions in place to reduce energy costs reductions within the supply – and no one single supplier chain of 25%. has more than a 1% So far, 500 impact on GSK’s carbon suppliers have footprint, making the been invited to join task seem huge. the GSK Supplier So, it sees the Exchange which they Supplier Exchange as will be able to use to the most efficient way 500 GSK share best practice of helping multiple on energy efficiency suppliers suppliers – getting them and reducing to talk to each other via share best environmental a Facebook-like online practice impacts. network and share on energy The British information, case studies efficiency business, which sells and documents that will and reducing healthcare products enable them to make impacts like Nicorette, investment and business Sensodyne and decisions. Panadol, spends In the past 12 months, more than £2bn a year buying GSK has been running energy materials. And more than 40% of reduction workshops at a the company’s carbon footprint number of its supplier sites and comes from the procurement of has identified opportunities to those materials. save 5,000 tonnes of CO2 and The company’s head of global reduce energy costs by 20-30%.

09 Innovation of the month – Toyota’s hydrogen supply chain 10 Corporate comment – Carlsberg 11 Corporate targets versus achievements – Mars 13 Corporate case study – AkzoNobel’s search for sustainable suppliers

NGOS AND CAMPAIGNS 15 NGO campaigns – who’s targeting whom and why 18 Activist Q+A – Greenpeace

SUPPLY CHAINS IN FOCUS 19 Sector snapshot – palm oil 22 Supply chain collaboration – can it really work?

WHAT'S NEXT 26 Preview of what to look out for in the coming weeks

WHAT'S NEW

SUPPLY CHAIN RISK & INNOVATION

Publisher: Ian Welsh

Business and Human Rights. When it comes to the key issues for the supply chain of each business, working The 17 newly-launched UN Sustainable conditions (including health and safety), Development Goals (SDGs) are starting to be supplier ethics and transparency, and digested within businesses and are likely to wages, benefits and working hours were cascade down into more company policies, named as the top three priority areas. strategies and goals. The 2015 BSR/GlobeScan State of Sustainable Business Survey reveals And the main measures companies are that of the 400 sustainable business using right now to create a more professionals interviewed, a third sustainable supply chain are said they plan to use the SDGs as supplier codes of conduct (with a basis for corporate performance 83% of respondents mentioning targets* – with 62% saying they it), considering sustainability in place a strong priority on "inclusive sourcing strategies*** (68%), and growth". regular monitoring and auditing of Half of While 83% of companies say suppliers (67%).**** they are currently prioritising companies While external pressures energy management** and their surveyed are – such as NGO activism and greenhouse gas emissions in their price concerns – continue to be managing own operations, half report that key drivers for sustainability, a energy and they are also managing energy and number of internal changes, such GHGs in their GHGs in their supply chains. More as a stronger buy-in from senior supply chains than 50% also say that the COP21 management, are starting to have an agreement in Paris is "important" to impact. Almost 70% of the business their business, with most wanting a leaders said that sustainability is at least ‘fairly "global commitment to decarbonisation" and well integrated’ into the core business. And "regulatory incentives" to help them get there. this integration is being enabled through a For the seventh consecutive year, range of mechanisms, including in products respondents identify human rights, workers’ and services, via strategic planning, new KPIs rights, and climate change as the top three and more oversight from the board. sustainability priorities for their companies More than 20% of respondents say their for the next 12 months. Most companies business now links sustainability performance have a human rights policy in place (70%), into compensation for executives or all staff. but less than half focus on implementation In previous years, the same survey found that efforts like training or impact assessments. internal integration was a persistent challenge, And less than half have made a public so the shift is significant, says BSR. commitment to the UN Guiding Principles on

Annual subscription: £995 [email protected]

*

**

***

****

surveyed to use SDGs for corporate targets

prioritising energy management

have focus on sustainable sourcing

regularly monitor/audit suppliers

The majority of companies in BSR/Globescan survey want regulatory incentives to achieve decarbonisation

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Working conditions remain top business supply chain issue

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83% 68% 67%

WHAT'S NEW


Food and drink companies failing to tackle supply chain emissions The latest analysis by CDP, which works with business to help them to disclose their greenhouse gas emissions for the benefit of investors, says that most big food, beverage and tobacco brands are not reporting agricultural emissions in their supply chain. In fact, fewer than a quarter are. According to the UN Food and Agricultural Organization (FAO), agriculture GHGs have almost doubled in the last 50 years, and could jump another 30% by 2050. And that comes with a price. KPMG warns that inaction on climate change could seriously disrupt the financial viability of the food and drink sector. The most recent drought conditions in California are said to have cost the agricultural industry more than US$2 billion so far. The CDP survey shows that more and more food and drink companies are aware of their exposure to climate-related impacts – and the impact their agricultural suppliers are having on the planet. 92% of brands have noted a risk related to the physical impacts of climate change – up from 84% in 2012. However, companies are still not investigating where their biggest impacts lie. Just 22 of the 97 major brands that disclosed to CDP this time around actually reported

MORE AND MORE FOOD AND DRINKS COMPANIES ARE AWARE OF THEIR EXPOSURE TO CLIMATE-RELATED IMPACTS their indirect GHG emissions from upstream agricultural production. According to the data, evidence is mounting that those food companies that are taking steps to help suppliers improve agricultural management, are reaping the benefit of lower costs. Molson Coors Brewing

Company is mentioned in the analysis. It shares best practice with the MillerCoors’ wider grower base, and has managed to create a "showcase" farm that is saving 270m gallons of water thanks to improved irrigation techniques, cutting its energy use in half by reducing the need to pump water. Energy costs fell from an average of $50 per acre to $20-$22 per acre.

New tool to help better understand soy usage – and link to deforestation The Consumer Goods Forum (CGF) Soy Ladder is a new tool designed to help companies understand where and how soy is used in their supply chains. Soy can be found in many food supply chains and is often used as feed for animals, as well as many other products such as margarine, chocolate and cosmetics. Developed by KPMG, the "soy ladder" offers a way for CGF’s 400 members to deal with the commodity as part of their commitment to achieve zero-net deforestation by 2020. By downloading and filling in the document, CGF says companies have a way of clarifying their soy footprint, showing the relative impact of different parts of the supply chain and identifying where their actions could be causing deforestation. The group is also working on a supporting document that provides calculation guidelines for the measurement of embedded soy usage in consumer goods businesses.

Nespresso ‘gambles’ on new coffee production in South Sudan The premium-coffee capsule business Nespresso has launched a new coffee produced in war-torn South Sudan. It’s the first non-oil export out of the country in more than a generation and, having revived coffee production pretty much from scratch, the company admits that it is a gamble. Right now, only a small batch of Suluja has been produced, serving just one market,

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92%

Brands note risks from impacts of climate change

MillerCoors "showcase" farm saves

270m GALLONS

OF WATER and cuts energy costs from $50 an acre to $20

WHAT'S NEW

TOYOTA


Water neutrality targets to be achieved this year

France. But the ambition is to scale up production in South Sudan to create a permanent range of coffees that sits alongside its other popular products. But it knows that, given the challenging social and economic situations in the country, it might not succeed. CEO Jean-Marc Duvoisin says it’s a gamble that the business can afford because of its strong financial footing – and believes that its investment of $700,000 (set to be $1.5m by the end of 2016) is worth it to give its customers a "new coffee experience". The venture – described by Duvoisin as a "giant R&D after project – won’t pay for itself until it ramps up production. Nespresso puts the current successful progress down to its on-the-ground partner, the non-profit TechnoServe, which has spent the last four years establishing where coffee farms exist, who is running them and whether there is the potential for the farmers to become a supplier to Nespresso. Currently, 300 farmers in and around Yei are on board, following Nespresso’s AAA Sustainable Quality supplier programme to ensure they are producing consistently high quality coffee.

The ambition is to grow this to 2,000. According to TechnoServe, Thailand currently exports more crops than all of Africa put together – and it is possible that, in ten years, South Sudan could have a $10m coffee-export industry.

FACTS:

2,000

Nespresso aiming for 2,000 supplier farmers

$10m

South Sudan looking at a $10m coffee export industry

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Coca-Cola ‘on track’ to be water neutral by 2015 Drinks giant Coca-Cola has announced that it remains on target to meet its 2020 water replenishment goal five years ahead of schedule. That means it will safely replenish 100% of the water it uses in its products and during production through community water projects by the end of 2015. It made the original promise back in 2007 and, if it succeeds, it becomes the first food and beverage company to replenish all the water it uses. Currently the company’s range of water projects around the world return 94% of the water used in finished products, based on 2014 sales volumes. Since 2005, it has replenished around 153bn litres of water back to communities and the environment via 500 projects in 100 countries. Source water vulnerability assessments are conducted for each Coca-Cola bottling plant – and then it is decided what projects will return the appropriate volume of water. Funded projects range from providing or improving access to safe water and sanitation, to protecting

WHAT'S NEW

watersheds and conserving water. Coca-Cola works with the Nature Conservancy, LimnoTech and the Global Environment & Technology Foundation, to help calculate the volume of water it has replenished. However, despite water being a part of its Sustainable Agriculture Guiding Principles which is required of suppliers, the water footprint of growing the agricultural ingredients sourced by the business is not included as part of the water replenishment goal. In the meantime, the UN-backed CEO Water Mandate has published a new guide designed to help business better integrate ethics into their water-related projects. While there is a growing interest for companies to collaborate, the body says that early collective-action projects point to potential risks for all involved if they are not inclusive, do not address the issues of most importance for local stakeholders, and are not carried out in a way that actually contributes to sustainable water management. The "Guide for Managing Integrity in Water Stewardship Initiatives" claims to help companies ask the right questions and offer tools to improve transparency and accountability.

FACT:

94%

In 2014 Coca-Cola returned 94% water used. Since 2005, 153bn litres of water replenished via 500 projects in 100 countries.

TOYOTA


C&A backs competition to improve supplier conditions

C&A crowd-sources ideas to improve working conditions in apparel There is €100,000 on the table for entrepreneurs and individuals that have ideas to transform the way the fashion industry works. The C&A Foundation has launched Fabric of Change: Innovating for a Sustainable Apparel Industry – an online competition inviting ideas and innovations that will "build a fair and sustainable apparel industry". The company says it is a response to the slow changes being made to working conditions in factories around the world, despite the added attention the sector has received in the wake of the Rana Plaza factory disaster in Bangladesh, more than two years ago. Unsafe working conditions, gender discrimination, and exploitation of garment workers are among the many challenges facing the industry, says C&A and it hopes that the crowd-sourcing of ideas will spark a "change in mindset" that will help to transform fashion into a thriving sector. The so-called Changemakers Challenge follows in the footsteps of other similar ideassourcing projects, such as the Sustainable Clothing Action Plan’s Extending the Life of Clothes Design Awards and H&M’s annual €1 million competition to find new techniques to recycle clothing. ★

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€100,000 incentive for fashion industry sustainability entrepreneurs

€1m H&M has an annual €1m prize for new recycling techniques

WHAT'S NEW


DATA DIGEST

Reports and research summarised, analysed and distilled Essential insight • Companies are now measuring scope 3 emissions – from suppliers, and the suppliers of those suppliers. BT is a standout performer. • Reporting on local procurement spend is a good way of measuring economic and social impacts along supply chains. • European consumers want tight regulation for sustainable wood sourcing. 78% demand EUTR be applied more consistently. • 77% of Coca-Cola Enterprises’ suppliers say that sustainable sourcing is the issue to have the most impact on their business. • UK Modern Slavery Act: 12,000 big companies will now publish an annual slavery and human trafficking statement – and ask suppliers about staff working permits. • Prioritising engagement among key suppliers, by spend or otherwise, is an effective way of reducing biggest impacts. • Codes of conduct are effective at embedding sustainability in supply chains, say big businesses.

Scope 3: measuring upstream emissions The growing awareness of how industrial activity contributes to anthropogenic climate change is putting companies under increasing pressure to measure and report their so-called "carbon footprint". Businesses’ initial efforts have concentrated around mitigating and measuring the greenhouse gas emissions caused by their direct operations. Now the agenda is shifting. Given the influence of large corporations on supplier businesses, environmentalists see major business-to-business buyers as a vital lever for persuading smaller firms to become more energy efficient. As a result, global companies are under growing pressure to report on greenhouse gas emissions in their supply chain, part of what the technical jargon calls "scope 3" emissions. A new survey by consultancy firm Carbon Clear finds that two-fifths of the UK’s largest 100 listed companies now report on non-business travel scope 3 emissions. The standout company is telecoms firm BT Group, which is credited with "game changing leadership". Using its own sciencebased methodology (known as the climate stabilisation intensity targets), BT has calculated that it must reduce its emissions by 80% of its 1996/97 levels. As part of that goal, the company says it will seek to manage "all of the carbon emissions from [its] supply

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chain – [its] suppliers, their suppliers, their suppliers’ suppliers". According to the World Resources Institute and the World Business Council for Sustainable Development (which co-designed the benchmark Greenhouse Gas Protocol for reporting scope 3 emissions), the carbon footprint of a company’s supply chain typically far outstrips its direct emissions. They cite US food manufacturer Kraft, which found that 90% of its emissions relate either to its suppliers or to the use of its products. The food sector is a pertinent example. According to the Environment Protection Agency, the cultivation of crops and livestock for food accounts for nearly one-tenth (9%) of all US greenhouse gas emissions. Within the food sector itself, 86% of overall emissions relate to agricultural production, research by the Consultative Group on International Agricultural Research finds. In light of the above, large food businesses are increasingly looking to promote low-carbon agricultural practices among their suppliers. Of the 97 large food, beverage and tobacco brands that report their carbon footprint to investor-focused non-profit group CDP in 2015, only 22 report on their supplierrelated emissions. In total, less than one-fifth (18%) of all the sector’s carbon reduction activities focus on the supply chain (with the majority concentrating on their own operations). One of the few exceptions is SABMiller, the world’s second largest brewer, which is working on efficiency measures with its barley suppliers. The initiative has seen the greenhouse gas emissions of its barley supply drop by 16% over four years. As in many other industries, more than 75% of the food, beverage and tobacco companies reporting to CDP say that they engage with their suppliers on a range of issues. In theory, putting carbon management and emissions measurement on this list should not be overly problematic.

WHAT'S NEW


Procurement spend: emerging measure of economic impact To prove their status as corporate citizens, companies have traditionally published their annual charitable contributions. Yet compared to wages, taxes and procurement spend, philanthropy represents only a fraction of their economic impact. Mining companies are among the first to make this point clear in their corporate communications. The new sustainability report of Australian mining company BHP Billiton, for example, notes that 42% of the firm’s procurement budget is directed to local suppliers. The company reports spending

Consumer power: illegal timber

Sustainable timber campaigners are hoping that consumer opinion can help sway current negotiations on illegally-sourced wood from entering the European Union. The EU Timber Regulation (EUTR) was introduced in March 2013 to limit imports of products made with wood from tropical forests or other environmentally sensitive areas. Nearly four out of five (78%) of European consumers believe the EUTR should be applied more consistently across all 28 EU member states, according to a survey commissioned by the environment group WWF. A similar proportion (74%) believes the EUTR should be applied to all wood products without exemption.

Sustainable sourcing set to impact suppliers Ahead of its recent annual supply sustainability webinar, Coca-Cola Enterprises released a survey highlighting those sustainability issues that its suppliers thought would impact their business most over the next two years. Sustainable sourcing was cited by more than three-quarters (77%) of the 150 or so suppliers surveyed by Coca-Cola’s UK-based bottler and distributor. The firm’s suppliers also identified community issues (54%) and resource scarcity (46%) as areas of emerging importance. The webinar included a case study from Brammer, the Manchester-based mechanical spare parts manufacturer, which decreased its carbon dioxide emissions in 2014 by over a third (35%). Brammer’s carbon reduction programme included the introduction of energy efficient lighting across its 17 plants and upgrades to its vehicle fleet.

SURVEY

150 SUPPLIERS SURVEYED BY COCA-COLA

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an additional 54% within the regions that it operates, the bulk (75%) of which concentrates on Australia-based suppliers. Unlike BHP Billiton, UK-listed mining giant AngloAmerican uses its latest annual report to publish its overall local procurement spend ($1.71bn, equivalent to 14% of available expenditure). AngloAmerican, which has large operations in South Africa, also spends ZAR $39.2bn ($2.89bn) with black-owned suppliers as part of the country’s racially selective Black Economic Empowerment programme.

Audits: modern day slavery

Suppliers providing goods and services to UK-based companies with a turnover of over £36m a year can anticipate questions about the working permits of their employees. Under the new UK Modern Slavery Act, which came into force in October 2015, around 12,000 large UK companies will now have to publish an annual slavery and human trafficking statement. Anti-slavery campaigners hope the requirement will push them to scrutinise their supply chains more intensively for forced or trafficked labour, which affects an estimated 36m people worldwide. According to a briefing paper by the supply chain experts Sedex, modern day slavery generates profits of around $150bn every year. Migrant groups and indigenous people are judged to be particularly vulnerable to forced labour.

WHAT'S NEW


Prioritising supplier interventions

Health and safety: most important supply chain issue

MARS' TARGET: 100% sustainability target for commodities such as cocoa, black tea and fish CURRENTLY:

36% COCOA

30% BLACK TEA

30% FISH

For more on Mars' targets see p11.

Global companies often have hundreds if not thousands of suppliers, leaving them with a huge conundrum on where to start in terms of pushing sustainability through their supply chains. Typically, global corporations will focus on either their largest suppliers (tier 1 suppliers) or specific procurement categories. An example of the first is provided by financial services firm PwC, which has committed to embed sustainability requirements into the contracts it has with its largest 100 suppliers (by procurement spend) by 2017. Among these "key suppliers", nearly three in four (74%) currently provide PwC with extensive information about their sustainability performance. PwC’s target is to increase this proportion to 80% within two years. Mars presents an example of a category approach. The US confectionery and pet food giant recently updated its sustainable sourcing strategy to priority on 23 raw materials (up

from 15 previously). The new entrants include beef, paper and pulp, and soya, adding to a list that already included staples such as black tea, cocoa, coffee, fish and peanuts. At present, the company sources 100% of its palm oil from the Roundtable on Sustainable Palm Oil’s mass-balanced certification programme, of which 84% is traceable back to its original processing mill. All of the coffee it buys is also sustainable certified. The company has further to go to meet a similar 100% sustainability target for commodities such as cocoa (currently 36% of its supply comes from certified suppliers), black tea (30%) and fish (30%). Mars recently launched a Fairtradecertified version of its popular Mars Bar brand in the UK and Ireland. The move follows a similar step in Germany with its Twix brand. By next year, the company is expected to be paying $2m per year in Fairtrade premiums to cocoa cooperatives in West Africa.

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Sustainability incorporates a range of issues that companies have not traditionally had to concern themselves with, from water availability to human rights. Heath and safety is a long-term stalwart of industrial responsibilities, and it remains on top of the supply chain agenda for sustainability professionals. Over half (54%) of the members of the US company-led group Business for Social Responsibility (BSR) who responded to a recent survey by GlobeScan cited health and safety as among their top three supplier-related priorities. Other top priority areas included supplier ethics and transparency (50%) and wages and working conditions (40%). According to the same survey, codes of conduct are the most effective measure to embed sustainability in the supply chain (mentioned by 83%) of the practitioners surveyed. Considering suppliers in sustainability strategies and regular auditing were also identified as priorities (with 68% and 67% of respondents citing these, respectively). On a less positive note, BSR’s members ranked suppliers eighth in a list of nine different stakeholders in order of importance. Only the media ranked lower. Nearly onethird (32%) cited consumers as the most influential actor, followed by regulators (12%). Employees, investors and NGOs occupied joint third place (11%). ★

CORPORATE INSIGHT


INNOVATION OF THE MONTH

Toyota's carbon-neutral hydrogen supply Cooperation with suppliers and government are key for Toyota’s clean fuel cell development plans

Essential insight • Toyota backs hydrogen fuel cell cars – a key part of their future economic success. • The company limits the impact of producing hydrogen to create a carbon-neutral supply chain. • This helps refine the debate around how/when hydrogen fuel cells will replace fossil fuels in cars.

"Today, a small fuel-cell car that uses [traditional] electricity to generate hydrogen would easily be the worst option," it adds. "The car would have the same environmental impact as a luxury sports car." So, in a four-year project, a group of companies – including the Toyota Motor Corporation, Iwatani Corporation, Toshiba Corporation and Toyota Turbine and Systems Inc – and government bodies in and around the cities of Yokohama and Kawasaki have agreed to collaborate and experiment.

Renewable power

The global car manufacturer Toyota is working with other businesses and the public sector in Japan to create a supply chain for hydrogen that is carbon neutral. It is trialling a system which combines the use of renewable energy and hydrogen fuel cell technology to remove the carbon impact along the chain. Hydrogen is usually created through a reaction between methane and steam. But it can also be created from water through electrolysis. And it is this that Toyota has been keen to explore – rather than creating the required electricity in the usual way, with fossil fuel-based power, it wants to use clean energy to remove the emissions along the supply chain. After all, the overall environmental benefit of hydrogen is only as strong as the method used to produce it, Toyota says – one of the key arguments against the development and use of hydrogen-powered cars.

Smarter production A recent study by the Swiss Federal Laboratories for Materials Science and Technology (Empa) used lifecycle assessment to understand the true environmental benefits of hydrogen fuel cell cars. It looked at fuel cells for cars and home heating units, beginning with the hydrogen’s production, through the life of the fuel cell and its eventual disposal. The report concludes that "fuel cells for cars are only ecologically sound if they are able to run on hydrogen from renewable energy sources".

They will develop a system whereby wind power turns water into oxygen and hydrogen. They will then create a system that will optimally store and transport the hydrogen so that it can be used within the business operations. For example, it will have hydrogen-powered fork lift trucks within its huge manufacturing plants and use hydrogen to power many of its operations, including warehouses and logistics centres. Power from the grid will only be used for backup when absolutely necessary and any excess clean energy produced could be sold to local utility companies.

TOYOTA WILL USE WIND POWER TO GENERATE HYDROGEN FROM WATER According to the Intergovernmental Panel on Climate Change, almost half of carbon emissions (25 gigatons of CO2) is produced as a result of the burning of fossil fuels to create electricity and heat for industry and transport systems. According to Toyota, the various project partners involved are still discussing the specifics of the project and which companies and organisations will take on which roles. Implementation of new systems and process is likely to begin in April 2016. It is not yet clear how much Toyota will save as a result of this project, but clearly the company is keen to build a stronger case for the use of hydrogen fuel cell cars – and sees the creation of a carbon-neutral supply of hydrogen as part of the answer. ★

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25

gigatons of CO2 is produced as a result of the burning of fossil fuels

A small fuel cell car using

'TRADITIONAL' HYDROGEN IS THE WORST OPTION

CORPORATE INSIGHT


CORPORATE COMMENT

Carlsberg creates circular approach to packaging To close the loop on its drinks packaging, Carlsberg has had to get a lot closer to its suppliers – a complex and time-consuming task that has had a “positive spiral”, says Simon Hoffmeyer Boas, director for group sustainability. Essential insight • Engage suppliers on areas of strategic importance or that have the potential to deliver most impact. • Create a common purpose. Collaborate and share the lessons learned so all benefit. • Build-in trust mechanisms and maximise pre-competitive dialogue. A neutral facilitator can help accelerate this.

What have you learned so far? It’s a huge task to involve all of the different links in the supply chain. It is not only direct partners we have to work with, but our partners’ partners and their partners, and so on. The amount of time that we needed to spend on analysing our products from a cradle-to-cradle perspective was a bit of a surprise, it took 30-40% more time than we expected. But it also showed us that it’s necessary to do this in order to optimise the sustainability credentials of our products. Where might this process deliver supply chain value first?

Under the Carlsberg Circular Community initiative, you are working with select suppliers to close the loop on drinks packaging. What benefits will this integrated approach bring to your business? Nobody knows the products we purchase better than the suppliers themselves so cooperating with them to improve the sustainability credentials of our major types of packaging makes a lot of sense. By cooperating instead of just having a purely commercial relationship, we can create more trust and a common purpose for delivering more circular solutions. How did you decide which suppliers to reach out to? We went with suppliers that had a strategic purpose for the Carlsberg Group or those that had a product that was interesting from a circularity or sustainability perspective. We decided to focus on the main types of primary packaging to begin with, given the fact that 45% of the total CO2 footprint of our end-to-end value chain comes from packaging, and 40% of that from primary packaging.

To begin with, I think the relationship with our suppliers and the understanding that if the two of us can create a more sustainable product, we will all be better off in the future. Also, gaining new partners; we get a lot of contact from people with ideas or products that can help us make our supply chain more circular. It’s a positive spiral. This type of collective collaboration is not without its challenges. How have you handled concerns around information sharing? We have used the neutrality of the EPEA (Environmental Protection Encouragement Agency) to ensure that sub-suppliers feel confident about giving the very detailed data we need for the cradle-to-cradle analysis. We couldn’t do it without this knowledge trust function because there will always be concerns around commercial interest. What level of cost savings do you hope the Circular Community work will deliver? It’s clear that our refillable glass bottle when returned at a lower price than the cost of a new bottle presents a strong business case for the circular economy. By developing an innovation that can attract a new consumer group, such as our Green Fiber bottle, we have the potential

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to make a real difference in terms of top and bottom line growth. And what is the risk to Carlsberg of not taking this approach? We will face a future of more volatile raw material prices, increasing costs and consumer rejection. We believe that, in the future, unsustainable products will be more expensive than sustainable ones. Did you have to set any ground rules regarding dialogue? The ground rule was, "listen guys – we’re all interested in optimising packaging from a sustainability perspective, let’s try to do this together". We’ve actually seen cooperation rise between partners; new types of linkages have been created that don’t necessarily involve us, and that’s exactly what we were hoping for. Once we have optimised one packaging type, our suppliers will be able to commercialise these achievements by selling the products to other customers as well. We want to have the benefit of being the first, but the work shouldn’t be held exclusive to us – it needs to be disseminated to other players as well to achieve true scope and scale. Looking ahead, how might this work at scale? We have a target of involving 17 partners in the Carlsberg Circular Community by 2017. This is only the tip of the iceberg, the work going on will affect many more partners and sub-suppliers than the primary ones we are working with. We believe it’s better to select a few strategic suppliers and optimise products with them than having a lot of partners where we might not make as big an impact. ★

45%

total CO2 footprint from packaging

CORPORATE INSIGHTPAGE 11


TARGETS VERSUS ACHIEVEMENTS

Mars to review ‘modest’ sourcing targets In this section we compare what a company said it would do with what it has actually achieved. This time, the focus is on Mars – meeting current certification targets is not evidence of building a truly sustainable supply chain, the business admits. So, where does it go from here? Essential insight • Mars is on track to meet the targets it set to source five key raw materials from certified sources. • It met its palm oil and coffee goals early and is set to easily meet 2020 goals for fish, tea and cocoa. • Mars' CSO Barry Parkin says that the goals to buy certified raw materials is modest and is not evidence of true sustainability. • Now, it will set new, beyond certification goals against 23 raw materials – with a big focus on tackling greenhouse gas (GHG) emissions, water use, land use, farmer income and human rights. • 93% of Mars’ GHG emissions are created within its extended supply chain.

TARGET

RAW MATERIAL

100% CERTIFIED

Purchase 100% of coffee beans from certified sources by the end of 2013

ACHIEVED COFFEE

FULLY-TRACEABLE To develop a “fully-traceable pipeline back to known palm oil mills” by the end of 2014

PALM OIL

100% SUSTAINABLE

100% CERTIFIED

As of 2014, Mars purchased 30% of its fish and seafood products from sustainable sources

NOT THERE YET COCOA

PAGE 11

As of 2014, Mars purchased 32% of its black tea from certified sources

NOT THERE YET FISH

Purchase 100% of cocoa from certified sources by 2020

As of 2014, 84% of the palm oil Mars sources can be traced back to a known mill

NOT THERE YET TEA

Purchase 100% of fish and seafood products from sustainable sources by the end of 2020

Done. As of 2014, Mars purchased 100% of its coffee beans from certified sources

NEARLY THERE

100% CERTIFIED Purchase 100% of black tea from certified sources by 2020

PROGRESS

As of 2013, Mars purchased 30% of its cocoa from certified sources

CORPORATE INSIGHT


INNOVATION FORUM COMMENTARY

MARS COMMENTARY

TARGETS NOT THE END POINT

ENGAGING BIG AND SMALL SUPPLIERS ALIKE

BARRY PARKIN, GLOBAL SUSTAINABILITY DIRECTOR, MARS

As a global confectionery and petfood business, Mars has a big and complex supply chain with numerous challenges in attempting to source sustainably-produced commodities. Its latest Principles in Action report highlights the progress it is making in sourcing more responsibly, with a focus on the five key commodities of palm oil, cocoa, tea, coffee and fish which make up the majority of its products – from Mars chocolate bars and Dolmio pasta sauce, to Whiskas cat food.

We’re bang on track towards meeting all of these targets. With something like palm oil, the RSPO certification system means that we achieved this early. But certification doesn’t necessarily mean sustainability. We set these initial targets based on existing certification systems, knowing that it was a step in the right direction, but that it wasn’t the end point. Yes, we feel good that we’ve made these certification targets, but we know we have a lot more work to do.

Certification focus Acknowledging the uphill struggle it faces in helping to shift large-scale agricultural markets to produce more with less, the family-owned business has focused its efforts on purchasing raw materials from sources that adhere to the standards set by the big certification bodies, such as Rainforest Alliance, UTZ Certified, Fairtrade International and the Roundtable on Sustainable Palm Oil (RSPO). With commodities most widely served by certification – palm oil and coffee – it has unsurprisingly made strong progress. And with targets to purchase 100% certified tea, cocoa and fish by 2020, the company is on track to meet those targets fairly easily.

Supporting smallholders Its biggest challenge – like many big corporates – is in supporting the more than one million smallholder farmers that supply the business, many of which are the some of the poorest people in the world. Its scientific research programmes, like the Cocoa Genome Project which it launched with IBM and the US Department of Agriculture to sequence, assemble and annotate the cocoa genome – will be crucial in helping these farmers to identify traits of disease resistance, boost their yields and incomes, and improve water and nutrient efficiency. As Mars’ global sustainability director, Barry Parkin says, in terms of tackling its big supply chain impacts and risks, the business has barely scratched the surface. And it is not alone.

BIGGEST CHALLENGE:

supporting one million smallholder farmers.

Beyond certification All of the responsible companies operating in palm oil have pretty much achieved RSPO certification – but they have also set themselves a standard that is higher than that. The same is true with cocoa, with the industry working together to set out what truly sustainable cocoa looks like, with a focus on farmer productivity and community development work. Certification is helpful, but not sufficient. We know that achieving our certification goals is not an issue, and we want to challenge ourselves by looking at some new long-term goals.

Critical impact areas So, we are looking at our critical supply chain impact areas and are going to set three environmental goals – for greenhouse gas (GHG) emissions, water usage and land usage – and two socio-economic goals – for basic human rights, and income levels. These are five impact areas we should be taking responsibility for in our extended supply chain. We have mapped our entire raw material supply chain for the 50 different raw materials that we buy – which has led us to the conclusion that there are 23 critical raw materials that have material impact in one or more of those five areas. We will be developing new targets and strategies for all 23. Certification will be used some of the time as a useful tool. But we need many other strategies too if we want to boost the socio-economic situation.

Modest commitments What we have committed to so far is modest. We are going to be looking at fives times as many materials, with much more challenging targets and goals. And next year you will see that emerge. We have been through this process to tackle our own operational impacts. For instance, we have a target to reduce our GHG impacts to zero by using more clean energy and improving efficiencies within our factories and offices. And now, we will be applying a similar process across our extended supply chain, which accounts for 93% of our overall GHGs. It’s a monumental challenge. But you won’t find any corporates that have set truly sustainable targets for dealing with their supply chain impacts. ★

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CORPORATE INSIGHT


CORPORATE CASE STUDY: AKZONOBEL

Innovate and develop new supply chain partners In search of suppliers of bio-based materials, AkzoNobel is finding new partnerships along its value chain

Essential insight • AkzoNobel wants to increase bio-based chemicals in its products, a challenge in an era of low oil prices. • Success requires engagement not just with direct suppliers but with their suppliers as well. • Collaborations – even with much smaller companies – must be true partnerships to be successful. • Patience required: change can take time.

The chemicals industry is like an oil tanker, says Peter Nieuwenhuizen, research, development and innovation director of business area speciality chemicals at AkzoNobel, the Dutch chemicals and coatings company. He is not referring to the extent to which the sector relies on oil as a feedstock, although that is relevant to his point. Rather, he says, of the company’s attempts to replace fossil fuel-based chemicals with products based on natural materials: "If you want to change course, it is a very slow process." AkzoNobel started looking at this four or five years ago, he says, driven by two big developments. The first was the extent to which some of its raw materials were vulnerable to fluctuations in both the supply and price of oil and gas. The other was a desire to move to more sustainable ways of producing.

The change challenge

Headquartered in Amsterdam, the Netherlands. More than

47,000

employees in 80 countries worldwide

Big driver for AkzoNobel: raw materials vulnerable to fluctuations in oil and gas supply

"In the industry we have around 100 years’ experience of converting oil into materials. When you have a system that has been highly-optimised over the last century it is a challenge to change," says Nieuwenhuizen. While there are quite a number of products that can be made from bio-based chemicals, it is a challenge to make them cost effective. "Our customers by and large have a ‘green’ mind-set. If we offer them products with sustainability benefits at the same price as non-sustainable products, they are happy to buy them. But they are not generally prepared to pay a premium so we have to find situations where we can provide more sustainable chemicals at the same cost as the fossil fuel incumbent," he adds. He highlights three examples of bio-based chemicals the company is working on. The first is epichlorohydrin, a compound that is used to make epoxy resins that are used in paint. Under the trade name Epicerol, Solvay, the Belgian chemicals company, makes the

PAGE 13

material out of glycerol, a by-product of vegetable oils. Solvay is a company that AkzoNobel was aware of – as a supplier to the company’s own suppliers. The epichlorohydrin that Solvay makes is price-competitive with fossil fuel alternatives so AkzoNobel was keen to develop its use in the company’s products. Nieuwenhuizen and his colleagues got in touch with Solvay to ask how they could supply more.

Speak to suppliers' suppliers The initiative has momentum because both companies are looking to make their businesses more sustainable; by 2016, AkzoNobel aims to source 20% of its total epichlorohydrin demand as bio-based material. But one of the challenges was the fact AkzoNobel is not a direct customer of Solvay’s as its coatings unit buys epichlorohydrin from other suppliers. "It is not enough to tell your suppliers you want bio-based chemicals. They may say they don’t know how to do it," Nieuwenhuizen points out. "Sometimes you need to go one or two steps back to try to solve the problem. So we were talking to our suppliers, who are Solvay’s customers. How do you do that without the supplier feeling that they’re being squeezed?" The answer is to be transparent in your dealings with all suppliers – and to ensure that the benefits from innovation and new developments are shared among all who have helped along the way. The second example is a collaboration with Solazyme, a US-based company that makes chemicals out of algae. The company is able to make different products by modifying the algae it uses as a feedstock for applications ranging from food to fuel to beauty products. "We identified a particular oil that is very important in our supply chain but where we

CORPORATE INSIGHT


are seeing supply bottlenecks." The solution: "We are helping to fund Solazyme’s R&D into the product and when it is ready we have agreed a multi-year supply agreement for up to 10,000 tonnes of renewable algal oils," Nieuwenhuizen says. The oil under development, which should be in AkzoNobel products in about three years’ time, will be able to replace both petroleum and palm oil-derived chemicals, not just at a lower overall cost but with better performance and less impact on the environment.

Alternative production methods The third collaboration is with another US-based start-up, Zeachem, which will supply AkzoNobel with acetic acid, which is used to make thickeners for paint. Zeachem has managed to isolate the micro-organism that lives in the guts of termites and uses it to convert wood into acetic acid and a range of other products. Acetic acid is traditionally produced from petrochemical feedstock.

Making bio-based materials viable in a world of low oil prices is a challenge for AkzoNobel. "We are currently looking at the viability of building a manufacturing plant in the north of the Netherlands to use this process," Nieuwenhuizen says. "However, it is not straightforward because acetic acid is very cheap. We need to be able to make the numbers add up." Making bio-based materials viable in a world of low oil and gas prices is a challenge, he stresses. "It does make it more challenging to make the numbers work, but it doesn’t weaken our desire to do this, and it is certainly possible."

AKZONOBEL FACTS:

2014 revenues of

Oils from algae can replace petroleum products

€14.3bn

Unique partnerships AkzoNobel’s experience of working with three different suppliers shows that every case is different. Solvay was looking for a large downstream customer to confirm the wisdom of its own efforts to grow its bio-based chemicals business, while "start-ups can be looking for money to continue their research or validation of their approach with their own shareholders. It’s important that we can find situations where we can help each other," Nieuwenhuizen says. He adds that collaborations have to be true partnerships to be effective. "Big companies have a tendency to want to lay down the law. If you approach a start-up like that you are bound to fail – any partnership goes through highs and lows. You need some relationship capital to get through the lows." Choosing the right partner is also crucial. "For every partner that you see, we looked at probably another nine in varying levels of detail where we couldn’t make it work. But having said that, we were surprised by the number of partners we did find. There is a tremendous amount of innovation going on." ★

Be transparent in dealings with suppliers and share the benefits of innovation.

PAGE 14

World-leading paints and coatings companies, with brands including Dulux, Sikkens and Eka.

A major producer of speciality chemicals, used in a range of industries and applications.

€360m

Invests more than €360m annually in research, development and innovation.

NGOS AND CAMPAIGNS


ACTIVISTS AND CAMPAIGNING

Who’s targeting whom and why? Fossil fuel suppliers under fire, water use in agriculture, and pressure on Cargill, PepsiCo and Amazon

Essential insight • First ever human rights complaint issued against big carbon emitters, calling for more accountability over impacts of climate change on Filipinos. • Quality of irrigation water used for Californian crops called into question, with fresh produce firms such as Bee Sweet Citrus in the spotlight. • WRI tracking tool claims APP suppliers are responsible for “majority” of Indonesian haze. APP denies it. • Cargill’s latest forest policy is not good enough, says Greenpeace, which wants extended soy moratorium, among other things. • PepsiCo urged to close the “massive loophole” in its palm oil sourcing policy to include Indonesian suppliers. • Amazon called on to stop selling Monsanto Roundup, which contains herbicide the WHO says is dangerous to human health.

Can Carbon Majors be held responsible for human rights infringements resulting from fossil fuel activities?

First ever human rights complaint for fossil fuel polluters In a world-first, typhoon survivors along with a number of environmental campaign groups in the Philippines, have filed a national petition at the country’s Commission on Human Rights (CHR) because they want big oil and gas companies to be accountable for the suffering, and numerous deaths, of millions of Filipinos affected by climate change disasters. The 40-page petition produced by the group, which is led by Greenpeace Southeast Asia, is demanding an investigation into the activities of the 50 largest fossil fuel and cement companies in the world – the so-called Carbon Majors. They are calling on the CHR to look into whether the polluting companies have breached their responsibilities to respect the rights of the Filipino people and to recommend legislation that will protect human rights through "appropriate mechanisms and standards for corporate reporting of human rights issues", especially on climate change impacts; and to request the submission of plans from the Carbon Majors as to how they will limit or prevent such violations in the future. The 50 companies, including ExxonMobil, Chevron, BP, Royal Dutch Shell and ConocoPhillips, are a subset of the 90 legal entities that are said to have contributed the lion’s share of cumulative global CO2 and methane emissions in the earth’s atmosphere, as identified by peer-reviewed research. The groups behind the complaint – which range from Amnesty International and Avaaz, to the Center for International Environmental Law and the International Trade Union Confederation – want an investigation to be launched by the end of this year. Regardless of how successful the campaigners are – and they do face an uphill battle against some of the biggest companies in the world – the case is seen as a significant moment in establishing the moral and legal precedent that big

PAGE 15

Major energy suppliers under new pressure

polluters are able to be held responsible for human rights infringements resulting from fossil fuel activities. The key argument is that the Carbon Majors have benefited financially despite having knowledge that there is harm being done by their products. None of the 50 companies have yet reacted to the petition. Island nations in the Pacific including Vanuatu, Kiribati, Tuvalu, Fiji and Solomon Islands have also declared their intent to bring legal action against big polluters. Earlier this summer, a court in the Netherlands ruled that the Dutch government is putting its citizens in danger by failing to address greenhouse gas emissions and ordered it to reduce CO2 emissions by 25% by 2020 compared to 1990 levels. The case – the first of its kind – was brought by 900 citizens with the Dutch NGO Urgenda. Now, similar cases in Belgium and Norway are likely to have a similar outcome.

NGOS AND CAMPAIGNS


Indonesian haze blame game

Contaminated water in food supply chains?

What sort of water are your suppliers using to grow crops? Almost 40,000 people have signed a Courage Campaign pledge to boycott a number of fresh produce companies based in California after it emerged that they might be using contaminated oil industry wastewater to grow their crops. It all started with an article published by Mother Jones, which claimed that Wonderful Citrus, Sunview, Trinchero Family Estates and Bee Sweet Citrus were using water coming from a wastewater treatment site where oil companies provided half of the water supply in 2014. According to the LA Times, Chevron is one of those companies and it recycles 80m litres of water every day which is then used on the local crops. The Courage Campaign asked people to question why the corporations in question think it is okay to irrigate their crops with oil wastewater which might lace them with carcinogens. Essentially, oil companies have been keen to sell the wastewater generated by oil

extraction because of tightened regulations about how it can be disposed of, and given the severe droughts experienced across California, the campaign suggests companies have turned a blind eye to what might be in the water. It points to a test carried out by the environmental group Water Defense which found "high levels" of the toxic compounds acetone and methylene chloride in wastewater from Chevron used for irrigation purposes. It also found some oil which was supposed to be removed during the wastewater recycling process. Speaking to Mother Jones, James Sherwood from Bee Sweet Citrus, says that all farming operations receive some water from the water district in question and hoped that more would be done to raise awareness of the need for more above-ground water storage in California. Meanwhile, Edwin Camp from DM Camp & Sons, which supplies Trinchero Family Estates, says that the water being used "has been well-proven for 20 years that it’s fine". The other produce companies have yet to respond.

PAGE 16

The haze caused by southeast Asian forestburning fires sent Singapore’s three-hour Pollutant Standards Index (a measure of air quality) into the "very unhealthy" range on numerous occasions during September. The air pollution led to school closures and flight disruptions across Malaysia, and, in Indonesia, a few children died due to respiratory failure. The Singapore newspaper The Straits Times investigated the story, using data from the World Resources Institute (WRI)’s Global Forest Watch (GFW) Fires online platform – which overlays data from fire hotspots detected by NASA satellites with information on agribusiness concessions – it claimed that more than 400 forest fires had been spotted on pulpwood concessions in Sumatra during early September – and that the "majority of the companies" involved are suppliers to Asia Pulp & Paper (APP). APP has been quick to deny the claims, saying that the reports painted a "misleading impression of the reality on the ground". The company’s head of sustainability Aida Greenbury argues that just because a fire was detected on a concession area, it doesn’t necessarily mean the company had anything to do with starting it. The GFW data showed that between 5th and 12th September, 54% of all fires began outside concessions, while pulpwood plantations accounted for 41% of the blazes, with palm-oil and logging concessions making up the remainder. However, the WRI admits that the information, gathered from remote sensing snapshots, was "limited" and can’t determine exactly who is causing the fires.

PULPWOOD PLANTATIONS:

41%

fires in mid-September

NGOS AND CAMPAIGNS


Greenpeace demands more from Cargill despite renewed forest policy Put your head above the parapet and you can expect an NGO to take a shot. But when a company appears to move the goalposts on targets, is it fair game? Like a number of big businesses, food giant Cargill used the occasion of the first anniversary of the New York Declaration on Forests (NYDF), a multi-sector commitment to safeguard the world’s forests, to issue a new policy on forests. By signing the NYDF agreement, it was already promising to help halve deforestation by 2020 and end it completely by 2030. Now, the new policy and a series of action plans go – as the company sees it – a step further by giving the specific measures it will take to reach the goal, including: staying on track to meet sustainable palm oil procurement from Indonesia and Malaysia; supporting an extension of the Brazilian soy moratorium indefinitely and helping to implement the Brazilian Forest Code; and continuing to grow a sustainable soy programme in Paraguay, complying fully with the existing local forest code. But Greenpeace says the company’s new policy still falls short in a number of areas.

Cargill commits to more sustainable soy

Matt Daggett, the campaign group’s global forests campaign leader, says that Cargill was failing to uphold its original commitment to eliminate deforestation along its agricultural commodity supply chain by no later than 2020 with a "weak 2030 deadline" for most commodities, which gives it "another ten years to profit from forest destruction". Instead, it wants the business to extend its soy moratorium to cover more South American rainforests – and then introduce something similar to protect Indonesia’s forests from palm oil. "Only then will Cargill begin to achieve the ambitious goals it has set for itself," he says. Cargill has yet to respond to Greenpeace’s demands.

‘Tell Pepsi to close its palm oil loophole,’ says ILRF The International Labour Rights Forum (ILRF), along with other campaign groups including SumOfUs and the Rainforest Action Network (RAN), have been collectively campaigning against PepsiCo’s commitment to responsible palm oil sourcing. They say that while the company’s latest sourcing policy for palm oil might look good on paper, it has a "massive loophole" in that one of the companies that produces the firm’s products in Indonesia, called Indofood, is exempt from meeting the standards. Indofood is the third biggest palm oil business in Indonesia and, according to ILRF, it also has a history of treating workers badly and forcing communities off land. Gemma Tillack, the RAN’s agribusiness campaign director, described Pepsi’s latest palm oil commitment as a "missed opportunity" adding that any serious responsible stance has to include Indonesia. Pepsi has a good opportunity to react when it publishes – due before end of 2015 – its action plan for implementing the new guidelines. In the meantime, multiple campaigns will continue to urge consumers to voice their opinions.

PAGE 17

Amazon under fire for selling Monsanto Roundup SumOfUs says it is baffled that Amazon is still selling Monsanto Roundup weedkiller even though the World Health Organization has deemed the product to contain an active ingredient that is "probably carcinogenic to humans". According to the campaign group, the scientific evidence against the herbicide in question, glyphosate, is mounting, with Monsanto "furiously scrambling" to rubbish the science. So, it has decided to target up the supply chain, focusing on the biggest retailers of Roundup and is calling on its audience to ask the world’s biggest online retailer Amazon to stop selling Roundup – a move it says would have "enormous impact".

Roundup: the usual suspects

Glyphosate can be found in surface water, groundwater, soil and even in humans – and is said to be pushing some crops and species to the verge of extinction. SumOfUs has got previous with this type of campaigning. Around 750,000 of its members called on a range of retailers in the US to stop selling pesticides that were known to kill bees – and Lowe’s and Home Depot took action, removing products containing neonicotinoid pesticides from their shelves. In 2013, Amazon moved to stop selling foie gras on its UK website after animal welfare campaigners piled on the pressure. SumOfUs hopes it will do the same again, to stop selling a product it says as "no place in the 21st century". ★

NGOS AND CAMPAIGNS


CAMPAIGNER Q+A

Brands urged to cut out toxins from clothes Greenpeace wants brands to eliminate the use of PFCs when making clothes – and setting 2020 targets is not ambitious enough, says Mirjam Kopp, project leader of the Detox Outdoor campaign Essential insight • Accentuate the positive. NGO campaigns scrutinise, but the revelations help assess and manage supply chain risk. • Enforce policy through evidence gathering. Demand data and spot-check suppliers. • Be proactive, not reactive. Think firstmover advantage. It pays to be ahead of regulation.

The Detox Fashion campaign has been running since 2011. Now you are taking it outdoors, challenging outdoor clothing brands to eliminate toxic chemicals from their supply chains. What chemicals are we talking about, and why the urgency? The main challenge for the outdoor sector in terms of toxic chemical use is a group called PFCs – per- and polyfluorinated chemicals. They are very persistent chemicals – once they are released into the environment, they take a long time to degrade. Some of them are bioaccumulative, they accumulate in the food chain causing all sorts of adverse health effects. PFC contamination is highest during the manufacturing process, when the compounds are released to the environment. Can factories take any measures here to contain their release? The problem is that these PFCs can’t be completely removed even with the most modern wastewater treatment plants. You really have to eliminate them from the production process. Once they are in the environment, it’s difficult to deal with them. We don’t think it’s a good idea to use hazardous chemicals, and then try and mitigate the damage.

It’s much better to switch to toxic-free production. Ultimately, you are calling for outdoor brands to eliminate the use of PFCs. How can they work with suppliers to do this? This is certainly a challenge. One difficulty is transparency. We are asking brands to work with their suppliers to publish discharge data from their factories. This is an important first step. From the work we’ve done on our Detox Fashion campaign, we have seen that it’s possible; we have more than 30 brands who are implementing a Detox commitment and part of this is to publish discharge data.

Some brands have set elimination dates for the use of PFCs in their products by 2020. This is positive, isn’t it? It’s a good first step in the right direction. Most of the major brands are saying they want to eliminate PFCs at some stage in the future, but they haven’t set a timeline. However, the urgency of the situation requires action right now – we think 2020 is not ambitious enough, especially considering there are PFC-free alternatives already on the market.

Don't risk being associated with hazardous chemicals in your products. Others argue that PFC-free alternatives just aren’t good enough in terms of performance.

Greenpeace wants brands to work with suppliers to publish discharge data from their factories

30 BRANDS now implementing a Detox commitment

It’s also important to ensure that the criteria brands are asking of their suppliers is being implemented. This means not only testing the discharge water, but also the formulations of the chemicals being used and the product itself.

PAGE 18

We don’t agree. There are smaller brands out there using these alternatives and we have tested them ourselves. Some major brands claim these alternatives aren’t durable enough, but none of them have made reference to any studies showing this. We do agree durability is an important issue, but there are examples of smaller brands using PFC-free clothing in a closed loop recycling process. How do the cost-benefits of detoxing weigh against the risks of not doing so? A brand risks being associated with using hazardous chemicals for their products. It’s foreseeable that more PFC substances will be regulated by governments. If a brand is switching from long-chain to short-chain PFCs now, instead of switching to PFC-free alternatives, they risk having to switch again in a few years, when short-chain PFCs get regulated as well. It’s more cost-effective to do only one switch to PFC-free alternatives. ★

SUPPLY CHAINS IN FOCUS


SECTOR SNAPSHOT – PALM OIL

Palm oil’s multiple choice solutions Campaigners have long called for the palm oil industry to cut its links with deforestation. Numerous strategies – not always complementary – are being adopted to improve standards across the industry’s complex supply chain Essential insight • Palm oil is one of the most widely-used vegetable oils: as a basic cooking oil and as an ingredient in products ranging from lipstick and toothpaste to ice cream and biscuits. • The industry is linked to deforestation and climate change in the countries where it is produced. • Starting with the Roundtable on Sustainable Palm Oil, a number of initiatives are developing more sustainable palm oil. • Experts disagree on the best approaches, including on whether certification actually works and how to identify valuable forests.

Roundtable on Sustainable Palm Oil

ESTABLISHED 2004 2,475 members

11.64m TONNES – 20% of world palm oil production – RSPO certified

2.56m HECTARES palm oil production area RSPO certified.

Palm oil is, in many ways, a victim of its own versatility. The oil, mainly grown and produced in Indonesia and Malaysia, is found in approximately 40-50% of household products in countries such as the United States, Canada, Australia and England. These range from cosmetics to cakes, while in other markets such as India, it is a popular cooking oil. The oil comes from trees mainly grown in tropical forests, which hold the greatest diversity of life on earth. Its production has contributed to deforestation and climate change, as well as habitat degradation, animal cruelty and abuse of indigenous peoples' rights. To tackle these problems, the Roundtable on Sustainable Palm Oil (RSPO) was created in 2004. It now has more than 2,400 members and represents 40% of the global palm oil industry, including producers, processors, buyers, retailers and civil society groups. The organisation certifies 11.64m tonnes of palm oil, equivalent to 20% of global production, says Danielle Morley, RSPO’s European director of outreach and engagement.

Mass balance and beyond There are three main certification approaches – the most basic is Green Palm Certificates, which allow companies to buy certificates for sustainable palm oil equivalent to their own palm oil purchases. Then there is a "mass balance" approach, where sustainable palm oil is blended with other supplies. "What we are encouraging, though, is a third approach where companies buy segregated supplies of sustainable palm oil from a dedicated supply chain. If supplies are ‘identity-preserved’ there is very sophisticated traceability so the buyer knows what mill the palm oil comes from," says Emma Keller, agricultural commodities manager, WWF-UK. "There is lots of activity going on against a backdrop of significant movement from companies to find sustainable sources of supply." "Of all the forest risk commodities, progress to date has been strongest for palm

PAGE 19

oil," says Katie McCoy, head of the forests programme at Carbon Disclosure Project. "I think we can be positive about the momentum and attention it has received but we need to be cautious because clearly things are not yet quite right."

Supply/demand gap Morley agrees that there remains much work to be done. "Today only half of the palm oil certified as sustainable is sold as such and there remains a gap between supply and demand. It also remains the case that certain markets are further ahead than others in terms of the amount of sustainable palm oil they use," she says. However, despite the focus on the problems of palm oil cultivation, "it’s not an evil crop", says Keller. In addition to its versatility, palm oil is also very productive, she points out. The yield (amount of oil produced per hectare per year) is far greater than for other vegetable oils, while production costs are lower, mainly due to low labour costs in the countries in which palm oil is grown. "The problem is with how it is produced," Keller says, but she says that a boycott is not the answer. "If we were to substitute all the palm oil we use with other oils, we would need nine times as much land, which would make the deforestation problem even worse."

RSPO too slow? RSPO wants more consumers to demand products made with sustainable palm oil. The group has set a target in Europe to achieve 100% sustainable palm oil by 2020, supported by targets of 50% in Indonesia, 30% for India and 10% for China. But despite the progress RSPO has made, it has been criticised for the slow pace at which it makes decisions. As a result, many companies are looking to move "beyond certification". In part this has come about as a result of pledges by industry groups such as the



Consumer Goods Forum, which in August 2015 published the first Sustainable Palm Oil Sourcing Guidelines, which it hailed as "an important step in helping the consumer goods and retail industries to achieve zero net deforestation by 2020, as outlined in the CGF’s Deforestation Resolution". Another important driver – or at least it should have been – is the 2014 New York Declaration on Forests, which commits signatories from companies, government and NGOs to halve deforestation by 2020 and completely eliminate it by 2030. Brendan May, chairman of sustainability experts Robertsbridge, argues for more and faster progress. Around the time of the declaration’s launch "there was rhetoric aplenty from governments and companies about cutting deforestation. Since then, however, what have we seen in terms of action plans and concrete commitments? Not a lot. We need to inject some pace – transformation of business models that we need is simply not happening fast enough." Elsewhere, in Europe, EU food labelling regulation that requires all palm oil in food, which had hitherto been a hidden ingredient, to be identified has also played a part in awareness raising and increasing supply chain transparency. However, while buyers profess their willingness to go beyond certification, they are not yet prepared to pay the extra costs this incurs – and nor are producers, either the large producers or the many smallholders in the sector, who do not have the resources to do so. There is also concern that "most of the action is coming from western multinationals", Keller argues. Certainly this has been the case until recently – though now there has been more pressure from grower countries. May highlights that in terms of progress on deforestation it is "big producer companies in the developing world – from sectors such as palm oil – that are now leading the charge". The challenge, May argues, is for

government policy and the political will to enable these companies to make good on their commitments.

are also concerns that China and India will try to expand their own palm oil industries by creating plantations on areas of high conservation value.

Changing demands Another big challenge in years to come will be in Asian markets, particularly India and China, which are currently the two biggest importers of palm oil. "They are very different markets from those in the west," she adds. "In India, for example, the highest proportion of palm oil is used by the poorest sectors of society as a basic cooking oil. It will be a huge challenge to engage with the small traders who sell to them." WWF in India is working to raise consumer awareness of the sustainability issues around palm oil as well as engaging with large consumer goods companies. There

For some, the whole certification process is a failure. Scott Poynton of forests group TFT says that "over the last 20 years, certification has not really worked". "If you look at the state of the world’s forests and other natural resources where certification is in operation, things look pretty grim – and they are getting worse," he adds. He says certification is a "command and control" response to a problem that does not stand still but is moving all the time. As a result, it stifles the innovation that such a complex problem requires, he argues.

INDONESIAN PALM OIL PLEDGE

Private sector collaboration signed first in 2014 FIRST SIGNATORIES:

MISSION:

FOUR PILLARS:

Wilmar, Golden-Agri Resources, Cargill and Asian Agri. Musim Mas signed in 2015.

“Create an environment in Indonesia which enables and promotes the production of sustainable palm oil that is deforestation free, expands social benefits, and improves Indonesia’s market competitiveness”.

• improve environmental stewardship; • s trengthen policy and regulations;

PAGE 20

• e xpand social benefits; • improve competitiveness of Indonesian palm oil.



On-the-ground improvements While certification and other schemes focus on demand for palm oil, there have been significant developments in producer regions as well, in part because of increasing concern about the pollution problems caused by fires that are used to clear land for palm oil cultivation. The Indonesian Palm Oil Producers Association says it will expel members found to have caused forest fires while the environment and forest ministry has revoked the licences of three palm oil producers for illegal land clearing. A number of producers have committed to a high carbon stock (HCS) approach, which identifies areas of forest that should be preserved because of the amount of carbon that they lock up and the biodiversity

they contain. Greenpeace, TFT and Golden Agri-Resources (GAR), the largest Indonesian palm oil producer, started work on an HCS definition in 2011, which has evolved into what is now known as the "HCS Approach".

HCS spat This initially defined HCS forests as those containing more than 35 tonnes of carbon per hectare. More recently, a coalition of palm oil companies led by Malaysia’s Sime Darby has proposed that a line be drawn at 50 tonnes per hectare. This alternative proposal, backed by a new high carbon stock study would allow "the carefully planned conversion of some forest to oil palm. Understandably, this suggestion may – initially at least – alarm supporters of current HCS policies," the group’s consultation report says.

This has proved to be the case. Greenpeace has accused the coalition of "greenwashing" but others argue that the original limit was too restrictive. Recognising, perhaps, the risks from developing potentially confusing competing definitions of what is and isn’t sustainable palm oil, there are people from both sides keen to develop a common approach. Meanwhile, the RSPO has responded to the development of the HCS Approach by introducing RSPO Next, a new voluntary addendum to its standard that allows members to adopt a "best in class" approach to sustainable palm oil production. The multiplicity of approaches illustrates the complexity of the problem, but also the fact that more and more industry participants see the need for change as unavoidable. ★

• Comply with existing RSPO principles and criteria, or equivalent standards.

CONSUMER GOODS FORUM – SUSTAINABLE PALM OIL SOURCING GUIDELINES

• Protect high conservation value (HCV) areas. • Involve no burning in the preparation of new plantings, re-plantings or any other developments, including the management of existing plantations. • Respect human rights, and endorse and support the Universal Declaration of Human Rights. • Engage in free prior and informed consent of indigenous and local communities concerning activities on their customary lands where plantations are planned for development. • Operate an open, transparent and consultative process to resolve complaints and conflicts. In addition to these, companies should consider developing an approach for addressing the following criteria (which go beyond current RSPO certification standards): • Protect high carbon stock (HCS) forests. • Do not establish new developments on peatlands regardless of depth.

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SUPPLY CHAIN COLLABORATION

Collective action on sustainability. Can it work? As supply chain collaborations and collective organisations multiply, what are the ingredients for success? What are the dangers from ‘collaboration fatigue’? Essential insight • Business recognises that collaboration is vital for long-term success. • Success is tough. It takes time to build agreement, even if there’s shared vision. • Good examples of agreement: the Consumer Goods Forum, AIM-Progress, the Better Cotton Initiative, Tea 2030 and the Bangladesh Accord. • Practical elements – such as an unbiased secretariat and funding – are crucial. • Too many collaborations and suppliers will get tired and confused. • Demonstrate that collaborations work and get results. Impactt’s Benefits for Business and Workers programme has 41 factories in Bangladesh involved, making savings of $5.85m in two years, with pay increasing 6% for 83,000 workers.

ACT is backed by 15 brands, including H&M, Arcadia, Tesco and Primark. Its aim is to improve wages across the garment sector by establishing industry collective bargaining in key sourcing countries. The outrage surrounding supply chain crises often sparks decisive action, galvanising parties around a shared concern.

Collaboration is becoming a vital component of long-term business success. And nowhere is this more apparent than in global supply chains. Big companies are scrutinised with supply chain crises catapulted into the headlines and stakeholder concerns continually intensifying. However, without full visibility or direct influence over complex, multi-tiered chains, the immense challenge of securing ongoing supplies – while protecting workers, reducing environmental impacts and preventing further resource depletion (and escalating material costs) – remain. In this context, competitors are increasingly working alongside each other and their stakeholders through collaborative movements. These can take different forms, of course. Leading companies work together to develop a new initiative that can become an organisation in its own right. Or publicly-shamed corporate giants are now in conversation with the very activists who brought their ill-judged activity to the world’s attention. Underlying all this is the fundamental realisation that the social and environmental challenges at hand, often systemic and interrelated in nature, are simply too great for any one company to tackle alone. This may seem simple enough, but it is still a significant ideological leap that many big companies struggle to make. Clearly there’s an opportunity to identify common solutions and take them to scale. But as supply chain collaborations multiply, is there a danger of "collaboration fatigue"? How can multi-brand and multi-stakeholder initiatives thrive and how can businesses support suppliers in meeting diverse requirements?

rights back in 1998, has gathered momentum

Collaboration’s rise and rise

groundwork, the outrage surrounding supply

What started with the Ethical Trading Initiative’s (ETI’s) visionary move to assemble multiple stakeholders to protect workers’

among a far wider group, galvanising many

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as the complexity of the issues has deepened and companies’ supply chain footprints have become clearer. There has been a flurry of collaborations in recent years, encompassing cross-sector movements (Consumer Goods Forum, AIM-Progress), sector-specific initiatives (Zero Discharge of Hazardous Chemicals (ZDHC), Better Cotton Initiative, Tea 2030, Electronic Industry Citizenship Coalition) and country-focused initiatives (Bangladesh Accord, Courtauld Agreement). Big group collaborations may take on a convening or enabling role, such as the ETI, they might be focused on raising the bar through standard-setting, or overtly "implementation focused", such as Impactt’s Benefits for Business and Workers programme or the ILO’s Better Work initiative.

The flurry of collaborations encompasses cross-sector movements, sector-specific and country-focused initiatives. Others provide a service, such as platforms for sharing tools or data – Global Social Compliance Programme (GSCP), Business Social Compliance Initiative (BSCI), Supplier Ethical Data Exchange (Sedex) and the Sustainable Apparel Coalition. While the initiative may be the result of far-sighted companies’ efforts to lay the chain crises often sparks decisive action parties around a shared concern.



Barriers to progress "It’s important to consider whether a small, fleet-footed group should risk taking the lead without knowing if others will follow, or if a large group should move en masse, possibly buckling under its own weight," says Rosey Hurst, director of ethical trade consultancy Impactt. "And when there are different priorities and agendas in the room and participants range from the conservative to the radical, building a concrete agreement takes time, even if there’s a shared vision." Indeed, while involving multiple stakeholders can accelerate progress, the journey is often challenging, according to Sally Uren, chief executive of Forum for the Future, which runs the Tea 2030 programme for a number of the big tea companies. "It’s really hard work," she says. "The closer you get to shifting a system, the harder it pushes back. The biggest barriers are often short-term thinking and vested interests." Finding a balance between addressing the diverse issues and avoiding duplication is also becoming harder as the number of collaborations grows. "When the going gets tough, businesses in particular have tended to create new collaborations rather than making the existing ones work harder," says Uren. Suppliers, too, are finding it hard to keep up with the requirements of multiple initiatives, particularly when it comes to standards and certifications, leading to what some see as collaboration fatigue. "Duplication is a big issue for suppliers," says Tom Smith, director of strategy and planning at Sedex, which works with companies to help them drive improvements in responsible and ethical business practices in their global supply chains. "In the same way that suppliers were facing audit fatigue, there’s now duplicated training and capacity building initiatives. They often look to us to help cut through the confusion, clarify what the collaboration stands for, who the key players are and if it’s likely to be around for the long term."

Fast fashion and fair wages not incompatible

The path to success Building a successful collaboration starts with analysing the need that exists, clarifying the purpose, and convening relevant partners. Together, the partners must ensure they develop a full understanding of the context and define the scope of their work. Importantly, they must decide from the outset how the project can be scaled, Smith points out, in order to avoid scalability issues further down the line. Practical issues such as a solid, unbiased secretariat – when the collaboration requires a formal organisation structure – and sustainable sources of funding are important considerations, Hurst believes. An inspirational steering group can help to keep everyone moving in the same direction. With a shared vision or set of principles in place, the group can begin to create strategies and take collective action, remaining flexible,

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transparent and open to change as they move forward. This is a tough process and there’s no easy way round it. Importantly, it requires patience, and the ability to listen and take things step by step, according to Maritha Lorentzon, social sustainability lead at the fast-fashion brand H&M. She cites the example of Action, Collaboration and Transformation (ACT), a new initiative to create a fair living wage for garment workers in developing countries. A group of brands initially convened to develop a set of enabling principles, gradually building momentum by inviting all relevant parties to the table. Together, they have come up with a shared vision to help empower workers while improving manufacturing standards and responsible purchasing practices. "It has triggered a positive dialogue that’s vital for the industry," says Lorentzon "Ultimately, we all want the same thing."



GLOBAL SOCIAL COMPLIANCE PROGRAMME Consisting of a giant library of reference documents for 400 member companies in 70 countries. Rana Plaza shocked 190 brands into commitments

Committing to systemic change For a collaboration to truly be successful, a commitment to real, systemic change is vital. "You really need to set out to change the world," says Hurst. This perspective is echoed by Phil Aikman of Greenpeace, who leads the campaigning group’s engagement with pulp and paper giant Asia Pulp & Paper. All too often, he believes, corporate discussions centre on removing risk from the supply chain and protecting brand reputation. "Companies need to move beyond supply

BANGLADESH ACCORD: Legally-binding agreement between brands and trade unions to improve health and safety across the country’s garment sector.

chain thinking to consider how they can use power and influence to create positive change," he says. "Taking steps such as striking certain suppliers from their supply base is simply not enough. "In order to make a real difference, they’ve got to ask how they can become advocates for systemic change on key issues." One collaboration perceived as game-changing is the Bangladesh Accord. Forged in the wake of the Rana Plaza factory collapse, which killed more than 1,100 garment workers, it has seen 190 brands commit to improving building safety via a legally binding agreement. Trade unions and NGOs have an equal voice at the table, and although there are criticisms surrounding the rate of progress on remediation, the structural and fire safety changes are starting to make a difference. Spanning 1,600 factories and touching two million workers, the work in progress is intended to support worker health and safety for the long term.

Communicating with suppliers

Involves 190 brands and two million workers. 1,300 factories have been inspected.

While partnership approaches between brands and suppliers are really starting to bear fruit, a lot of work is still happening in isolation, according to Smith. As the spirit of collaboration grows, there’s an important opportunity to bring this all together. AIM-PROGRESS has organised a series of events in this vein, including in

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Shanghai, where brands presented as a group to suppliers. The GSCP, facilitated by the Consumer Goods Forum, is also helping major retailers and brands to strive towards a harmonised, global approach for sustainable supply chains, providing both individual companies and collaborative initiatives with best practice information and "open source" supply chain management reference tools. "We help set the stage for companies to collaborate," says Didier Bergeret from the GSCP. "Paving the way to convergence is vital to driving positive social and environmental change in the supply chain. Drawing inspiration from the tools we provide frees companies up to focus on what’s really important." For example, the ZDHC initiative (which has recently published a landmark manufacturing restricted substances list) tailored GSCP methodologies to its needs, saving cost and time, and accelerated its journey towards action. Also, brands can take advantage of collaborative platforms and databases to identify issues as a group. Using the Sedex database, for example, it’s possible to identify the top ten issues for suppliers in a particular sector. Equipped with this information, Smith says, brands could approach suppliers as one unified force, ensuring clarity of message and requirements. The ITC Standards Map also offers robust help here, as a highly pragmatic tool to pinpoint the differences between multiple sustainability standards, codes of conduct and audit protocols.



Demonstrating concrete results Everyone wants to see the results of initiatives, and sometimes the results can’t come fast enough. However, where initiatives are able to prove concrete results, they are steadily scaling up as more brands and suppliers realise the business benefits. For example, Impactt’s

BCI brings together farmers, ginners, traders, spinners, mills, manufacturers, retailers and brands to define and support the implementation of more sustainable ways of producing cotton. Benefits for Business and Workers programme has now attracted 16 brands and 185 factories in Bangladesh, Myanmar and India by proving that improving pay and labour conditions is directly linked to increased staff retention, productivity and profit. By participating in the training, 41 factories in Bangladesh made $5.85m in savings in just two years, while their 83,000

workers saw a pay increase of more than 6%. Elsewhere, the Better Cotton Initiative has ambitious plans for 30% of the world’s cotton production to be made in line with the BCI standard by 2020. Supported by 500 companies, including H&M, Nike and Ikea, it unites people across the cotton supply chain in a collective effort to cultivate cotton in a way that respects the environment, boosts farmers’ incomes and strengthens the industry. It has already reached one million farmers in 20 countries, and is targeting 11.5% BCI cotton production in 2015. BCI farmers in Pakistan increased their use of organic fertilisers by 85% in 2013 (compared to farmers not using BCI techniques), expanded their yields by 15% and saw profit increases of up to 42%.

Is accelerating progress possible? It seems that by their very nature, collaborations can move slowly. That said, all parties agree that, in the long term, they stand to deliver greater impact. As Lorentzon puts it: "If you want to run fast, you go alone, but the impact is not the same. We need high quality, sustainable solutions and long-term thinking." The quality of the work achieved is steadily improving. Collaborations such as the Bangladesh Accord are raising the bar

BETTER COTTON INITIATIVE SUPPORTED BY:

500 COMPANIES reaching one million farmers in 20 countries

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for future initiatives, Hurst believes, and the group of leading companies learning how to do this right is growing all the time. Harmonising collaborative efforts will grow in importance as collaborations evolve and new collaborations emerge, and will help to reduce the burden on suppliers, accelerating progress. Knowledge-sharing will also continue to be important, both within the private sector and across whole systems. H&M is starting to share the lessons from its social dialogue initiative (which aims to have democratically elected worker representation in all the company’s factories by 2018) with other brands, for example. Meanwhile, the G7 made responsible supply chains a key focus for discussion at its recent conference in Germany, further building the case for optimism, Bergeret believes. So, while there is still much to be done, more companies are collaborating towards shared goals, exploring radical new business models and considering how to achieve systemic change. They are applying passion, intelligence and knowledge to addressing major social and environmental challenges in global supply chains. ★

WHAT'S NEXT


What's next

INNOVATION

In the coming months, Supply Chain Risk & Innovation will track the key issues, trends, challenges and opportunities for businesses looking to create more sustainable and resilient value chains. Through a mix of editorial commentary, analysis, insight, interviews and practical tips and advice, Supply Chain Risk & Innovation will deliver the data and essential information business needs.

Learn via best practice examples from the leading organisations, with insight and support from the likes of Novo Nordisk, Microsoft, Wal-Mart, McDonald’s and Ford. TOOLS

DATES FOR YOUR DIARY – UPCOMING INNOVATION FORUM EVENTS Click on each for more information. Sustainable drinks – strategy and collaboration in spirits, beer and wine 15th-16th March 2016, London

To minimise risk and stay on top of potential NGO campaigns that could disrupt your brand reputation and licence to operate, with a key focus on climate change action, human rights, labour issues and deforestation.

How business can build resilience for smallholder farmers 22nd-23rd March 2016, London

ANALYSIS AND COMMENTARY

How business can tackle deforestation 6th-7th April 2016, Washington, DC

Exploring the big issues keeping today’s supply chain and procurement professionals awake at night, including the fall-out of COP21, the impact of modernday slavery legislation, strategies for using standards and certification, and engaging suppliers to effect change at scale.

Sustainable apparel forum 19th-20th April 2016, London

Sustainable extractives forum 27th-28th April 2016, London

SECTOR ANALYSIS Exploring soy, timber, extractives, food and drink, apparel, sugar, coffee and many more.

How business can tackle modern slavery 5th May 2016, London

PEOPLE

Sustainable fish sourcing 24th-25th May 2016, Washington, DC

A chance to learn from those making it happen right now, with featured Q&As and interviews with the very best supply chain innovators working for the big brands and businesses across the globe.

Biotechnology – the route to a sustainable future? 21st-22nd June 2016, Washington, DC

SUPPLY CHAIN RISK & INNOVATION The easy-to-digest business briefing getting you to the heart of today’s essential value chain issues quickly and comprehensively – making your job easier and your business more resilient, sustainable and successful

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Sustainable sugar forum June 2016, London

European sustainable agriculture June 2016, Amsterdam