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The IT and telecommunications sectors have long been at the forefront of sustainable procurement, yet the pressure to successfully actualize sustainable practices along each stage of the supply chain (raw materials, manufacturing and end-of-life recycling) is intensifying.
Beyond all the existing issues of diminishing raw materials, electronics companies source minerals such as cobalt, coltan and copper in countries that are often marred by corruption and civil war. “Blood laptops” and “genocide phones” are becoming commonplace terms such that in July the US included a “conflict-free” electronics provision into a financial reform law, conforming companies to disclose the origin of minerals purchased.
In manufacturing, the watchdogs of the Western world have been the primary investigator of electronics abuses, but the tide is shifting to include influential Asian-bred NGOs. In May, 34 Chinese environmental groups published a report accusing Global IT companies of inadequately mitigating their environmental impacts. With electronics manufacturing plants in their backyards, Asian activists are putting the pressure on.
As for end-of-life recycling, WEEE (a European directive) has imposed the responsibility of e-waste disposal on electronic equipment manufacturers. A recent study indicated that e-waste would reach 73 million metric tons by 2015. But the lack of transparency in the recycling chain, and the circumvention of trans-border regulations on the movements of toxic waste have generated a situation: most of the e-waste ends up in developing countries, causing serious environmental and human health threats due to the lack of appropriate recycling techniques.
Of course, all of these issues are further compounded by the planned obsolescence inherent in electronic products. In order for the IT sector to stay ahead in Sustainable Procurement and to stay competitive, they must not only monitor, but also engage both their upstream and downstream suppliers in a more than ever complex value chain.
Since the failure of the Copenhagen conference, to agree on a real regulation of carbon emissions last December, it is becoming increasingly clear that governments are struggling to reach agreements on Sustainability issues. In May the French government decided to push back by 6 months the “environmental labeling” regulation, and watered down its scope. In July, the US “Climate bill” came to an inglorious end, when it was rejected by Senate.
Fortunately it seems that Corporate interest for Sustainability is not diminishing.
The UN published a survey in June indicating that 88% of CEO’s of Global companies consider “Sustainable Supply Chain” as a priority. In the past year, companies such as Walmart, Procter & Gamble and IBM have launched major initiatives to assess the Sustainability performance of ten’s of thousands of suppliers. Last month, the French Telecom Operators (Orange, SFR, Bouygues Telecom) also announced launching a common platform (operated by EcoVadis) to assess their suppliers CSR performance.
All these projects should also trigger a massive domino effect, as suppliers are required to gather Sustainability metrics from their own suppliers.
In the current economic crisis, addressing customers demands is critical for all companies, and those Sustainable Supply Chain initiatives are key to fostering change in the CSR practices of suppliers, especially SME’s. Analysis of the EcoVadis database shows that 12 months after the initial rating, 75% of suppliers are capable to improve their CSR performance.
We are entering a period where international regulations are more and more difficult to agree upon, and where public debt is limiting the capacity of Governments to fund Sustainability initiatives. The role of Procurement leaders, is therefore becoming critical, to help drive the Sustainability agenda of their suppliers, while minimizing risks, and fostering innovations for their own companies.
Interview with Luca Guzzabocca, head of Logistics Costs and Supply Chain Management
at GRUPPO MONTEPASCHI.
1) Why is Sustainable Procurement important for GRUPPO MONTEPASCHI?
Sustainable Procurement is one of the significant engagements GRUPPO MONTEPASCHI has in CSR policies. For GRUPPO MONTEPASCHI, Sustainable Procurement is important because we are aware of the impact we can have by changing the way we procure goods and services. As the third largest bank in Italy, we work with more than 24 000 suppliers, from whom we purchase a large amount of goods and services. As the oldest bank in the world, we believe that making far-reaching efforts towards a more Sustainable Procurement process can bring real changes in the market. Sustainable Procurement is not about competition between companies: it is about differentiation. We hope that our action in order to embed sustainability in our supply chain will be followed by other companies, that others will join our vision.
2) What part of the program are you the most proud of?
Honestly, there isn’t something specific we are proud of. What we are proud of is Gruppo Montepaschi’ holistic and pragmatic approach towards Sustainable Procurement. The approach GRUPPO MONTEPASCHI has built is based on a holistic view. To formalize our Sustainable Procurement program, we have dedicated a lot of time to increase our awareness on all the issues involved, and different areas of the company were implicated in the execution and the overall management of our Sustainable Procurement Program. Further, the approach we choose for Sustainable Procurement is really pragmatic: our Sustainable Procurement program is not only geared towards buying environmental-friendly products, but the program also takes into account the cost savings and the benefits the company can gain from the Sustainable Procurement process. We look at the proper trade-off between sustainability and competiveness.
3) Is it feasible to assess and develop the CSR performance of suppliers?
Yes, of course it is feasible to assess and develop the CSR performance of suppliers.
For the assessment of suppliers, the decision to introduce EcoVadis was part of our holistic view on Sustainable Procurement. EcoVadis allow us to look after the CSR commitment and profile of our suppliers. In 2009, we launched our first CSR evaluation program with EcoVadis, which involved 50 suppliers. The outcome was very interesting for our suppliers because they got the chance to look at themselves in the mirror. Once EcoVadisprovided us the results of the assessments, we organized one-to-one meetings with our 50 suppliers’ portfolios to explain the results in detail to all the persons interested. All of our suppliers wish to do something regarding their CSR performance, but there are differences according to the size of companies. Big companies are familiar with CSR topics and issues, they have set up plenty of CSR initiatives, and they report on their performance. On the contrary, the CSR approaches of small and medium enterprises are more critical, so we have to make more effort whilst outlining our requirements to them.
For GRUPPO MONTEPASCHI, it is a priority to support our suppliers, and they are learning from our meetings. We really expect to make a significant step forward in CSR commitment with our suppliers.
4) What results have you achieved?
Regarding our organization, we have included three dedicated resources to manage all aspects related to Sustainable Supply Chain Management, and we also provided training and awareness to all Procurement and Logistics staff (418 hours overall). We improved our procurement process by assessing the CSR performance of our suppliers using the EcoVadis rating solution (50 top suppliers assessed in 2009; plan to cover 650 by 2012), and by defining a new selection process for products and services, which combines sustainability requirements with economic, technical, quality and innovation criteria.
GRUPPO MONTEPASCHI has also developed contract standards to capture sustainable requirements with a fair and mutual responsibility approach towards suppliers. In order to measure the performance of our program, we have implemented a KPI framework and a control process to monitor supplier performance regarding sustainability and identify opportunities for improvement.
Finally, as a direct consequence of introduction of CSR concepts, the group has been able to achieve savings of 12.800.000 €, thanks to new energy, printing and office products policies (98% of the Group’s electric power coming from renewable sources; optimization of print device; majority of orders for office products restricted to a green catalog etc).
5) What advice for a Purchasing Director who would start today?
I would give four principal pieces of advice to a Purchasing Director who would start today embedding sustainability in the supply chain. The first piece of advice is to learn day-by-day how to manage Sustainable Procurement in an effective way. Benchmarking activity and knowledge sharing is the key for a good start. My second piece of advice is about the time objective of a Sustainable Procurement program. It is essential not to have a short term objective, but a long term objective of 20 years isn’t required either. In my opinion, a step by step 3 year plan is appropriate to embed a Sustainable Procurement process. Thirdly, a company should invest in a full-time person to be their “champion” in Sustainable Development. This person will have an important role to play regarding Sustainable Procurement, including inspiring the process, supporting buyers and pulling good practices together internally.
Finally, and this piece of advice is of the essence: if a company doesn’t have a CSR commitment, if CSR isn’t supported at top level, embedding a Sustainable Procurement policy will be very difficult. A clear and firm CSR commitment from a company is crucial in order to set up a Sustainable Procurement process.
Many thanks to Luca Guzzabocca for participating in this interview.
Links:
GRUPPO MONTEPASCHI website: click here
GRUPPO MONTEPASCHI CSR reports: click here
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Accenture and UNGC have conducted, in partnership, a survey of 766 CEOs around the world on Corporate Responsibility. The results of this survey demonstrate that the economic downturn, instead of restraining corporate commitments on sustainability, made these commitments stronger. In fact, 80 % of the CEOs say the downturn has raised the importance of sustainability.
The key findings on corporate responsibility are:
• 93 % of corporate CEOs believe that sustainability will be critical to the future success of their companies.
• 81% of CEOs (up from 50 % in 2007) said that sustainability issues had become part of their company strategy and operations.
• If CEOs recognize the progresses made by their companies moving from a sustainability strategy to execution, they also say several barriers to achieving their goals still remain, such as: complexity of implementation (cited by 49 %), competing strategic priorities (48 %), lack of recognition from the financial markets (34 %)
But this study was also very interesting in highlighting the importance of Supply Chains Sustainability:
• Supply Chain is the topic which importance has increased the most in the past 3 years (88 % of CEOs consider companies should embed Sustainability issues through their global Supply Chains, up from 59 % in 2007).
• Supply Chain is also the area where implementation gap is currently the biggest: although 88 % of CEO’s believe that they should be integrating sustainability through their supply chain, only 54 % believe that this is being achieved within their own company.
• 78 % of the CEOs believe that companies should collaborate with a variety of stakeholders, such as suppliers, NGOs and governments, in order to address sustainability issues.
Complete study here.
P&G announced on May 12, 2010 the launch of the Supplier Environmental Sustainability Scorecard and rating process, another important Sustainable Procurement initiative in line with Wal-Mart’s “Sustainability Index” or IBM’s new CSR requirements for suppliers.
P&G’s Supplier Scorecard is designed to measure energy use, water use, waste disposal and greenhouse gas emissions of key suppliers. The company wants to encourage year-on-year improvement of suppliers by implementing this Scorecard and rating process, and also incite suppliers to use the scorecard within their own supply chains.
According to P&G Chairman of the Board, President and Chief Executive Officer Bob McDonald: “The launch of the Supplier Environmental Sustainability Scorecard represents the next step in P&G’s commitment to environmental sustainability and reflects the Company’s holistic, end-to-end supply chain strategy”. P&Gs Global Purchasing Officer (Rick Hughes) also summarizes the objectives in a video.
P&G also decided to make the scorecard “open source” and you can download the scorecard here. Contrary to Walmart whose scorecard contains 15 very simple “yes/no” questions, P&G is trying to go much further, by developing a quantitative assessment of suppliers’ environmental footprint.
P&G also announced a target to go beyond and beyond suppliers overall Sustainability indicators but also report on « Sustainability results relating directly to the creation of P&G-specific materials and services ». From what we know of the maturity of suppliers reporting system, this is an extremely ambitious goal and it will be interesting to see how many suppliers are able to provide such indicators in a credible way.
Although the results of the scorecard won’t affect adversely suppliers before a year, this announcement will certainly have a far reaching cross-industry impact, urging suppliers to take seriously into account environmental issues.
The strategic initiatives launched by Walmart, IBM and P&G (and more are coming keep posted) illustrate the profound change in the industry practices, moving from traditional auditing methods (factory site audits, based on social and environmental compliance) to a much more strategic assessment of the suppliers CSR management system. EcoVadis has been pioneering Suppliers CSR rating for the past 3 years, and we welcome those initiatives which confirm our vision.
We are pleased to send you the 1st edition of EcoVadis Sustainable Supply Newsletter.
As we enter into the « year of the Tiger », we can take a look back on the latest developments of Sustainable Procurement. 2009 has been a challenging year : companies you work for have faced tremendous challenges, and many of your organizations have been re-structured. For those of you working in purchasing, the last 18 months have been a real roller-coaster, with sky high commodity prices in 2008, down to minimums in 2009, picking up again in the 1st months of 2010.
In 2009, cost cutting was clearly the priority for most of purchasing directors, but one thing we noted though was that Sustainability did not disappear out of the picture. Companies are finally realizing that consumers are aware that they do not just buy products – they also buy the supply chains that deliver the products. We, at EcoVadis are convinced that the Sustainable Supply Chain will be one of the most important trends in the coming decade, and a couple of recent initiatives confirm this.
– The launch of the Walmart Sustainability Index is triggering a massive « domino » effect, where the 100,000 suppliers participating in the 1st phase of the project, will have to turn to their own suppliers to adress the section of the Walmart questionnaire related to Sustainable Procurement.
– The Carbon Disclosure Project recently published results of its 2010 Supply Chain initiative, showing very impressive results. The number of participating suppliers increased from 27% to 51% , and companies willing to deselect suppliers for failing to meet carbon management criteria increased from 6% only today, to 56% willing to do so in the future.
– The approval of the ISO 26000 Draft Standard last week, after 5 years of negotiations, is also a positive sign, and we believe that even though ISO 26000 will not be the magic tool addressing all Sustainable Supply Managers issues, it will contribute to a better understanding between suppliers and buyers.
– Lastly, EcoVadis, being a startup company in this challenging economic climate could have faced tough challenges. However 2009 has been a very successful year for us : we have been able to go from 10 to 30 customers, increase turnover by 300%, and increase then number of suppliers assessed every month through our solution by 400%. We believe that these strong numbers are a very good indicator of the current momentum of Sustainable Procurement initiatives.
We hope that this newsletter will help you to learn some interesting initiatives and trends in Sustainable Procurement. In next quarter’s issue, we will share additional thoughts on Sustainable Supply Management strategies, and bring you more examples of best practices through interviews of Sustainable Procurement managers. In the meantime, please contact us with any feedback. You can reach us by e-mail at contact@ecovadis.com.
The future International Standard on Corporate Social Responsibility, has reached an important phase in its development on 14.2.2010 . More than 67% of the countries participating in ISO have voted in favor of the standard and unless major surprise should reach the Final Draft International Standard (FDIS) stage.
The final stage wil take place in Copenhagen (again! hoping that this standard will not suffer the same fate as the international treaty on GHG emissions) on May 15th 2010, where review of the final comments will take place, in order to allow a final vote during the summer and the release of ISO 26000 as an International Standard.
What does this mean for Procurement Exectutives involved in Sustainable Procurement?
We believe that ISO 26000 will not be the magic bullet which will suddenly replace all CSR initiatives in the Supply Chain. First of all this standard will not be “certifiable”: It is not intended or appropriate for certification purposes or regulatory or contractual use. It will therefore not be possible to mandate “ISO 26000” compliance as a qualification criterias, the way some companies are doing it with ISO 14000, or ISO 9000. Furthermore, ISO 26000 is the result of long discussions, and in order to achieve a consensus with emerging countries the working group had to lower the requirements in terms of social and environmental. ISO 26000 will therefore represent a “minimum acceptable level” and could not be used as a “best practice” by organizations.
Despite those limitation ISO 26000 should represent a major step forwards for all organizations involved into CSR. It will allow executives to benefit from a framework to clearly define the topics which should be covered in CSR and the boundaries. It could for example be used as a reference in Sustainable Procurement Charter (ISO 26000 is compatible with existing conventions by United Nations and its constituents, such as ILO, Global Compact and OECD). The dialogue between Buyers and Suppliers on CSR is often compromised by lack of understanding in basic CSR concepts : ISO 26000, which will be available in several languages, and will be supported by local organizations, will be a great tool to disseminate CSR concepts and help all participants involved in international trade understand the importance of it.
Finally we believe that solutions will emerge to leverage ISO 26000, and adress its shortcomings. EcoVadis has been using ISO 2600 criteria as one of the cornerstone in the development of our assessment tool and supplier’s rating methodology. We have already assessed thousands of companies across 80 countries, mostly SME’s, using ISO 26000 criteria, and believe that approval of ISO 26000 as an International Standard will benefit both buyers and suppliers subscribing to our platform.
Last week the UN Global Compact announced the launch of the “Supply Chain Sustainability” which will focus on helping companies implement the Global Compact principles in their supply chain. The initiative will be officially launched in New York in June during the UN Global Compact Leaders Summit 2010 held in New York.
Deploying Global Compact principles in the Supply Chain has been an objective of many GC signatories for years. One of the 1st and most innovative, was the target set by Schneider Electric in 2005 to have 60% of its purchases made with GC signatories. This was an ambitious goal, and even though the initiative conducted many Schneider Electric suppliers to endorse GC principle (at the end of 2009, 1153 Schneider Electric suppliers were GC signatories) this only represented 33% of spend or half of the initial target.
In the absence of verification of performance by Global Compact, this also raise the question on the reality of performance by smaller suppliers, who might be tempted to endorse Global Compact to maintain the relationship with a large buyer. It seems that Global Compact is realizing this, as in February they announced delisting 859 companies (this is more than 15% of the total database of 5300 participants) for failing to deliver on the minimum commitment required (ie: self reporting on some of the progress of their CSR practices once every 2 years).
The new initiative launched by Global Compact should help bridge this gap, and it was very interesting to see that, contrary to many Sustainable Supply Chain initiative, this one is driven by a working group, comprised of Purchasing Executives of all industries: ArcelorMittal, Cemex, Volkswagen, UBS, Nestlé, Unilever, Hitachi, Hyundai, Nokia,…
We wish good luck to this very exciting initiative!
The Sustainable Packaging Coallition announced the availability of a new tool, “Compass” allowing companies to benchmark the environmental impact of packaging.
From a sourcing / purchasing perspective, packagingis really the perfect commodity, where Sustainability/CSR can help companies reduce over-specifications, drive innovations and allign “environmental impact reduction” and “cost reduction”.
The most famous case study is maybe the Walmart 5% packaging reduction project, but we here many stories in all industries, from purchasing exectutives having been able to generate postive ROI projects on their Sustainable Packaging initiatives.
The Sustainable Packaging Coallition website, offers very interesting information, including this definition of Sustainable Packaging :
“Sustainable Packaging is :A. Is beneficial, safe & healthy for individuals and communities throughout its life cycle;B. Meets market criteria for performance and cost;C. Is sourced, manufactured, transported, and recycled using renewable energy;D. Maximizes the use of renewable or recycled source materials;E. Is manufactured using clean production technologies and best practices;F. Is made from materials healthy in all probable end-of-life scenarios;G. Is physically designed to optimize materials and energy;H. Is effectively recovered and utilized in biological and/or industrial cradle to cradle cycles”
It is well known that the London Organizing Committee has made Sustainability a core policy of the 2012 Olympic Games, since an ambitious 2012 Sustainability Plan was published in November 2007. What is new, is the profound impact this initiative will have on the Sustainable Procurement initiative of 1000’s of companies.
The Organizing Committee has just issued today a very ambitious “Olympics Sourcing Code” ‘(access here) which will apply to all products and service providers.
Two things are really innovative about this code:
- First the code includes a very detailed list of restricted substances, going beyond regulations (and including for example the (in)famous phtalates and bisphenol)
- The second and most important thing for us, is that the Code is not only focused on suppliers environmental/socials practices but also on their responsible sourcing practices. All suppliers have to ensure:
“that products and services are sourced and produced under a set of internationally acceptable environmental, social and ethical guidelines and standards“
This initiative should therefore have a massive impact, on the 5000 direct suppliers, but also cascading to more than 25000 tier-2 suppliers.
Sustainable Supply News 