Global supply chain disruption can mean big trouble for corporates. Can we ever know what’s taking place when products are made thousands of miles away? Can corporates provide supply chain transparency?
In our increasingly connected world, the pace of communications and the power of the internet have redefined business. Articles like this one can be found by anyone around the world, and will be available for years to come – this sort of richness of information has vastly empowered global knowledge sharing and the potential for business to thrive.
Yet when it comes to sustainable business, talking a global language can cause problems. Products and raw materials are routinely shipped around the globa several times, from resource extraction, to refinement, to reprocessing, packing and final sale.
It’s far from unusual for a resource to be extracted in, shall we say Peru. Then it is shipped to China for refinement, back to Europe for further processing before yet more travel into the country of sale where it might be repackaged.
There are some blindingly obvious issues here – first off, carbon impacts associated with transportation. But more vexingly and more troublesome; few corporates can truly know what’s taking place down the various avenues of these globally-defined routes.
That means keeping an eye on safe labour markets, correct payment practice, environmental performance at the point of extraction. Indeed the safety and viability of the end product can be tough or even impossible to know.
The word that springs to mind; risk. Not just against environmental and social governance criteria (ESG) but also across corporate social responsibility (CSR) metrics and costs.
It’s a challenging space for any corporate to reimagine in a better way. Governance and governments differ in locations across the world. Some have little time for sustainability or health and safety. Others are simply impoverished compared with what Western markets are accustomed to. ESG and CSR simply don’t command the same respect, commercially or ethically.
No matter what the angle, it’s a challenging picture. And it takes very little digging to find a catalogue of misdeeds taking place down global supply chains.
The Guardian recently covered a story highlighting risk in global commodities and supply. Writing on the billion-dollar fish oil market, it explains that these prized products travel a long way before being labelled as “pure” and “fresh” – starting with the industrial-scale grinding down of a tiny fish that is crucial for healthy ocean and food systems.
The problems, like the ocean, are deep. Despite being highly regulated, Peruvian fisheries have recently been condemned for misreporting catches, and for putting workers’ health at risk throughout the Covid-19 pandemic by failing to isolate infected crew members, leading to large outbreaks, according to a report by the Changing Markets Foundation, which in 2020 investigated harmful and unsustainable practices in Peru’s fishmeal and fish oil industry.
Further, fisheries are also reportedly catching too many juvenile anchovetas – if the fish are caught before they reproduce, the population cannot sustain itself. The resources are at risk of overfishing, and fisheries were on the verge of collapse in the early 1970s, but the companies responsible face few sanctions.
Regulations do impose temporary closures in areas where juvenile catches exceed 10%, but seven large companies in the sector flouted this rule between 2016 and 2019 and continued operating in areas already identified as having excess juvenile fish.
Another issue; trade data is limited, but what is available shows vessels can pick up a cargo of crude fish oil in Peru and ship it to China for extraction and distillation. From there, the oil moves to North America or Europe to be packaged.
“That’s part of the problem: we don’t know who these companies are exporting to. There are so many chains along the way,” Alfonso Daniels, a researcher on the Changing Markets report, told The Guardian. And the kicker; none of the companies or the Peruvian authorities responded to the Guardian’s request for comment.
Then again, why would they? There’s no legal need, social imperative nor seemingly commercial requirement to do so. Someone may know the facts, but they’re often deeply buried.
A Damning Practice
The first and perhaps most crucial step in delivering transparency surrounds ownership and partnership. GreenBiz.com recently covered transparency within the palm oil supply chain, among the most demonised globally.
What’s positive though is that Green Biz notes hastening transparency in this supply chain. That’s the mission of Action for Sustainable Derivatives (ASD), a collaborative initiative from BSR, which has brought together 23 of the largest personal care companies including Croda, Chanel, Estee Lauder and L’Oreal to engage their suppliers and create a map of palm oil supply chains.
Last year was the collaboration’s third year in operation, and its 2021 report outlined the supply chains for 825,000 tonnes of palm-based materials, 230 suppliers and distributors including mills, plantations and refineries. According to the report, of the refineries and mills it requested information from, between 85 and 90 per cent reported transparency metrics to ASD.
When the companies using global supply chains come together in this way, some positive things can happen. First, producers in developing countries see transparency demanded at scale, as billions of dollars-worth of purchasing gives them a collective warning signal on ESG and CSR. You want our valuable business? Shape up your performance.
This gets results far more quickly than firms acting in isolation. Secondly, organisations like ASD can go out and talk with producers independently. They needn’t necessarily be acting on behalf of a single contract, buyer nor a single company. ASD can therefore produce guidance based on these communications for producers and buyers alike without conflict or bias.
This in turn can take pressure off future negotiations and enable a freer discourse on what benefits all sides of the supply chain equation across commercial risk metrics.
As ASD itself notes, collaboration facilitates the sharing of information, data, constraints, and most importantly solutions to ideally achieve a wholescale transformation of the complex palm derivatives sector.
ASD’s vision is to deliver and promote palm derivatives sourcing that is free from deforestation, respects human rights, and supports local livelihoods. Most collaborative organisations in the supply chain space share similar goals, whether targeted on palm oil or fisheries or indeed beyond.
Yet they face another destructive force; corruption.
Supply Chains and Corruption
The single most challenging element to delivering transparent global supply chains is corruption. Your correspondent has first-hand experience of writing from the Madre De Dios region of Peru’s Amazon.
There, bullet casings litter the ground from gang fights over the rights and access to local forests, all to be illegally logged. When these trees eventually float downstream, having been illegally felled, border guards casually turn a blind eye to what’s going on in exchange for a tasty wad of cash.
Equally, export consignments of logs are meant to be marked, noted and described. Mysteriously, such notations find their ways onto illegal trees, and in that moment all transparency evaporates, leaving illegal logs to depart Amazonian shores along with legally felled logs, all for the world export market.
That’s a massive challenge for the legal side of the equation, which carries much higher costs to market to fund the pricier certification and evaluation process that big corporates then buy into with supposed trust.
New technology is racing to minimise this, led by the organisation Global Forest Watch (GFW). GFW is an online platform that provides data and tools for monitoring forests. By harnessing cutting-edge technology, GFW allows anyone to access near real-time information about where and how forests are changing around the world.
Among the tech used is satellite surveillance, which can tell when swathes of supposedly protected forests are being chopped down. Peruvian communities that implemented technology-based forest monitoring saw a reduction of 52% on losses in the first year and 21% in the second year, compared to similar territories that did not change their monitoring practices.
In order to act effectively against deforestation within their territories, indigenous communities must first be able to detect it quickly. Satellites offer a solution. Orbiting and imaging the Earth constantly, they can show changes in forest cover between images on tiny scales. These images are used to build alerts, updated weekly on the GFW platform to show likely instances of deforestation, as well as the weekly alerts produced by Peru’s Ministry of the Environment.
The truth is that corruption remains, sadly, an innate part of humanity and therefore of global supply chains. But technology and collaboration are doing much to improve the situation. Corporates must pick up their part of the task; showing determination to drive for supply chain opacity. They will be repaid richly in both profit and longer-term resource availability from which to make products and sell them worldwide.