Coming clean on supply chains

21st July 2022

Supply chains are under pressure to achieve sustainability – but business leaders are paying lip service while clouds gather on the horizon, says Huw Morris

The EcoVadis Sustain conference, held in March, marketed its conversation with Paul Polman as a ‘fireside chat’ – an opportunity for a leading industry figure to offer words of wisdom to invigorate delegates offline. But his message to the conference, which focuses on sustainability and procurement and involved over 3,200 participants from 77 countries, was anything but cosy.

Polman is a former Unilever chief executive, champion of sustainable capitalism and co-author of Net Positive: How courageous companies thrive by giving more than they take, awarded ‘best business book of the year’ by the Financial Times. He told the conference that many companies’ net-zero policies are locked in “corporate social responsibility mode”, which he described as “doing less bad, ‘let’s cut our carbon emission a little bit, let’s cut our deforestation a little bit, let’s cut our plastics in the oceans a little bit’.

“But in a world that already has overshot tremendously its planetary boundaries, less bad is still bad,” he went on. “It’s not good enough. ‘I used to kill 10 people, now I only kill five people – am I a better murderer?’ We need to change our mindset from being less bad to being sustainable. But net-zero doesn’t do it any more, either.”

“The net-positive companies take responsibility for their total impact on society and all consequences, intended or not. Companies that are positioning themselves on this net-positive path will be doing well. The ones that don’t, increasingly, will be heading towards the graveyard of dinosaurs.”

The procurement view

The Chartered Institute of Procurement and Supply (CIPS) points out that much of the UK’s carbon footprint is generated in supply chains abroad, mostly in extraction of raw material, manufacturing and transport. However, when it surveyed members on sustainability last September, just 59% thought their companies would meet the UK’s net-zero target by 2050. Around 19% of supply chain managers were not involved in sustainability planning, 43% were slightly involved and 18% were unaware of any corporate sustainability strategy.

Just under half (48%) did not believe their organisation was transparent about sustainability, and 19% did not know how sustainable their products were. In one crumb of comfort, just 5% felt that their marketing actively misled customers or clients.

“The choices UK businesses make ripple through their supply chains to impact everything from water security and carbon emissions to waste management and deforestation in other countries,” says CIPS chief executive Malcolm Harrison. “Much of an organisation’s environmental impact will be outside their internal boundaries, and it is important that organisations understand this complexity so they can begin to track, communicate, and address the sustainability of their own unique supply chain.”

The survey also revealed that 11% of supply chain managers said their companies had done nothing to improve sustainability since 2019, when the UK government set a target of reaching net zero by 2050.

A lower priority

Polman’s warning is falling on deaf ears. According to a study by training provider Skill Dynamics, UK procurement and supply professionals want to prioritise sustainability, but business leaders are pulling the rug from beneath them.

Although 97% of companies are introducing sustainability initiatives, only 54% have clear targets. Nearly a third – 31% – of procurement and supply executives complain of conflicting objectives, with efficiencies and growth put above sustainability.

Two thirds of procurement and supply executives entered the profession in order to drive sustainability improvements, but business leaders’ demands for a return on investment left 59% falling “back into old habits of prioritising cost”, according to the study.

“This is a real roadblock, as many of the returns on sustainability initiatives are hard to quantify, taking the form of reputational gains or business longevity,” says Omera Khan, professor of supply chain management at Royal Holloway, University of London, who co-authored the study. “Professionals are clearly struggling to bypass this, so fall back into old habits of prioritising cost in decision-making.”

While many companies acknowledge sustainability’s importance, 59% of procurement executives did not have carbon-cutting initiatives in place, which the study says is alarming given that supply chain emissions can make up 95% of a business’s emissions. “Are businesses really trying to be green – or are they picking and choosing easy-to-do sustainability initiatives that will look good, but not necessarily achieve much?” asks Skill Dynamics chief executive Sam Pemberton.

The investor influence

The findings reinforce a those of a survey carried out by the procurement sector’s professional body last autumn (see ‘What procurement professionals think’, left). However, companies that ignore the issue are playing with fire. Another study by procurement specialist Proxima looked at UK and US business investors’ opinions on supply chain sustainability – and boardrooms should take note.

A total of 97% of investment managers examine a business’s supply chain sustainability standards before making funding decisions. Most (84%) see low supply chain sustainability and environmental, social and governance (ESG) standards as a financial threat, and 89% discuss such standards with the companies they back, with 37% holding such conversations frequently.

Investors most commonly look at suppliers’ audits (39%), data reporting procedures (37%) and analysis of financial reports (37%). Proxima says these responses suggest that, while there is action, a lack of common adopted assessment methods and standards is a roadblock to supply chain sustainability.

Nevertheless, 85% of investment managers believe that businesses without supply chain sustainability standards will see their share prices tumble in the next decade. “A sustainable supply chain is no longer a ‘nice to have’,” Proxima says. “Investors will be looking for real, measurable results and businesses will need to be ready to show them.”

Raw materials – a global worry

A new report from the World Bank Group, Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition, states that the production of minerals such as graphite, lithium

and cobalt will need to increase by nearly 500% by 2050 to meet the growing demand for clean energy technologies. It estimates that more than three billion tonnes of minerals and metals will be needed to deploy the wind, solar and geothermal power, and the energy storage, required to limit temperature rises to less than 2°C.

One cause for concern is the transition to electric vehicles (EVs).

In June 2021, the US government issued preliminary findings from a major review of the supply chains that provide critical goods to government and industry, including high-capacity lithium-ion (Li-ion) batteries and the minerals and materials used in EV battery production. The US is aiming to secure the upstream supply of 35 critical minerals in the production

of leading-edge technologies, including the cobalt and lithium essential for li-ion battery cathodes. In September 2020, the European Commission issued an Action Plan on Critical Raw Materials, which lists cobalt and lithium as essential to the EV supply chain and other technologies. Japan and Canada also identify nickel as a critical mineral.

A study by the Belgian university KU Leuven found that hitting the EU’s 2050 net-zero goal will require 35 times more lithium and up to 26 times more rare earth metal than Europe uses today. This is where sustainability and environmentalism collide with geopolitics. Cobalt, lithium and nickel are exposed to a range of supply chain risks because their production and processing are geographically concentrated in and dominated by jurisdictions with poor labour and human rights, such as China.

China controls 60% of global mine production and 40% of rare earth metal reserves. Without action, this poses significant supply chain risks to the UK’s green industries, according to the Green Alliance, which predicts that the UK will exceed its per capita share of critical raw material reserves by 2050. We can limit this threat by boosting domestic recycling and cutting energy use.

Improving freight efficiency, insulating homes, and increasing car sharing, public transport and active travel could help the UK halve its total use of certain critical resources by 2030 compared to the current trajectory, the Green Alliance says. If we rapidly scale up the recycling of green products and their components, almost all the

UK’s critical raw material demand for EV batteries, wind turbines and solar panels could be met by secondary materials by 2050.

In 2019, the UK’s small fleet of EVs contained more than 1,400 tonnes of lithium and 800 tonnes of cobalt, worth £26.3m and £31.5m respectively. According to Green Alliance, that volume would be enough to make 220,000 battery electric cars – 10% of projected new sales in 2035 – if it was recycled. The

UK is set to publish a critical minerals strategy this year.

Huw Morris is a freelance journalist.

Image credit | iStock

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