How the largest IT companies view sustainable supply-chain issues

How the largest IT companies view sustainable supply-chain issues

My previous post, "Why a nexus of regulatory requirements may take IT by surprise," discussed key drivers of sustainable supply-chain management strategies and the potential for an interesting interaction between the regulatory requirements of the Sarbanes-Oxley Act and Section 1502 of the Dodd-Frank Act. Malk Sustainability Partners, a specialty management consultancy that guides businesses in developing profitable corporate sustainability strategies, engaged global IT companies and industry experts to investigate the key drivers, important issues and popular strategies behind the sector’s adoption of SSCM. MSP synthesized this information into a study describing the state of SSCM in IT, available for download here.

This installment will discuss issues identified by interview respondents as most pertinent to be addressed in their SSCM strategies.              

The most frequently mentioned concerns in the social and environmental categories are listed below (management issues will be addressed in my final post):

Forty-two percent of respondents referenced social issues, the most prominent of which were:

  • Conflict minerals.
  • Labor issues.
  • Human trafficking.

Twenty-one percent highlighted environmental issues, the most prominent of which were:

  • Greenhouse gas management.
  • Water pollution.
  • E-waste recycling and management.

Respondents cited social issues as their companies’ chief concern when asked about their implementation of SSCM strategy. Interviews revealed one of the reasons why companies focus more attention to social issues than environmental ones is the time and capital required to affect noticeable change in business processes that impact the environment. For example, addressing labor issues in the supply chain can be achieved relatively easily — often by customers requiring that suppliers compensate employees for overtime or provide better working conditions. However, getting a supplier to replace equipment that reduces harmful emissions can be more complicated because of the time and capital inherent in making such a decision.

Drawing from the list of SSCM drivers in my previous post, many respondents explained “stakeholder interest” is influential in their companies’ decisions to address sustainability issues. Following this line of argument, stakeholder concern also influences which sustainability issues, environmental and/or social, companies choose to address. Many stakeholder groups are more attentive to social issues than environmental ones — likely because stakeholder groups are comprised of people who identify more viscerally with issues that impact other people.

For example, consider the proportion of stakeholders aware of Apple’s labor issues with Foxconn, or Motorola’s laudable conquest to manage use of conflict minerals, as compared to the proportion concerned that nearly 60 percent of the surface water monitored in China is not safe for human consumption after treatment. Since the majority of stakeholders are not forced to deal with deteriorating water quality in China, but understand the idea that buying a certain product has potential to support employee mistreatment or armed rebel conflict in the Democratic Republic of the Congo, it makes sense that companies prefer to address prominent social issues before handling environmental concerns.

To drill down on this idea more, consider the relationship between stakeholder interest and regulation. Issues that receive a significant quorum of concerned stakeholders are more likely to illicit regulatory response. For example, company concern for “conflict minerals” and “human trafficking” are directly driven by regulatory mandates set forth by Section 1502 of the Dodd-Frank Act and California Transparency in Supply Chains Act. Likewise, legal standards define fair labor conditions at the domestic level and organizations, like the International Labor Organization, publish international standards that govern employee treatment. NGOs, like the Fair Labor Association, connect the communication loop by informing stakeholders when companies’ labor practices violate these standards.

So what drives the list of environmental issues? MSP’s analysis revealed the three applicable drivers are “regulatory compliance,” “stakeholder interest” and “leadership.” For example, company concern for “e-waste recycling and management” is prompted by state level regulations that mandate the quantity of e-waste companies must recycle. Specific quantity requirements differ from state to state and are typically determined by the proportion of companies’ market share in a particular state. Part One of this series provides a more detailed explanation of this regulatory environment, the associated challenges and two best-in-class examples addressing them.

Respondents that cited “GHG management” as an issue pertinent to their companies’ implementation of SSCM strategy were often from consumer brands and were driven by leadership and stakeholder interest’ Specifically, they drove companies like Dell and Intel to request that their major vendors set targets to reduce GHG emissions. Often, such a request from a large consumer brand creates a cascade-effect across the value chain; one where vendors try to push responsibility for GHG reduction further up, onto their suppliers. Iterating this game of supplier impact avoidance across multiple tiers of a large, global supply chain reveals how GHG management in SSCM is inextricably intertwined with managing Scope 3 emissions at the consumer brand level.

Respondents explained this responsibility dilemma is exacerbated by the complexity and interwoven nature of the electronics industry’s value chain. Suppliers, particularly OEMs and contract manufacturers, are often bigger than their customers, which reduces customers’ capability to influence the sustainability of suppliers’ operations.

At the same time, it is not uncommon for suppliers to directly compete with customers in different facets of their businesses. For example, consider how Samsung manufactures components for popular Apple products while also competing against Apple in the smartphone market. Respondents cited these dynamics as hindrances to the discussions and negotiations necessary to implement a successful SSCM strategy.

Notwithstanding the SSCM complications created by the dynamics discussed above, analysis of the most prominent SSCM issues revealed stakeholder concern really matters to corporations. To me, this resonated as an empowering takeaway  typically the average individual stakeholder, asks the same question as the average voter: “Does my voice matter?” We, collectively, are the stakeholders who familiarize and inform ourselves of the issues pertinent to sustainability. We, in turn, inform our colleagues, client, peers and communities and in the process wield power to influence the direction of corporate attention.

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