Apple, Adidas boast China's greenest supply chains

After a rough start, Apple now has one of the greenest supply chains in China.

Apple, Adidas and H&M have the "greenest" supply chains among the 167 brands evaluated by the Corporate Information Transparency Index (CITI) (PDF), a system for assessing companies’ sustainable sourcing practices.

Levi’s, Marks & Spencer, Panasonic, Walmart, Microsoft, Esquel and Hitachi rounded out the top 10.

Jointly developed by Chinese nonprofit Institute of Public & Environmental Affairs (IPE) and the Natural Resources Defense Council (NRDC), CITI analyzes companies’ supply chain environmental management in China based on government-issued and public data on suppliers contracted by evaluated brands over the past year. Communication records from 1,607 suppliers that expressed relationships to 86 brands also were evaluated.

In July 2014, IPE and NRDC launched the first CITI index evaluation report in response to what they viewed as a lack of focus on the importance of supply chain management for brands’ environmental performance in many other prominent indices ranking sustainability — such as the Global Reporting Initiative (GRI), the Carbon Disclosure Project (CDP) and the Dow Jones Sustainability Index (DJSI).

In some of these indices, which critics contend rely too heavily on self-reported data, even a failing "grade" in supply chain oversight will affect a company’s total sustainability score by 5 percent or less.

CITI uses a sequential grading method for nine indicators, including responses to inquiries and engagement with the public, establishing a mechanism to screen suppliers for violations. The idea is to push suppliers to screen their own upstream suppliers, along with encouraging suppliers to disclose energy and climate data, among others.

Each indicator's evaluation points are split into five grades based on incremental levels from A to E, providing companies with a step-by-step "road map" for improvement in each indicator.

In addition to ranking companies on their green supply chain performance, the 2015 CITI index evaluation also identifies key areas of progress and critical gaps in the development of green supply chains in China.

Big brands make progress on green procurement

Many major companies have achieved "substantive" progress in developing mechanisms for green procurement, the report stated. And despite CITI’s making it more difficult to earn points this year by raising the bar on its criteria, many brands — including Apple, Adidas and Levi’s — managed to improve their overall scores.

Apple’s score surpassed 70 points, a record high, which IPE and NRDC say demonstrates how brands can help China achieve improvements in information disclosure and public participation and make substantive progress in green supply chain work.

Since 2012, when Apple faced steep criticism over labor conditions at Chinese factories contracted to assemble iPhones and iPads, the company has made large strides toward greener procurement practices. In addition to issuing a list of 200 of its key suppliers, Apple also began systematically examining and evaluating its supply chain for environmental violations and adopting corrective and preventive measures.

Many brands assessed by the CITI index are competitors, but the 2015 evaluation found that some in the IT and textile industries are working together for "the sake of environmental protection and looking into how to cooperate to promote the implementation and scaling of reduced emissions at shared suppliers."

The average performance of IT firms was "outstanding," the report stated, as was green supply chain cooperation in active screening mechanisms in the industry. In April, for example, representatives from Apple, Microsoft, Huawei, Panasonic, Hitachi, Samsung, Canon, Toshiba and Ericsson participated in an IPE roundtable conference, where they shared their management experiences and explored industry solutions.

Another collaborative effort, the Sustainable Apparel Coalition, aims to effectively minimize the negative impacts of textile supply chains. SAC recently has been working to develop the third version of its Higg index, a suite of tools that provides standards for defining and measuring environmental and social performance.

Seeking social impact

In recent years, environmental problems have become the main impetus for the outbreak of mass incidents in China, surpassing labor disputes, land seizures and forced relocations, petitioning for rights and other traditional social conflicts, the CITI report stated.

The evaluation report contains many case studies on solving environmental conflicts between communities and enterprises through green supply chain management.

After Apple learned that supplier Foxconn Taiyuan had received more than 800 complaints from the Qiheng Oasis community in China regarding foul odors from the factory caused by exhaust emissions, Apple worked with its supplier and members of the local community to identify and rectify the problem.

The most significant thing that came out of this was an open channel of communication among the local community, the supplier plant and Apple, which has created an accountability structure that places pressure on the factory to improve its sustainability practices.

Critical gaps in green supply chains remain

Despite notable progress toward green supply chains, the CITI report uncovered three critical gaps in greener supply chain development.

1. Corporate social responsibility doesn't yet stretch to supply chains

Corporate sustainability programs often operate extraneous to the core business in the company and are not influencing day-to-day business decision-making. This means that few programs are properly focused and resourced, which makes them incapable of delivering environmental improvements in globalized operations around the world.

2. Water woes contribute to a loophole in need of an immediate fix

Investigations by environmental groups have demonstrated that wastewater discharged from many industrial pollution treatment plants does not meet standards, and these plants have instead become centralized "pollution sources" due to many industrial enterprises mandating "collective treatment of emissions" for wastewater.

To be fair, some companies such as Levi’s have made significant progress in improving the water footprint of their supplier’s production facilities.

And 33 Chinese textile mills — many of which create clothing for major high-volume apparel brands and retailers such as Levi's, H&M, Target and Gap — collectively are saving $14.7 million annually by adopting simple efficiency measures in their production processes, according to an April NRDC report.

The CITI analysis established a specific evaluation indicator focusing on centralized wastewater treatment, and found that 95 percent of brands did not score any points in this category. This may demonstrate that there still are loopholes that have not yet been addressed in wastewater treatment, and that most brands may not even be aware of such problems.

3. Chinese consumers haven't bought into green production

Although studies have shown that Chinese consumers have a strong understanding of environmental issues, this environmental awareness has not yet transformed into real action. Most consumers still flock to products with the lowest prices, even if their supply chain performance is lagging.