Why trickle-down sustainability doesn't work
Global corporations are taking the threat of climate change seriously. Mars pledged earlier this month to spend $1 billion to cut emissions in its supply chain. A few months earlier, Walmart announced its Project Gigaton initiative to remove a billion tons of greenhouse gas emissions from its supply chain and a group of signatories representing more than $6.2 trillion of the U.S. economy recently pledged that they are "still in" and supportive of the Paris climate change agreement.
Unfortunately, these types of sustainability pledges often become nothing more substantive than "here, fill out this form" by the time they trickle down through supply chains.
I’ve spent much of my career as an advocate of trickle-down sustainability. I thought we’d be a lot further along by now. Trickle-down sustainability either does not work, is not working or is not working fast enough.
Trickle-down sustainability is based on three key assumptions:
- Every business decision has potentially adverse human health, environmental or social impacts that economists refer to as negative externalities. Negative externalities can include exacerbating climate change, encouraging unsafe working conditions and expanding the use of chemicals with uncertain human health risks.
- It is possible for all negative externalities to be identified and traced throughout supply chains.
- If enough large companies or institutional purchasers (federal or state government agencies) consider the negative externalities when making business strategy and purchasing decisions, alongside of traditional business concerns such as price, profit, performance and availability, it will unleash profit-driven market forces powerful enough to mitigate the negative externalities.
Many sustainability professionals have embraced trickle-down sustainability and believe that large organizations have the ability to "push" sustainability down into supply chains. This approach does not appear to be very effective because it turns out that no one likes being told what to do.
The companies most recognized for their global sustainability efforts collaborate closely with their top suppliers to ensure alignment with their sustainability goals. The challenge, however, is that the necessary collaboration and alignment is not permeating deeply enough within supply chains.
At the top of the business food chain, large companies frame sustainability around the triple bottom line — people, planet and profits. Yet very few suppliers deeper within the supply chain understand or define sustainability the same way.
Smaller suppliers define sustainability as the viability of their business. They are focused on the ability to make payroll, to meet their debt payments and to keep the factory doors open.
At the top of the food chain, executives engage in strategic conversations with key suppliers about sustainability. Towards the bottom of the food chain, companies are relegated to answering questions on an online tool, showing an auditor around or completing an Excel spreadsheet.
Organizations deep within supply chains experience broader corporate definitions of sustainability as an unenforced directive from above. It is not a collaborative experience. It is just another unexamined box to check.
As a result, large organizations asking their suppliers about sustainability are, in some cases, creating unnecessary resistance and making sustainability less appealing because no one likes to be told what to do. An executive from a mid-sized firm explained that he "used to hate government regulators for telling me what to do and now I’m even more afraid of my big customers. They’re worse than government regulators sometimes."
Suppliers deep within supply chains are being asked to report on their sustainability initiatives without even understanding the metrics being used. "I don’t understand what they’re asking or why, but I know what answers they want to hear," a manager-level employee at a company that supplies several large retailers explained.
Some suppliers do not believe that the big customers care about or even read their responses to sustainability questionnaires. Another business executive, for example, shared a potentially apocryphal story about accidentally submitting his child’s sixth-grade homework in response to a sustainability request from a large customer. "I don’t think they’ll ever even notice," he reported.
Sustainability, as defined and espoused by the large global companies at the top of the business world, represents a fundamental shift in the core values of the business community. It reflects an emerging recognition that businesses have some level of obligation to balance the value they create for consumers and investors against the indirect negative externalities that they also might be creating.
Businesses need to be as comfortable talking about their sustainability values as they are talking about sustainability metrics. Organizations need to be comfortable talking about their core values and helping their suppliers have similar values-based conversations with their own suppliers. They need to invest as much time discussing the meaning and value of sustainability as they invest in measuring it.
Sustainability is about more than supply-chain metrics. It requires conversations about shifting business values. Companies must be prepared to address fundamental questions such as:
- What are the core values of the business?
- How does the business define sustainability?
- How does a focus on sustainability reflect its purpose and core values?
- How can sustainability initiatives help suppliers’ businesses?
- How does supplier success contribute to the company’s success?
No one likes being told what to do, but individuals and organizations are more likely to help when they share common values. The conscious alignment of values will drive sustainability deeper than a focus on metrics alone or on the hope that sustainability magically will trickle down from above.