BSR 2009: Addressing the Biggest Challenges Companies Face

BSR 2009: Addressing the Biggest Challenges Companies Face

[Editor's Note: This article is part of GreenBiz.com's coverage of the 2009 Business for Social Responsibility conference. To read all our coverage, visit GreenBiz.com/BSR2009.]

"I've been amazed that there's been so much confusion about sustainability and what it is," said systems theorist and sustainability thought leader Fritjof Capra, in a morning session yesterday at the 2009 BSR Conference.

But considering how broadly and deeply sustainability issues can affect a company's operations, it's likely more surprising that this confusion hasn't been addressed before.

However, several sessions throughout the day offered frank explorations of some of the complexities that cause the most trouble to companies looking to reduce their impacts.

A two-hour session on supply chain traceability serves as a perfect illustration of the challenge at hand.

In the session, "Traceability and Responsibility: How Far Does Corporate Responsibility Extend Down Your Supply Chain?" leaders from three very different industries showcased the challenges and opportunities they face, and how they're working to overcome them.

Zoe McMahon, Hewlett-Packard's Supply Chain Social and Environmental Responsibility Manager, started the panel out with a mind-blowing statistic: the company sells five PCs and six printers every two seconds, and more than 3,500 servers a day. To meet that demand, the company has 600 direct or first-tier suppliers, and many hundreds of companies in their second- and third-tier supply chains.

With such a wide-ranging supply chain that involves many different materials sourced from all over the world, the company is the focus of plenty of pressure in trying to responsibly source their products and measure their overall impacts.

That pressure comes from customers and regulators of course, but there is a huge third category of pressure on which McMahon focused much of her talk.

"Perhaps the most interesting pressure comes from civil society and NGO partners and stakeholders," she said, explaining that the most prevalent organizations they're working with right now in the IT industry has to do with sourcing the metals used in their products.

Among the issues is the use of "conflict minerals" -- similar to the "blood diamonds" that have gained prominence in the public awareness in recent years, minerals like gold and tantalum can be sourced from regions engaged in direct conflict, and the mining and processing of those metals can be traced to child labor, displacement of populations, but of most immediate concern is their use as a funding source for ongoing war, especially in the Democratic Republic of the Congo (DRC).

In trying to ensure that the metals they source don't originate from conflict zones like the DRC, HP has run into a challenge common to many industries: when you get to the end of your supply chains, producers can range from large-scale operations (mining companies, in this case) to individual small-scale producers -- "artisanal mining," in McMahon's phrase.
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As part of their sourcing efforts, HP relied at first on a supplier survey to determine that they were not sourcing materials from areas of concern; while that's far from a perfect solution, it is a start.

However, progress needs to happen quickly: "We need to move from discussing that we have this problem to a discussion of solutions," McMahon explained.

The company is working with partners in the IT industry and other fields to solve these problems: One approach involves are determining how to trace materials: chain of custody (or "document tracing") can be a reliable method, but in areas like the DRC endemic corruption can make document tracing useless.

So in addition, HP is shifting how it relates to its suppliers, moving from a "specify and trust" relationship for material sourcing to a "trust but verify" method that will bring validation and audits further down the supply chain.

Sourcing problematic materials was also at the core of the presentation from Michael Kobori, Levi Strauss's Vice President of Social and Environmental Sustainability.

Rather than concern about sourcing materials that fund armed conflict, Levi's and other companies in the apparel industry are focused on removing "blood cotton" from their supply chains -- notably, cotton sourced from Uzbekistan.

According to report released last month, that country's notoriously repressive government is involved in using forced child labor to harvest cotton, so Levi Strauss is working industry groups and the NGO the Better Cotton Initiative to source greener and "blood-free" cotton.

The groups are looking at five components -- traceability, environmental impacts, labor, farmer economics, and price premiums -- to determine which methods are the best, most practical cotton sources, whether Fair Trade, organic, Better Cotton, or the "Cotton Made in Africa certification.

Although PepsiCo's supply chain doesn't involve any conflict materials, its challenges are no smaller as a result. According to Jorgette Mariñez, the company's Senior Manager of Global Supplier Corporate Social Responsibility Assurance, the company's first-tier suppliers number a staggering 50,000.

Getting a handle on social and environmental best practices at that scale is a daunting task, but to address it the company has built a five-step "funnel" to both instill responsible practices throughout its supply chain and identify and address any problems as early as possible.

The first step involves building in PepsiCo's Supplier Code of Conduct into every contract the company signs with suppliers of any size. Once the contract is signed the company conducts a pre-screen audit to make sure there are no fundamental problems with suppliers.

The third step requires suppliers to conduct a detailed self-assessment using the Sedex supply chain assessment tool that maintains CSR data for suppliers, and allows those suppliers to simplify the process of reporting that data to all its customers, rather than having to report the same data out to a host of companies -- in the food industry, where PepsiCo, Coca-Cola, Sodexho, Unilever and any number of other firms often have overlapping supply chains, using a tool like Sedex makes a big difference in encouraging and facilitating supplier transparency.

If there are problems with suppliers, or if suppliers seem to have trouble reporting accurate data, then PepsiCo will conduct a third-party assessment, the fourth step of its funnel. The final step addresses any issues that arise through the audits, and focuses on corrective action and resolving those issues.

The overall goal is to provide assurance to the company, its customers and other stakeholders that the company is focused on the quality of its products, while helping its expansive supply chain have the best impact it can.

Saying that PepsiCo is not "on a mission to end relationships" with valued suppliers if they're not currently meeting the company's goals, Mariñez said, "We do best when our suppliers are also doing their best."

Yesterday's supply chain session was just one of several high-level discussions that captivated the crowd at the BSR conference; I'll cover the others in a later blog post. You can read all of our coverage of the event at GreenBiz.com/BSR2009.

Photo CC-licensed by Flickr user Peter Kurdulija.