Tackling sustainability challenges in supply chains: the potential for business case sustainability initiatives

While social and environmental problems persist within global supply chains, our new report highlights possible solutions to overcoming these governance challenges

Manufacturing is rife with sustainability challenges ranging from environmental issues, such as pollution, to social issues, such as poor working conditions. Brands and retailers (buyers) are increasingly held responsible for the impacts of production processes for products they sell. However, controlling production is not a straightforward process as stages of production are fragmented across large global networks. This blog shares findings from a new report discussing evolving tactics buyers are using to address sustainability challenges in production processes.

The dominant way buyers have addressed sustainability challenges in global production since the 1990s has been through private standards, often accompanied by some auditing. While auditing has become an $80 billion industry, the standards-focused approach has been found to be limited in bringing about meaningful changes (as demonstrated by Locke 2013 and Bartley 2018).

Facing ongoing challenges, companies are developing new approaches to promote sustainable production (see: Lund-Thomsen and Lindgreen 2014; Oka et al. 2020; and Alexander 2020). A key component of these approaches is capacity building, such as providing training or support with upgrading. Capacity building in supply chains is often implemented at a smaller scale than standards, often through voluntarily enrolment or provided to a selection of strategic suppliers.

One type of capacity building is ‘business case sustainability initiatives’, programmes that claim to promote social and/or environmental upgrading, while achieving economic upgrading by improving operational efficiency. For example, if producers use fewer chemicals, they can save money and pollute less or if workers have better experiences, they will stay with companies for longer. Many initiatives of this type have been developed in recent years but often remain stalled as pilots or fail to scale to their apparent potential.

Scaling Challenges

One scaling challenge is barriers to growth for initiatives themselves. These programmes are resource intensive. Initiatives often depend on external funding and struggle to get enough to grow. Major funding sources for initiatives run outside of individual buyers’ internal sustainability teams are foundations providing grants and support from buyers. Buyers’ internal programmes are often funded by small budgets set aside for corporate social responsibility (CSR). Both types of programmes can recoup some costs by charging participating producers fees.

For initiatives not tied to particular buyers, funders (e.g. private foundations) can support development costs but often expect initiatives to become self-sustaining. However, high costs of implementing organizational change may be difficult to recoup from charging fees, especially when participants are not very keen to join the initiatives in the first place (as discussed further below).

When external initiatives recruit buyers, they can obtain membership fees and human resource support. Buyers can also promote programmes to their suppliers. However, initiatives often have trouble attracting both small and large buyers. Large companies have money but can prefer to create their own internal, branded programmes. They can also be turned off by the often narrow geographical focus of external initiatives. Small companies may have high levels of interest but often cannot afford the fees or provide enough staff time.

A second challenge exists with scaling impact on the ground. New practices often do not persist when training ends, and, for businesses with multiple factories, new techniques are not spread across sites. This lack of impact is partially because producers often join such initiatives to please their buyers, regardless of whether they believe the business case – which they often do not. Initiatives often make pitches showing best case scenarios and excluding indirect costs. When factories participate their interest declines due to costs not accounted for in the pitches, such as staff leaving production lines for training and needing to develop new management systems. Furthermore, many factories do not systematically measure changes in productivity, which can be difficult to perceive, especially for socially-focused programmes, which may reduce worker turnover or improve workers’ motivation. Factories also typically do not measure operational costs associated with the programmes. In such cases, management can focus on perceived disruptions without perceiving benefits.

Limited impact on the ground also stems from which factories are targeted. Initiatives often focus on better performing factories.  Initiatives want success stories to show funders. Buyers want success stories for CSR reports. This approach excludes factories at greatest risk of creating sustainability challenges. Moreover, buyers focused on getting ‘nice stories’ may not have an incentive to expand programmes’ reach.

Proposed Solutions to Scaling Challenges

To enable organisational growth, first, initiatives can expand funding bases by designing special tracks to reach buyers who have been elusive in the past. Initiatives can create progressive sub-groups focused on innovation that could appeal to large buyers. Initiatives can also design low-resource options, which are more accessible to small and medium buyers. Additionally, increased funding for capacity building initiatives can be found by buyers reallocating funding from departments such as communications or marketing.

Second, initiatives can reduce their cost bases by relocating activities from high-wage countries to production countries where salaries are lower. This change would also result in having programme staff being more aware of local dynamics and cultures.  

Finally, as there are often many small initiatives working on similar projects, they can have more impact through collaborating with each other. For example, multiple smaller initiatives could work together to offer buyers greater geographic coverage. Funders can promote collaboration by prioritizing initiatives that collaborate. Multistakeholder initiatives can also promote collaboration in this space.

To create greater impact on the ground, first, initiatives need to encourage higher levels of commitment from participating producers. Buyers should systematically reward sustainability improvements, such as by including them as criteria for preferred supplier lists. Initiative implementors should make the calculations in their pitches more realistic, transparent, and tailored. The initiatives should also seek to improve participant experiences by providing longer term support, including with monitoring and measuring changes. Factories should be open to considering business cases presented by initiatives, request personalized financial forecasting and seek help in measuring impact. Producers can also be savvier about using sustainability credentials (e.g. participation in business case sustainability initiatives) as marketing tools to attract and retain buyers.

To expand reach beyond already well-performing factories, initiative implementors and buyers involved in selection processes should adopt the risk-based due diligence approach to capacity building and target efforts where risk is greatest.  This change may involve increased costs per factory but could have greater impact. It requires a fundamental rethink as this type of capacity building should not just be a “nice to have” marketing exercise but also a “must have” risk management tool to prevent, mitigate, and remediate harm in global supply chains. There can be more advantages from moving the floor up as opposed to raising the ceiling. Funders can support this shift by prioritising organisations using risk-based targeting and accepting that this approach may have higher failure levels. Finally, producers’ industry associations should  support participation of factories with limited capacity as a minority of bad practices can tarnish an entire industry’s reputation.

To promote sustainable production, business case sustainability initiatives represent a promising alternative and complement to existing standards-focused approaches. While these initiatives have often had limited impact, addressing the identified challenges can support the process of developing more sustainable global production systems.