For years, the top imperative for most supply chain teams was to save on costs to boost company profits.
In recent years, consumers, investors, governments and NGOs have pushed for a broader mandate that would include measuring and reducing the impact of supply chains on the environment and workers within the system.
That can add complexity to the work of managing supply chains, but it is also an opportunity to build something more durable and humane.
Greenhouse gas emissions are perhaps the starkest example. Supply chain emissions make up the bulk of most companies’ total emissions. That puts supply chain and procurement teams on the frontlines of the decarbonization push and efforts to prevent extreme climate change. And the clock is ticking, with major climate milestones approaching.
Much is happening all at once as firms look to gain visibility into their supply chains — around emissions, labor practices, water use, waste and more — and work with suppliers to effect change.
Below is a look at how different industries and companies are grappling with the many-pronged challenge of building sustainable supply chains.
Flexing for the planet: How Walmart crushed its supplier emissions target
The retail giant leaned on education, financing and recognition to get its supply chain on board with Project Gigaton, a sustainability executive with the company told Supply Chain Dive.
And so when the world’s largest retailer takes on a supply chain initiative, the results can have global ramifications. Moreover, it can set the pace for the entire industry.
On climate initiatives, that pace has been swift. In February, the company announced it had blown through its Project Gigaton goal of cutting 1 billion metric tons of greenhouse gas emissions from its supply chain — six years early.
Described as a “game changer” when Walmart first announced the goal — with an original deadline of 2030 — the retailer’s rapid progress is a major win for the climate. It can show just what is possible when companies within a supply chain work together toward a common good.
Walmart’s Gigaton work is instructive for the entire industry. The retailer leaned on its resources and size to provide suppliers with education, financing and various programs to help them set goals and get there.
“From our perspective, it's a long journey, and it's one we started in 2017,” Ron Voglewede, Walmart’s global director of sustainable retail, said in an interview. “It is really about building the expectation, raising the bar continuously over time and creating those on-ramps for companies to engage with us alongside and create the collective action.”
Supplier emission cuts: ‘Better for their business’
When it launched Gigaton, Walmart invited — rather than compelled — its suppliers to join the initiative and commit to reductions.
Since then, more than 5,900 suppliers have participated in the Project Gigaton effort, according to the company.
Crucial to getting suppliers on board was giving them access to tools and platforms, Voglewede said. Broadly, that includes three key incentives: education, financing and recognition.
Education can help suppliers see emission reductions can be “actually better for their business,” Voglewede said. “It makes them more efficient.”
The retailer identified key areas for reduction under the umbrella of scope 3, including energy, agriculture, waste, packaging, deforestation, and product use and design. Walmart also worked with organizations such as the World Wildlife Fund and Environmental Defense Fund to develop a toolkit for suppliers.
Walmart’s scale, sterling credit ratings and capital structure makes it easier to provide suppliers with some financial tools for meeting sustainability and scope 3 targets. That includes a sustainability-based supply chain finance program through HSBC, which can provide earlier payments for goods for those vendors that meet certain goals.
As another financial tool, Voglewede pointed to the Gigaton PPA program launched in 2020 to help Walmart’s supply base access renewable energy as instrumental and representative of how to bring major sustainability initiatives “to life.”
Through the program, a collaboration with Schneider Electric, suppliers could pool their resources and numbers to contract renewable energy purchases as well as get education on the renewable energy market and guidance on projects.
“Individually, it's hard to access renewable energy,” Voglewede said. So Walmart looked at how it “can we help bring together people within our supply chain to deliver renewable energy for them. That had a very large impact.”
As for recognizing for suppliers participating in Project Gigaton, it can give them a sense of “helping to be part of a much larger thing, and being part of a bigger thing is a big deal,” Voglewede said.
To do that, the retailer awards badges such as “Giga Guru” status for what it describes as “excellence in target setting, action and results.” Voglewede said suppliers have pulled him aside to tell him that they are proud of their listing under the program.
“It really energizes people and gives them a sense of hope, too,” he said. “And I think that's sorely needed in a discussion that sometimes gets very negative at times.”
‘A position of sustainability leadership’
Walmart has said it plans to keep Project Gigaton alive even though it hit its initial goal. The company is also “working really hard” to set a new scope 3 goal, according to Voglewede.
After announcing meeting its initial target, Walmart said it is improving its scope 3 estimates based on emerging standards and guidance while also looking at its value chain to determine the costs around various reduction opportunities. The company aims to have net-zero emissions in its own operations by 2040.
“Regardless of the external environment, it really is about better making a better more resilient supply base for all,” Voglewede said.
A retailer of Walmart’s size focused on scope 3 and other sustainability initiatives can send a signal to the entire market. Executives of brands selling to Walmart have noted the ripple effects of Walmart’s and other retailers’ scope 3 initiatives down through supply chains.
In a Feb. 8 report, analysts with Jefferies noted that a top priority for Walmart is “reducing its impact on the environment through more sustainable and efficient energy management.”
They went on to note, “This practice includes the management of carbon emissions not only for its own operations but also for all stakeholders, placing [Walmart] in a position of sustainability leadership across the broader retail landscape.”
This story was first published in our Procurement Weekly newsletter. Sign up here.
Article top image credit: Daphne Howland/Supply Chain Dive
How the SEC climate rule will impact manufacturers’ supply chains
Even with scope 3 emissions left out of the new rule, contract manufacturers should be prepared to report emissions data as more states adopt disclosure requirements, experts say.
The rule mandates that public companies disclose climate-related risks in their SEC filings. The SEC notably dropped the requirement that companies include Scope 3 emissions in their disclosures.
The agency also adopted a "phased in" approach for requiring companies to disclose Scope 1 and Scope 2 emissions.
Large accelerated filers – those with at least $700 million in shares held by public investors – must begin disclosing Scope 1 and Scope 2 emissions in fiscal year 2026. Accelerated filers, including companies with between $75 million and $700 million in publicly held shares, must begin making disclosures in FY2028.
Companies required to make greenhouse gas disclosures will also have a phased compliance timeline for receiving assurance on those emissions.
With the SEC mandate unveiled,manufacturers and their suppliers must begin determining how to comply with the rule.
"Nobody's out of the woods," said Karen Davis, partner at Fox Rothschild and co-chair of the firm's ESG practice group. "The SEC did note that the Scope 3 emissions may be something that they will revisit at a later date. With or without the SEC, suppliers [and] companies are going to have to provide information on their emissions to their customers and their suppliers."
When it comes to down-tier manufacturers and suppliers that will need to report their emissions up the value chain, Davis said one of the issues with the current process is that Scope 3 data is often hard to find or is unreliable. This is often because of challenges in how these companies consolidate and manage the data.
"It's not part of a company-wide system, or you know, certainly hasn't been integrated into their enterprise risk management system," Davis said. "The first thing they should do is an assessment of what data they already have.”
She also advised that companies implement a data collection system to consolidate and verify emissions information.
Davis noted that bigger, public companies that fall directly under the rule are likely to build the standardized infrastructures to collect and verify emissions data. Smaller manufacturers and suppliers would then be able to take that framework and apply it to their operations.
Contract manufacturers with multiple large clients that could be affected by the SEC rule should be aware of which geographies their up-tier supply chains touch, and therefore to what rules they must comply, said Chris McClure, partner and ESG services leader at Crowe.
The same applies to potential clients and reviewing what information they would need during the procurement process.
"If you're aligning with a new client, see what they're looking for. You can look on their website, do due diligence on them to understand what the potentially additional costs might be of doing business with companies that are going to be pushing on these things," McClure said.
Manufacturers should also evaluate their own down-tier supply chains to ensure compliance. Many manufacturers still lack visibility into these early stages of the supply chain, something that could increasingly become problematic when it comes to climate disclosures.
Looking to the future, more disclosure rules are likely on the horizon. New York is considering a bill modeled after California's climate rule, as is Illinois.
And in the private sector, companies like Walmart are requiring suppliers to disclose their emissions, yet another way the market is making standardized emissions data a regular part of business.
"If we get a few more of these big states aligned, plus the EU and everything that's happening, it's going to become fairly commonplace that reporting emissions in some manner is going to be the cost of doing business in a lot of industries [and] certainly in most manufacturing," McClure said.
Article top image credit: Kevin Dietsch via Getty Images
How Ikea is reducing its ocean emissions through collaboration
An executive outlined the retailer’s three steps to decarbonize transportation at the TPM24 conference.
The improvement was attributed to an increase use of intermodal land transportation, biofuels and electric locomotives.
The retailer aims to reduce its transport emissions by 70% by FY30 compared to its baseline in 2017 through its decarbonization agenda: reduce, replace and rethink.
Global Sustainability Manager Elisabeth Munck af Rosenschöld outlined the strategy at TPM24 by S&P Global in Long Beach, California.
Reduce
“Reduce “ is about working with efficiencies, Munck af Rosenschöld said. It involves “continuous improvement, equipment utilization, fuel rates, optimizing the networks, working with fuel efficiency measures, digital solutions, etc.”
Being a big ocean shipper, in FY23 Ikea made approximately 1.7 million shipments through land and ocean, generating one million tonnes of CO2 equivalent of greenhouse gas emissions, according to Ikea’s climate report.
Shifting to a new technology or new fuel is not enough, the sustainability manager said. “We need to reduce the actual amount of energy that we are using [and] the amount of fuel that we are using.”
Replace
“Replace” refers to Ikea's efforts to transition away from fossil fuels to biofuels.
“We see biofuels as an important piece of the puzzle to reduce emissions here and now in the shorter term perspective. It’s not the ultimate solution we need to work towards zero emissions,” Munck af Rosenschöld said.
Ikea started using biofuels in 2019, during a collaborative pilot project with CMA CGM, the Port of Rotterdam and GoodShipping. The pilot tested the use of biofuels in an ocean container vessel, which was proven successful, Munck af Rosenschöld said at the conference.
“We are using more biofuels as it is now in our supply chain for ocean shipping,” she said. “And with the latest ocean tender that we did, we will reduce our carbon emissions from our ocean shipping with almost 30%.”
Rethink
As its last step in its agenda, Ikea seeks to “rethink” and integrate new solutions in its supply chain
Munck af Rosenschöld said it’s not only about innovative technologies and zero emissions fuels, but about innovated collaborations. Ikea was the first member to join the Zero Emission Maritime Buyers Alliance, also known as ZEMBA, back in March 2023.
“So we are coming together with other cargo owners to demonstrate that there is a demand for zero emission ocean shipping. And the first ever request for proposal is now out there for 600,000 TEUs over a period of three years,” Munck af Rosenschöld said. The request is for the TEUs to be transported through ocean vessels powered by zero-emission fuels.
Other members include Amazon, Nike, New Balance, Brooks Running and Chewy, which are also requesting lower-emission shipping options in an effort to reduce their climate footprint.
“We are very happy to see that more and more cargo owners are coming onboard and joining ZEMBA — [we] just heard now that there are 28 companies now within ZEMBA and we would like many more to join because we are making a difference,” Munck af Rosenschöld said.
Article top image credit: Alejandra Salgado/Supply Chain Dive
Who will pay to decarbonize the supply chain?
Some brands are helping their suppliers reduce greenhouse gas emissions. Others are dumping new requirements on vendors without shouldering any of the costs.
By: Ben Unglesbee• Published Aug. 15, 2023
To decarbonize the world, the world must decarbonize the supply chain, and quickly.
Some 75% of all greenhouse gas emissions fall under Scope 3 emissions, which includes the upstream supply chain as well as the end use of a company’s goods and services.
To cut those emissions enough to avoid catastrophic climate change will take technology, infrastructure, operational changes — and money.
The total cost of transitioning the global economy to net zero emissions could cost an extra $3.5 trillion a year in capital spending, or roughly half the profits of the world's global corporations, according to a 2022 McKinsey estimate.
As more businesses look to reduce the carbon footprint of their supply chains, the question of who will pay for the necessary changes — buyers or suppliers — will become more pressing. Even the world's wealthiest brands are discovering the true cost of decarbonizing their supply chains.
“The amount of internal investment being put into decarbonization activities varies enormously between organizations,” said Simon Geale, EVP of procurement at the consultancy Proxima. “It's not just suppliers that are struggling with ‘How do I pay for this?’ It’s organizations.”
And while some major brands are investing to help suppliers lower their emissions, some may simply be dumping the issue and its costs onto their supplier base for them to figure out on their own.
In some industries, such as fashion, those suppliers are already struggling with tight operating margins. “How are they going to invest when there's no cash flow? Cash flow is the problem,” said Chana Rosenthal, principal of reDesign Consulting. “That makes it challenging to invest in green [technologies].”
In a 2023 Efficio study, only a third of surveyed executives and managers said they were “very confident” in their ability to hit their carbon reduction goals. The study shows cost control remained a top responsibility for procurement leaders over others, including sustainability.
Even within environmental reduction investments, cost reduction is the top driver, according to a GEP survey of executives.
“Behind closed doors, a lot of CFOs are saying, ‘Well, I know that I'm going to have to do it. But when do I have to do it?’” Geale said, referring to action on supply chain emissions. “Because there's an immediate cost rather than an immediate payback.”
Unfortunately for humanity and the rest of Earthly life, the climate is indifferent to budget plans and profit targets. The world needs to cut greenhouse gas emissions by 43% by 2030 to avoid some of the most extreme outcomes of climate change, according to the United Nations’ Intergovernmental Panel on Climate Change.
“Behind closed doors, a lot of CFOs are saying, ‘Well, I know that I’m going have to do it. But when do I have to do it?’ Because there’s an immediate cost rather than an immediate payback.”
Simon Geale
EVP for procurement, Proxima
Scope 3 emissions, specifically those tied to the supply chain, present an especially steep challenge and cost burden. Simply understanding the extent of a footprint takes time, data and often technology. All of that takes money. Because these emissions occur outside the company's purview, they are the most expensive to track, while also often being by far the biggest chunk of most carbon footprints.
“The biggest hill is Scope 3,” Jackie Sturm, Intel VP for global supply chain operations, told Supply Chain Dive in an interview. “If you look at Scopes 1 and 2, we have converted to renewables — well before this was popular.” In 2022, Intel’s U.S. and European operations ran on 100% renewable energy, and the company aims to operate on 100% renewables across global operations by 2030, according to its corporate responsibility report.
“But to bring that back to our supply chain is challenging because, as a semiconductor company, we use almost everything on the periodic chart.”
For Intel, that means its climate footprint size is tied to the mining of a range of minerals, each of which comes with its own emissions creation. Mitigating that footprint takes an enormous toolbox, including data collection, choice of more sustainable materials and working with suppliers, to find out how much of their carbon footprint is intrinsic to their production and what they are doing to mitigate it.
Some carbon-reduction efforts could pay for themselves in the long run through operational changes that produce value by increasing efficiency or cutting down on energy costs, Sturm said. “How do I maybe reduce consumption? How do I shift my consumption to greener chemicals? How do I bring things in more regionally rather than transport them across the ocean?”
For suppliers that can afford it, they may have their own incentives to invest in emissions reduction, particularly in consumer goods sectors where more customers want sustainable products.
“What we found generally is, at least in our industry, it's really moving towards suppliers seeing climate as a competitive advantage, and really investing in their own value chains,” Nancy Mahon, chief sustainability officer for The Estée Lauder Companies, said during an Economist Impact conference panel in Washington, D.C.
But many suppliers may not have the resources to make investments without help.
How to get a CFO interested in cutting Scope 3
Finance may be able to help bridge at least some of the gap between global environmental imperatives and corporate financial goals, and between buyers and suppliers when it comes to cutting emissions.
For CFOs, “one of the things that really perks their ears up is the idea that they can get access to better financing rates by performing better on green initiatives, which I think is super interesting,” Geale said.
By the numbers
$3.5 trillion
How much additional capital spending is needed per year to transition the global economy to net zero emissions.
75%
Share of greenhouse gas emissions represented by Scope 3, which includes the supply chain.
The market for green capital has expanded rapidly in recent years. One area where investors can put their money to work funding the climate transition is through so-called green bonds and other lending instruments.
These can help finance environmentally-focused projects. Apple, for example, announced $4.7 billion in green bonds in 2022 to “jump-start the development of new low-carbon manufacturing and recycling technologies,” including carbon-free aluminum for its products, as the computing giant aims for a carbon-neutral supply chain by 2030.
Walmart, the world’s largest retailer, announced an “inaugural” $2 billion in green bonds in 2021, with some of the proceeds going to waste-reduction and sustainable transport initiatives in its supply chain. So far, projects include a program working with tire supplier Apache Mills to turn used tire materials into heavy-duty commercial entrance mats sold at the company’s Sam’s Club stores.
Walmart is also trying to help its vendors decarbonize through a supply chain finance program tied to environmental goals. Introduced in late 2021 as an “industry first,” the program — offered through HSBC — gives suppliers better financing terms if they meet science-based greenhouse gas reduction targets tied to the retail giant’s Project Gigaton, which aims to cut 1 billion metric tons of emissions from its supply chain by 2030.
In effect, big retailers like Walmart can use their solid credit ratings to get cheaper finance and faster payments for their suppliers, and use that as a carrot to incentivize lower emissions.
“When we propose one of these programs to a CFO, they're like, ‘Sure, this is great if we get more capital,’” said Eric Fisch, head of retail and apparel for HSBC’s U.S. commercial banking business. “And then we propose it to their chief sustainability officer, and they're like, ‘This is amazing. I want to do this.’”
The programs also can include capital for some supplier projects to help them with environmental and carbon-reduction initiatives.
How supplier projects are chosen is still being fine tuned, and Fisch noted there is a limit to the number of projects such a program can fund. “If you did it for every vendor, all of a sudden you'd be out a lot of money,” he said.
Outsourcing sustainability to suppliers
Whatever the usefulness and limits of such financing programs, they are far from ubiquitous.
For many suppliers, especially in low-margin industries like apparel, buyers’ Scope 3 targets are just another challenging demand and expense leveled by the powerful brands they depend on as buyers.
“More and more, you’re putting all of the pressure on suppliers,” Rosenthal said, pointing to the history of outsourcing manufacturing and other functions to suppliers outside of big consumer-facing brands. Sustainability, in that model, can be outsourced too.
"More and more, you’re putting all of the pressure on suppliers."
Chana Rosenthal
Principal, reDesign Consulting
Some garment manufacturers have reported this as happening. In a study that Rosenthal co-authored with Natasja Sheriff Wells for the NYU Stern Center for Business and Human Rights, some manufacturers in Bangladesh reported “expensive new environmental mandates to reduce water use and carbon emissions,” that added to their economic pressures. Brands, the report noted, generally declined to incentivize those mandates with financial benefits.
Yet suppliers may well be interested in reducing their footprints. “We talked to many suppliers around renewable energy, and they're all interested — they want to, at least the ones we spoke to — but that's not an easy solution,” Rosenthal said. “It takes time and money.”
Complicating matters is that buyers’ requirements around the environment keep changing and often vary from buyer to buyer. “What some suppliers are having trouble with is, they have invested in something and then something else comes along, and then they have to reinvest,” Rosenthal said.
Across industries, there are a range of approaches, some more conducive to working with more financially strapped suppliers than others.
“I've seen companies go to their supplier base and say, ‘Here's my target, comply or die. If you're not able to reduce your emissions in line with my target, I'm gonna kick you out,’” Proxima’s Geale said. “Which is a particularly draconian and ineffective way of running a decarbonization program.”
Geale went on to note, “I've also seen examples of where organizations are saying, ‘Let's have a more structured supplier engagement approach. Let’s figure out where you are, how we can help you, can we unlock financing solutions for you and be more collaborative.’” HSBC’s Fisch said he expects that the costs of the carbon transition will ultimately be split in some way among suppliers, buyers and consumers. He pointed to the recent period of historic inflation sparked by 2021’s supply chain snarls, which came with “a collective sharing of the pain" of cost inflation.
“Some of it got absorbed by the factory, and then some by the wholesaler, then some by the retailer, and then the price increased to some degree,” Fisch said of inflation. “It ends up becoming a collective burden. And that's the way I would envision any transition,” related to climate initiatives.
One simple way to help finance the transition for suppliers may be through generally good buying practices like paying on time and committing to purchases, according to Rosenthal.
“If you truly want to decarbonize, you have to start there and allow them the ability to mend their business,” Rosenthal said. “Talk to them and figure out what their needs are.”
Article top image credit: Alex Potemkin via Getty Images
Procurement changes can reduce supplier emissions
Shrinking scope 3 footprints can create broad-based change across a supply chain, sustainability leaders AstraZeneca and Philips said in a webinar.
By: Ben Unglesbee• Published Aug. 24, 2023
The length and complexity of supply chains are among the fundamental difficulties in reducing scope 3 emissions, which comprise the majority of most companies’ footprints.
At the same time, the size and layers of supply chains mean action around decarbonization can multiply as it moves through the chain.
“I've spoken to maybe 1,000 suppliers on the different webinars and conferences we've held over the last 12 to 18 months,” said Robert Williams, AstraZeneca’s director of procurement sustainability. “If I speak to 1,000 suppliers, and they speak to 1000 of their suppliers, that's a million suppliers in two conversations. And that's the pace we need to move at.”
AstroZeneca’s suppliers are working to reduce their own scope 3 emissions, Williams said during a Science Based Targets (SBTi) initiative webinar.
“I recall speaking to one of our key direct materials manufacturers, who told me that actually 80% of their carbon emissions are in their supply chain,” Williams said. “It's absolutely essential that our key suppliers are cascading these requirements down their supply chain.”
Procurement as a profession and business function is arguably a key battleground in the effort to reduce greenhouse gasses and prevent catastrophic climate change.
That’s because supply chains and scope 3 account for the vast majority of most companies’ emissions. As Luiz Amaral, CEO of SBTi, noted on the webinar, scope 3 emissions (which also include the downstream value chain the end use of products) are 11.4 times greater than the average company’s direct emissions.
“We can only avoid the worst impacts of climate breakdown if we are to tackle those scope 3 emissions,” he said.
Amaral also pointed to the difficulties in reducing supply chain emissions that many have brought to his organization. Those challenges include access to supplier data — a lament repeated by others in the webinar and in executive surveys — as well as influence over suppliers, confidence in vendors’ ability to deliver on outcomes and the lack of detailed guidance.
Despite those obstacles, SBTi — a consortium of NGOs, nonprofits and the United Nations Global Compact that works with corporations to set emission reduction and net zero targets — reports a steep increase in companies setting goals for cutting their emissions. That includes scope 3, with 406 companies set scope 3 goals with SBTi in 2022, bringing the total to 1,134 companies, according to the organization’s latest progress report.
Along with Williams, Tom Scholte, sustainability manager for the global healthcare giant Philips, also pointed to the broad impact of efforts to reduce scope 3.
“We have a direct business relationship with more than 20,000 suppliers,” Scholte said. “And this means that by decarbonizing our supply chain, we have a potential impact of at least seven times greater than the emissions reduction from our operations.”
The company has a goal for 50% of its suppliers, by spend, to commit to carbon reduction targets by 2025, Scholte said. In 2022, 41% of the company’s suppliers set science-based targets, up from 28% in 2021.
Scholte described a “carrot-and-stick” approach for incentivizing suppliers to commit to reductions. To incentivize suppliers, Philips includes emission measurement and reduction targets in its code of conduct for vendors and incorporated targets into its design standards. It has also set up capabilities, both within the company and outside it, to help suppliers upskill and build what Scholte describes as “climate maturity.”
Philips’ teams will also help suppliers identify high emissions risk areas in their businesses as well as opportunities to become more energy efficient, such as by replacing outdated lighting systems or inadequate insulation, Scholte said.
Beyond the level of individual suppliers, action on emissions sends broader messages — in the form of “demand signals,” as Williams described them — to the market that can spur innovation in supply chains.
“We're giving those signals that we want to change, we need change, we'll be buying changed materials, and we want suppliers to change too,” William said.
Article top image credit: Sean Gallup via Getty Images
How Nike, McCormick and others are taking on supply chain emissions
Collaborating with suppliers to reduce Scope 3 footprints was a common theme at the Economist Impact’s Sustainability Week U.S. conference.
By: Ben Unglesbee• Published June 7, 2023
WASHINGTON — For Nike Chief Sustainability Officer Noel Kinder, scope 3 emissions are “one of the things that keep me up at night.”
scope 3 is a category comprised of a company’s indirect greenhouse gas emissions up and down the value chain, from materials and supply chains to the end use of a product or service. The sportswear giant’s supply chain represents more than 90% of the company’s climate footprint, making it among the very top sustainability issues facing Nike.
scope 3’s share of emissions at Nike is standard for the fashion industry and most other sectors in the economy. Many companies are just beginning the complicated task of tracking their scope 3 footprints, not to mention reducing them.
Data, supplier partnerships and creativity are key to tracking and reducing emissions in the supply chain, several corporate executives noted at the 2023 Economist Impact's Sustainability Week U.S. conference in Washington, D.C.
During a panel on corporate efforts to achieve net zero emissions, Kinder pointed to two primary levers Nike can manipulate to reduce its supply chain emissions.
The first is what he called the “feedstock” — i.e., the materials such as polyester, leather and rubber that the brand’s products are made from. The other lever is the energy it takes to convert that material into finished product, and which is supplied to grids where Nike sources its goods.
“Today, collaboration among brands, collaboration across industries has become really, really important to us,” Kinder said.
He added: “We can send a collective demand signal in places like Vietnam and Indonesia, to say, ‘We have these Science Based target goals. Our scope 3 is really the largest component, the most meaningful. We need to collectively signal that demand so that our suppliers can use renewable energy to fuel their operations.’”
Nike has looked to on-site solar power at overseas production facilities, Kinder noted, adding, “Which is really great, but it doesn’t have the generation capacity to cover our entire footprint.”
What’s needed, then, is for more sustainable energy feeding grids in heavy producing companies, which Kinder and others hope will happen as more brands work to reduce their scope 3 emissions and create demand for that energy.
Working with suppliers to cut scope 3
While Kinder noted the importance of industry collaboration, others also pointed to how crucial collaboration with suppliers is to scope 3 reductions.
For spice company McCormick & Co., scope 3 accounts for more than 95% of greenhouse gas emissions. That means key factors in reducing the company’s overall footprint are outside of the company’s direct control.
“So you need to make sure you have partnerships with your suppliers,” Michael Okoroafor, chief sustainability officer for McCormick, said on a panel focused on scope 3.
Okoroafor pointed to the company’s participation in the Supplier Leadership on Climate Transition program. The collaborative provides vendors with training and mentorship — financed by brands — to develop a strategy to reduce greenhouse gas emissions in line with global targets.
McCormick doesn’t just have a supply chain, it is a key player in the supply chain of others. That includes some of the largest food retailers in the world, who can impact the climate goals for an entire ecosystem of companies.
“In our own case, we don’t have a choice,” Okoroafor said. He pointed to Walmart and other large retailers that are pushing for more sustainable products and are working to reduce their own scope 3 emissions. “This customer, this retailer, they hold the key to the kingdom,” Okorafor said. “You’ve got to make sure you comply.”
External pressure to reduce emissions
Investors can also influence a company’s path and speed toward scope 3 reduction. They also indirectly create an impetus for buyers and suppliers to share data on emissions.
Nancy Mahon, chief sustainability officer for The Estée Lauder Companies, noted that her company’s shares are held in several climate investment funds, and investors regularly ask the company to produce specific information about its footprint.
“If you can’t produce it, they can’t invest in you,” Mahon said. “We're able then to go back to our suppliers and say, ‘This is the reality we're facing.’”
Brand marketers can also drive sustainability initiatives in supply chains, Mahon noted. Marketers might say, “I want to make XYZ claim on XYZ product,” Mahon said. “The environmental team says that’s possible or not possible. And then we go back to the supplier and say, ‘What would need to be true in order for us to make this claim?’”
Simple communication with suppliers can also drive progress on climate. Dave Duncan, vice president of sustainability at digital manufacturing solutions company PTC, said the company goes through its spend data and reaches out to suppliers about their path to emissions reduction.
“‘Are you committed, yes or no?’” Duncan said, describing conversations between his company and suppliers. “Frankly, those are the phone calls driving the exponential increase in commitments.”
Article top image credit: donm60 via Getty Images
Shareholder activist blasts Nike for doing too little to prevent abuses in supply chain
By: Ben Unglesbee• Published March 9, 2023
Dive Brief:
Activist investment platform Tulipshare rebuked Nike in an open letter in March for “willingly ignoring” shareholders’ concerns over potential abuses in the retailer’s supply chain, including forced labor.
“[W]e are concerned by the lack of transparency relating to Nike’s disclosures on whether the Company is on track to meet certain targets,” Tulipshare said in the letter. “We are also gravely concerned that Nike lacks an adequate remediation process for aggrieved supply chain workers, which could lead to human rights violations, such as wage theft.”
The letter also pointed to “legal, financial, and reputational risk” to Nike of not doing more to root out abuses in its supply chain. Nike did not respond to Supply Chain Dive’s request for comment.
Dive Insight:
Nike is one of the largest apparel sellers in the world. The company made $46.7 billion in revenue in fiscal 2022, and has one of the most valuable brands and companies in the fashion industry.
As such, it commands sizable leverage in production markets and has a vast supply chain that includes well over 1 million workers.
In 2022, the company reported 120 footwear suppliers making finished goods for Nike across 11 countries, with most of that production in Vietnam (44%), Indonesia (30%) and China (20%).
Another 279 factories, in 33 counties, made finished apparel for Nike, with most of those facilities in Vietnam (26%), China (20%) and Cambodia (16%). The company has another 139 “strategic” Tier 2 suppliers, and does not currently make disclosures around its third tier and beyond.
The Tulipshare letter highlighted Nike’s score on KnowTheChain, which provides company benchmarks around forced labor. Nike most recently scored 62 out of 100 possible points, making it the sixth highest-ranked apparel and footwear business among 37 peer companies. The brand drew its lowest scores for purchasing practices (48 out of 100), worker voice (38) and remediation (58).
“Nike takes seriously and fully supports national and international efforts to end forced labor, human trafficking and modern slavery,” the retailer previously said in a statement condemning the human rights violations.
Meanwhile, a group of 20 unions along with labor organizations filed a complaint against Nike in February with the Organisation for Economic Co-operation and Development over treatment of workers in the brand’s supply chain.
The group said in a fact sheet that workers in Nike’s supply chain “experienced layoffs and terminations, arbitrary pay cuts, unpaid wages for hours worked, and gender discrimination at an unprecedented scale” and alleged that the company contributed to negative conditions for garment workers without remedying them.
Multiple labor groups tied to the OECD complaint found that garment workers were still owed millions of dollars in wage claims going back to the early pandemic period in 2020, when brands, including Nike, canceled orders with suppliers en masse.
Claims for unpaid wages by workers in Nike’s supply chain in just the small sample of factories surveyed amounted to $9.3 million, according to the report from Asia Floor Wage Alliance and Global Labor Justice-International Labor Rights Forum.
The groups said in the report that “the unresolved claims show that the scope of wage losses can only be addressed by the fashion companies at the top of these supply chains.”
Tulipshare recommended that Nike include the American Bar Association’s Model Contract Clauses into its supplier contracts, which aims to create shared responsibility between buyers and suppliers for workers’ human rights. Tulipshare also recommended Nike work with unions and other organizations to improve freedom of association in its supply chains.
Forced labor in supply chains has come under increasing scrutiny. In the White House’s recently released trade agenda for 2023, the Biden administration called forced labor out as one of its main points of focus, along with securing other rights for domestic and international laborers.
Article top image credit: Courtesy of Nike
Only 38% of businesses are tracking scope 3 emissions: IBM report
Greenhouse gases in supply chains represent the largest source of most industries’ carbon footprint, but many firms are just beginning to account for them.
By: Ben Unglesbee• Published Sept. 28, 2023
Dive Brief:
Forty-five percent of companies believe they are ready to report on their scope 3 greenhouse emissions by 2024, according to a poll of leaders in IT and sustainable strategy conducted by Morning Consult for IT giant IBM.
At the same time, just 38% said their businesses are currently measuring their scope 3 footprints, per the report.
While indirect emissions account for the vast majority of most companies’ carbon footprints, scope 3 ranks relatively low among performance indicators firms use to measure sustainability. “Specific KPIs, notably supplier metrics, are likely being overlooked,” the report’s authors write.
As new laws targeting supply chain transparency come online, both at the state-level in the U.S. and internationally, companies could face new requirements to disclose their scope 3 emissions. Yet a 7 percentage point gap exists between those leaders who say they are ready to report on their scope 3 emissions and those who are actually measuring them, according to the survey.
“There are some disparities between business leaders’ perceptions of their organizational capabilities versus what their organization is already doing,” the report authors write.
Scope 3 emissions cover everything from raw materials and third-party manufacturing to freight and a product’s end-of-life cycle. Its breadth, complexity and indirect nature make it a complicated challenge to unravel, much less solve.
Tesla called scope 3 calculations “highly academic” when it provided figures for its indirect emissions for the first time ever this spring.
Even the high tech industry, with a reputation for being data savvy, is far behind on scope 3. A 2023 Accenture analysis found that “many High Tech companies lack the deep visibility across the supply chain that’s required to address their upstream scope 3 emissions.”
Luiz Amaral, CEO of Science Based Targets initiative, said in the summer that companies often point to a lack of access to supplier data as a major challenge in tracking and reducing scope 3 emissions — a common theme in scope 3 discussions and one that is reflected in executive surveys.
“Getting a clearer picture of your supply chain emissions is a vital starting point for any science based target,” Amaral said in a webinar this summer. “One does not manage what one does not measure.”
When it comes to deploying information technology to track scope 3 emissions and other sustainability issues, the top challenges listed were overall budget limits and overall budget allocation challenges, according to the IBM survey.
IBM, which has products that track scope 3 emissions, tapped Morning Consult to perform the survey, which was conducted in August. It drew from a sample of 3,250 business leaders, defined for the survey as decision-makers in IT and sustainability strategy within their organizations, from 13 countries.
Article top image credit: Michele Ursi via Getty Images
3 years later: How COVID-19 exposed the vulnerability of suppliers and workers to the power of big buyers
A tidal wave of order cancellations in early 2020 had dire repercussions for laborers and their families. The consequences are still being felt.
By: Ben Unglesbee• Published March 31, 2023
Three years ago, in spring 2020, thousands of retail doors across the U.S. were shuttered as COVID-19 began its rapid, deadly spread.
Factories in Bangladesh, Sri Lanka, Pakistan, Cambodia, Ethiopia and other global manufacturing hubs also shut their doors after large retailers and brands — facing deep uncertainty in their own businesses — canceled many billions of dollars’ worth of orders.
The two sets of closures are related, but the ultimate outcomes were vastly different and unequal.
Most retailers and brands in the U.S. shrugged off the financial impact of the store closures within a year. Meanwhile, many smaller factories closed for good, while workers were laid off and lost desperately needed income. Debt, forced labor and hunger followed the lost wages for many factory workers, especially in apparel and footwear, where incomes historically have been low to begin with.
The early period of the pandemic revealed the cracks in supply chains as well as the underlying dynamics that are still very present by many accounts, and which predated the crisis.
For all the talk of partnership between buyers and suppliers, the COVID-19 crisis showed just how contingent the relationship often is between powerful brands and overseas vendors and their workers, as research since that time has shown.
“It lays bare the vulnerability of the supply chain for the workers,” Pamela Abbott, a professor of education and director of the Centre for Global Development at the University of Aberdeen in Scotland, said in an interview.
‘They were just in shock’
Walmart. Target. Aldi. Kohl’s. Gap Inc. H&M. Inditex. VF Corp. Carter’s. J.C. Penney. Tesco. Those are just some of the companies that canceled orders with suppliers early in the pandemic crisis, according to academic researchers.
By late April of 2020, major brands had canceled $3.8 billion worth of apparel orders in Bangladesh alone, as Mark Anner, labor professor and director of the Center for Global Workers’ Rights at Penn State, found by using a database released at the time by a trade association of Bangladeshi manufacturers. And that was in just one country.
Some of the order cancellations were especially damaging financially. In many cases, suppliers had already spent capital to procure raw materials or had manufactured the products — some orders were even on boats in transit to their buyers.
“They were just in shock,” Anner said in an interview with Supply Chain Dive. “[Suppliers] were in debt, operating on credit, and getting paid later and later over time. … When you cancel on them, when they’re in debt to the banks and everyone else, the ripple effects are very severe.”
Force majeure — previously a boilerplate contract and legal term — took on new and dire meaning for suppliers. Literally meaning “a superior force,” buyers began invoking it to cancel orders en masse. Many suppliers were caught completely off guard. “‘Where is this clause?’” Anner said, describing supplier confusion at the time.
"When you cancel on them, when they’re in debt to the banks and everyone else, the ripple effects are very severe."
Mark Anner
Professor and Director of the Center for Global Workers’ Rights, Penn State
If the orders were already produced, suppliers were typically stuck with the goods. Garment factories in Bangladesh, for example, had to sell into local markets at much lower prices given that clothes for Western markets are very different from what people in those areas wear on a daily basis, as Muhammad Azizul Islam, chair in accounting and professor of sustainability accounting and transparency at the University of Aberdeen, noted in an interview.
And cancellations weren’t the only damaging actions by buyers. Brands also reduced new orders, delayed payments and started paying on longer terms as they tried to minimize their own risk. In effect, they shifted financial and operational risks to their suppliers, researchers and activists said.
About half of factories in a survey of Bangladeshi apparel producers reported that retailers engaged in at least one practice deemed unfair, whether it be order cancellation, price reduction, refusal to pay for dispatched goods and delayed payments, according to a paper from this January by Abbott, Islam and other University of Aberdeen researchers. Larger brands and retailers were more likely to engage in those practices compared to their smaller counterparts.
Debt, hunger and instability
Suppliers didn’t simply absorb all of the financial pain. As research has found, it moved further down the chain to workers. And many are still living with the ramifications today, three years later.
As store and factory doors shut, workers had their hours cut, or were furloughed or laid off.
The University of Aberdeen authors found that at least 25% of factory workers in Bangladesh lost their jobs during the March-April period in 2020, based on a survey with factory owners. The figure could be similar in other production areas around the globe.
Nearly 80% of garment workers who lost their pre-pandemic contracts had not received full severance pay, and more than two-thirds had received nothing, according to a 2021 report from University of Sheffield and Workers Rights Consortium researchers that surveyed over 1,110 workers.
Wage claims amounted to $24 million across 467 factories in six countries for Levi’s, Nike and VF Corp., according to a joint report from Asia Floor Wage Alliance and Global Labor Justice-International Labor Rights Forum.
That number covers only a small fraction of the supply chain. But if the average from that survey — $1.1 million in wage claims per factory — is any gauge, the unpaid pages owed to workers from the COVID-19 crisis would amount to many, many billions of dollars across the global supply chain just for the fashion industry.
The decimation of worker incomes had several consequences. Looking at workers in Ethiopia, Honduras, India and Myanmar, a team of researchers working with the WRC found that supply chain workers in the garment industry saw their living conditions worsen, as the few who had savings had to spend it to survive, and many more took on new debt. Along with borrowing costs, the nature of lending in many areas has made workers more vulnerable to forced labor and other abuses since 2020.
Workers also faced food insecurity and outright hunger. In a survey from November 2020, 88% of garment workers reported that their household had to reduce food consumption because of diminished income, and 77% said they or a family member had gone hungry at some point, according to a separate WRC study. Twenty percent of workers said they experienced hunger on a daily basis at the time.
“Workers weren’t very well off before COVID-19. COVID-19 just exacerbated pre-existing issues.”
Pamela Abbott
Professor and Director of the Centre for Global Development, University of Aberdeen
Returning to factories after economies reopened in the West didn’t resolve the difficulties for workers. Islam said that employers pushed new contracts on those who had been laid off, and workers were desperate enough to sign even at less pay.
“Whatever the employer offered, you had to accept it,” Islam said.
When sales in wealthy countries picked back up and brands tried to restock in a hurry, schedules became frenetic, and many workers reported unpaid overtime.
Accelerated production schedules put even more pressure on those workers who still had jobs after the initial crisis. Many since have reported unpaid overtime. Those overtime wages are critical, as many workers in poor countries rely on them to make ends meet.
"Intensified production targets and all types of wage and hour violations that the garment industry is kind of known for has been heightened over the past years, because of the instability in supply chains and suppliers trying to make up for their margins on the backs of workers," said Sahiba Gill, senior staff attorney with GLJ-ILRF.
None of these ills for workers were new to the pandemic. Below-cost purchasing, rapid timelines, and last-minute order changes by buyers have pressured factories and in turn their employees.
“Workers weren’t very well off before COVID-19,” Abbott said. “COVID-19 just exacerbated pre-existing issues.”
A ‘character moment’ for buyers
After the initial crisis, many brands began paying for canceled orders. Anner pointed out that this was in part due to public pressure on brands, as they were called out for their actions in public.
Workers and suppliers began collaborating on activism, including through what was dubbed #PayUp, a campaign to pressure buyers to pay for canceled orders during the crisis.
As Anner wrote in a 2022 paper, collaboration between workers and factory owners on activism happened as “suppliers realized that they needed the moral legitimacy of activists and worker rights advocates, and because worker rights advocates understood that if suppliers went out of business, millions of workers would lose their jobs.”
Much of the visibility to the issue has passed with the initial crisis. And the cases of brands financing lost severance remain extremely small in number. One of the very few is Victoria’s Secret, which came to a historic settlement with workers in Thailand in early 2022 over wages lost amid a 2021 factory closure.
Again, that’s the exception for now. At the end of 2022, 90% of factories studied by the Asia Floor Wage Alliance had not resolved workers’ wage claims going back to 2020, and more than half had not paid for owed overtime also tracing back to 2020.
And that is after years of activist pressure on the brands in the study. One of those brands, Nike, was recently the subject of a complaint by unions and activist groups with Organisation for Economic Co-operation and Development over treatment of workers in the sportswear giant’s supply chain, much of it tracing back to the early 2020 period.
“We're really hoping that they will find a way to pay back workers and their supply chain, and they can also change the way they do business moving forward.”
Sahiba Gill
Senior Staff Attorney, Global Labor Justice-International Labor Rights Forum
For Anner and others who study the relationships between buyers and suppliers in fashion and other markets, the crisis in 2020 highlighted just how unequal the partnership can be, and how workers in poorer countries ultimately absorb the brunt of buyers’ actions.
“Buyers squeezed suppliers on price, order volume and payment terms, with devastating consequences for suppliers and especially for workers,” Anner summed up in his 2022 paper. “Millions of workers lost wages, jobs and severance payments.”
The lasting impact is relational as well as material. “Partnerships and trust were severely damaged — between buyers and suppliers, and between factory owners and their workers,” Anner said in an interview. “That has to be rebuilt.”
It’s unclear what has changed in the relationship between large buyers and overseas suppliers. Among big brands, 72% were paying below the cost of production in late 2021, and 68% were buying from factories that were struggling to pay their workers the local minimum wage, according to the University of Aberdeen authors.
Some say the plight of workers in supply chains is just as precarious today, if not more so, and that buyers’ actions remain just as problematic.
“From what we've heard, I would say a lot of the buyers have not improved their relationships, and they've actually doubled down on some of their practices,” said one researcher who studies labor issues in supply chains.
For Abbott and Islam, the issues are systemic. As they explain, countries compete to be manufacturing hubs and attract foreign investment. Factories within those countries and in others all compete to win contracts. Buyers, facing investor pressure to generate profits, push down suppliers’ prices as far as they can. The rock-bottom prices and pressures on factories can lead to all manner of abuses against workers. And everyone in the system is competing to supply consumers vying for status and trying to keep up with cultural norms.
While the global supply chain crisis of 2021 showed just how much buyers rely on their suppliers, the following year saw buyers rolling back and canceling orders — albeit not with the same level of destructiveness as in early 2020 — once sales began to decline. But researchers Supply Chain Dive spoke with said workers are once again feeling the pain of buyers’ defensive actions.
"It is a real bellwether character moment for the industry, and they can still make good,” Gill said. “We're really hoping that they will find a way to pay back workers and their supply chain, and they can also change the way they do business moving forward.”
Article top image credit: Allison Joyce/Getty Images via Getty Images
At Colgate, supply chain and sustainability come from the same tube
The CPG aims to reduce plastic waste and its carbon footprint as part of its environmental strategy.
By: Ben Unglesbee• Published June 30, 2023
Even the purchase of a new forklift is done with sustainability in mind at Colgate-Palmolive.
“If someone is going to put forklifts in a warehouse, there’s no question it is going to be electric,” Chief Supply Chain Officer Luciano Sieber said in an interview. “No one is going to come and propose one that needs fossil fuels as an energy source.”
The CPG company has for more than two decades made sustainability issues and data part of the DNA of its supply chain. Its sustainability team grew out of the supply chain organization and today has personnel still embedded in Colgate’s supply chain and packaging teams.
Colgate sets aside a minimum of 5% of its capital spending for waste reduction, climate initiatives and other sustainability efforts.
The company won’t invest in new machines if they can’t run recyclable structures, Sieber noted. Packaging types, even if they have other benefits, are rejected without argument internally for similar reasons, because they can’t be recycled.
“The strategy is so ingrained in our organization that it is part of every single function in the supply chain,” Sieber said. “We know the targets, we know what we want to achieve, and then it’s just part of the decision-making.”
When the company set a goal for reducing the waste its factories send to landfills, its manufacturing facilities competed among themselves to see which division would be first.
Sustainability strategy "is so ingrained in our organization that it is part of every single function in the supply chain. We know the targets, we know what we want to achieve, and then it’s just part of the decision-making.”
Luciano Sieber
Chief Supply Chain Officer, Colgate-Palmolive
“They get very creative,” Chief Sustainability Officer Ann Tracy said in an interview. On the waste-reduction target, factories started with a literal dumpster dive, examining contents of dumpsters to see what materials they could cut out, reuse or recycle, Tracy said.
For example, one factory in South Africa producing bar soap found that it had a “huge issue” with boiler ash after assessing its waste, and ended up supplying it to a brick factory that could use the boiler ash in manufacturing, Tracy said.
Sustainability ‘swords and shields’
Colgate takes on sustainability issues with what Tracy calls swords and shields. “Shields are the things we have to do,” she said, pointing to areas such as responsible resourcing where there may be reputational risks involved, or because regulations, tax law and other factors compel action from the company.
“Swords are where we want to lead,” Tracy said. “We can’t lead everywhere. We have to choose what’s relevant for Colgate as a business to focus on.”
One of those areas is action on the climate. “We really believe we’re punching above our weight there,” Tracy said.
Colgate was the first large multinational corporation in its sector to get its net zero targets approved by the Science Based Targets initiative (SBTi), according to the company’s latest sustainability report.
The company’s targets call for 100% renewable electricity in its global operations by 2030 and a 42% reduction its scope 1 and scope 2 emissions by the same time. That's along with a 42% cut in emissions from its purchased goods and services — i.e., its supply chain — in the same time frame.
"We consider plastic waste an existential issue for us."
Ann Tracy
Chief Sustainability Officer, Colgate-Palmolive
Materials and their end destinations are also of intrinsic importance to the company, which sells some 9 billion tubes of toothpaste worldwide every year, among many other packaged consumer products.
“We consider plastic waste an existential issue for us,” Tracy said. “All our packaging is plastic today. An so it’s a huge risk. It’s just a crime how much plastic ends up in the landfill today.”
Colgate is on track to convert entirely to recyclable toothpaste tubes by 2025. Getting to that point means converting all its factories to equipment that can handle recyclable material.
To scale and get the recyclers on board and willing to accept their tubes, Colgate shared the technology around its recyclable tubes with the industry. Now, other major brands have committed to recyclable tubes as well so that an estimated 75% of the 20 billion toothpaste tubes used worldwide will be recyclable by 2025, per Colgate’s sustainability report. “We kind of led a movement there,” Tracy said.
All of these efforts come amid broader efforts to transform the company’s supply chain. That includes a system and analytics overhaul to get digital systems communicating with each other and get personnel all the data they need, from across the supply chain, in one place.
Beyond profits, operational efficiency can also lessen the company’s environmental footprint.
“If my lines are running well, I’m going to improve energy consumption, I’m going to waste less water, I’m going to waste less product materials, which is also driving sustainability,” Sieber said. “If I'm running my trucks at 99% efficiency, I'm not only improving financials, I'm improving our sustainability footprint.”
Article top image credit: Scott Olson via Getty Images
Purchasing practices are still harming apparel suppliers in Bangladesh: report
With little leverage, manufacturers and workers in supply chains are still struggling as large fashion brands push for ultra-favorable terms, according to a new paper.
A tsunami of cancellations, payment delays and order changes by buyers wreaked havoc on suppliers. They were also disastrous for many factory workers abroad who lost income, often took on debt and struggled to buy food.
In apparel, many of the most exploitative practices have continued since that time and “in some cases have grown more extreme,” according to a new study out from researchers with the NYU Stern Center for Business and Human Rights.
The paper, based on interviews with 28 manufacturers and 20 workers in Bangladesh, examines a set of buyer practices that could strain supplier finances and in turn can hurt worker pay and treatment. Those include:
Pressure for “unreasonable price reductions,” including orders where prices had previously been agreed to and production had begun.
Canceling bookings and projections. Suppliers set aside capacity based on these bookings before a formal, binding contract has been signed. Canceling them leaves manufacturers with unused capacity and materials.
Reliance on third-party sourcing agents. Often, these intermediaries are the players negotiating prices down and can play manufacturers against each other in competitive processes. They also take a cut of the available margin for themselves, according to the suppliers who spoke to the researchers.
The above practices can harm factories financially. Even so, many companies accept buyers' terms so as not to lose important customers and orders, the report found.
The paper’s authors — Natasja Sheriff Wells, senior program manager for the NYU Stern Center, and Chana Rosenthal, principal and founder of reDesign Consulting and adviser to the Stern Center — traveled to Bangladesh in early 2023 for the study.
“Hearing that 2022 was for some suppliers harder than the pandemic was a surprise,” Wells said in an interview.
Difficulties for suppliers in 2022 were the result in part of economic conditions related to Russia's invasion of Ukraine and the ensuing spikes in energy and commodity prices.
Apparel buyers also used economic events as a pretext for negotiating prices down, according to the paper. Purchasers, for example, have asked suppliers for discounts because of unfavorable currency exchange rates. “We heard that a lot” from suppliers, Wells said.
All of this has happened nearly 10 years since the collapse of the Rana Plaza factory in Dhaka, which killed more than 1,000 workers. While that disaster has led many businesses to rethink their responsibility for safety at supplier factories, and some measurable safety improvements, the Stern authors argue that “the purchasing practices of global buyers have remained onerous.”
Wells and Rosenthal conclude with a set of recommendations for buyers, including ending “unreasonable” price cuts on orders, committing to payment timelines and treating bookings on factory capacity as binding contracts.
The authors also urge buyers to reconcile commitments to workers in supply chains with their commercial agreements with manufacturers.
“We want them to internalize their commitments to human rights,” Wells said of retailers and brands. “And to do that they need to better understand their business processes, and their potential impact on workers in their supply chains. It may come at a cost, it might require investment, but the cost of not making those changes is just too high.”
Article top image credit: Allison Joyce via Getty Images
REI secures approval for science-based emissions targets
The retailer is aiming for net-zero emissions by 2050, and is pushing some of its suppliers to adopt certified targets by 2025.
Its near-term targets call for a 47% cut in its direct emissions under scopes 1 and 2 by 2030 against a base year of 2019. Ultimately, REI committed to cutting 90% of its emissions under scopes 1, 2 and 3, and reaching overall net-zero emissions across its value chain by 2050.
As it eyes cuts to its scope 3 footprint, REI aims to have 41% of suppliers by emissions commit to adopting science-based targets by 2025.
"We believe businesses have an urgent responsibility to address the climate crisis and invest in the communities in which they operate," Chris Speyer, REI’s chief merchandising officer, said in a statement. "The co-op is proud to retail a huge number of brands that share this sense of responsibility, and we will continue collaborating with our partners to reduce our collective impacts."
In its supply chain, REI pointed to a three-year clean energy agreement it signed with solar energy company Sol Systems and Nester Hosiery, a sock maker that is one of the retailer’s largest manufacturers.
The deal provides Nester Hosiery and REI with 11,000-plus renewable energy credits sourced from solar energy installations in North Carolina. REI said that credits “represent a big step forward, as they ensure one of the co-op's key suppliers gets 100% renewable electricity.”
The company used a similar approach in its international supply chain. REI recently purchased 25,000 credits from renewable energy projects in Vietnam, Indonesia, Cambodia and the Philippines through clean energy procurement specialist Powertrust.
REI called the purchase “the next step in the co-op's journey to decarbonize product manufacturing,” which the company said would spark new energy products and reduce manufacturing emissions in countries where it sources products.
This summer, SBTi — a consortium of organizations that works with corporations to set emissions targets — reported a steep increase in companies setting goals for cutting their emissions.
Yet many companies have only begun setting targets, including in the emission-heavy fashion industry.
Some estimates put the greenhouse gas footprint of fashion as an industry at 8% or 10% of the world’s total. Environmental advocacy group Stand.earth said the fashion industry’s progress on climate has been “insufficient and extremely disappointing” to date.
The organization gave almost every player it graded — 43 in all — a “C”-level score or lower. Only one, H&M, scored as high as a B-. REI received an overall score of C- from Stand.earth, which was higher than the majority of those scored.
The grade from Stand.earth came out months before the retailer announced SBTi’s sign-off on its climate goals. Targets are factored into those scores, but the majority is determined from concrete actions taken to reduce emissions, according to Rachel Kitchin, a corporate climate campaigner with Stand.earth. The organization looks specifically at things like financial support and data sharing with manufacturers, steps toward circular production, and reducing emissions in their materials.
“Having an SBTi [target] approved is a great step for them,” Kitchin said of REI in an interview. “It means they need to focus their minds on how they're going to achieve those cuts.”
This story was first published in our Procurement Weekly newsletter. Sign up here.
Article top image credit: Courtesy of REI
Ocean carriers to implement carbon emission surcharges in 2024
CMA CGM, Maersk and Hapag-Lloyd are rolling out the fees to comply with new European Union regulations aimed at reaching carbon neutrality.
By: Alejandra Salgado• Published Oct. 12, 2023
Shippers are being given preliminary carbon pricing as European legislation aimed to reach carbon neutrality by 2050 fast approaches.
The EU Emissions Trading System will apply to the shipping sector starting Jan. 1, 2024, and will require ocean carries to monitor and report their carbon emissions. By the end of the year, carriers purchase the equal amount of emission “allowances,” where one allowance counts for one ton of CO2.
Legislation will apply to vessels traveling between EU countries and vessels traveling between an EU and non-EU port.
Some details in the law are still yet to be finalized, such as a list of transshipment ports. The list is expected to be published by the end of 2023, according to an advisory from CMA CGM.
Here’s a list of ocean carriers and their estimated 2024 carbon pricing.
CMA CGM
CMA CGM, which announced its estimated carbon pricing on Oct. 5, said it “decided to alert that EU ETS added costs will induce a surcharge applicable for all containers loaded on CMA CGM services impacted by the regulation.”
The carrier’s surcharge amounts will start mid-November, and will be reviewed on a quarterly basis.
CMA CGM’s estimated carbon emission surcharges
Trade
Dry price per TEU (EUR)
Reefer price per TEU (EUR)
Asia to North Europe
25
40
Asia to Mediterranean
20
30
Europe to North America
43
65
Europe to South America West Coast
43
60
North Europe to Mediterranean
25
35
Intra Mediterranean
25
40
Intra North Europe
37
48
SOURCE: CMA CGM
Maersk
Maersk announced its estimated carbon pricing on Sept. 15.
“The cost of compliance is expected to [be] significant and will keep increasing with the phased implementation,” the ocean carrier said in a statement. “It will be passed on in the form of a standalone surcharge known as ‘Emissions Surcharge’ applied to all bookings on the voyage that will be subject to the EU ETS.”
For shippers using Maersk, the emissions surcharges will be updated every quarter.
Maersk’s estimated carbon emission surcharges
Trade
Dry price per FFE (EUR)
Reefer price per FFE (EUR)
West Coast South America to Europe
74
111
Europe to West Coast South America
83
125
North Europe to Far East
46
69
Far East to North Europe
70
105
South Europe to Far East
11
17
Far East to South Europe
20
30
North Europe to Middle East & Indian Subcontinent
32
48
USA to North Europe
58
87
North Europe to USA
81
122
SOURCE: Maersk
Hapag-Lloyd
Hapag-Lloyd announced its estimated carbon pricing on Sept. 21.
Shippers already using Hapag-Lloyd’s Ship Green service will receive a credit of 25%, 50%, or 100% of the ETS surcharge on the freight invoice, the carrier said in a statement. Ship Green helps shippers avoid 25%, 50% or 100% of emissions.
“The emissions accounting will start in 2024, and the first ETS allowances are to be surrendered in September 2025. In 2027, ships will pay for 100% of the emissions released in 2026,” the carrier said.
North Europe to North America East Coast incl. MX East Coast
9
16
North Europe to South America West Coast
12
21
Europe to West Africa
17
29
North Europe to Middle East
12
22
SOURCE: Hapag-Lloyd
Article top image credit: Joe Raedle via Getty Images
More than 300 Apple suppliers have committed to clean energy
The device maker also released its first carbon-neutral devices as it closes on its goal of dramatically cutting emissions in its supply chain.
By: Ben Unglesbee• Published Sept. 19, 2023
More than 300 of Apple’s manufacturers have now committed to using 100% clean energy in their production for the tech giant, the company said in September.
Apple’s “Supplier Clean Energy Program” now represents 90% of its direct manufacturing spend following recent commitments from more than 50 additional producers.
The announcement brings the company closer to its goal of being carbon-neutral across its products by 2030, it said. That goal includes Apple’s global supply chain and the lifetime use of its devices. Apple is also eyeing a 75% cut in total carbon emissions by 2030.
Some 65% of the emissions tied to Apple’s products result from supplier manufacturing in its scope 3, or indirect, footprint, according to the company’s latest sustainability report. Over the past two years, Apple and its suppliers have worked to triple the amount of renewable electricity in the company’s supply chain.
With help from a multi-billion dollar green bond offering, the device-maker has put up money of its own to help suppliers transition to clean energy. It has invested in solar and wind projects in China and Japan amounting to nearly 500 megawatts, and plans to invest in more, per Apple’s sustainability report.
The company has been carbon neutral in its own operations since 2020, it said.
The same day that Apple announced new supplier clean energy commitments, the company also unveiled its first carbon-neutral products in its Apple Watch line of devices. It called the milestone “a major step in the company’s journey” toward its 2030 goals.
Driving a 75% reduction in emissions for each of the carbon-neutral devices were both design changes and clean energy use, according to Apple.
Specifically, the company’s criteria call for manufacturing processes to use 100% percent clean electricity and 30% recycled or renewable material, while no more than 50% of the products can be shipped by air.
Apple has also replaced leather watchbands with a textile called FineWoven, which is made from 68% post-consumer recycled material and has “significantly lower emissions compared to the more carbon-intensive leather,” according to the company.
Article top image credit: Billy H.C. Kwok via Getty Images
Driving supply chain sustainability
For years, the top imperative for most supply chain teams was to save on costs to boost company profits. In recent years, consumers, investors, governments and NGOs have pushed for a broader mandate that would include measuring and reducing the impact of supply chains on the environment and workers within the system.
included in this trendline
Who will pay to decarbonize the supply chain?
Procurement changes can reduce supplier emissions
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