The human made global climate and environmental crisis is steadily and inexorably tightening its grip on all parts of the world – with every element of the biome impacted on in some way.
The stats below come from a major international report on the status of the world’s environment published in early May ’19.
Those in denial of these horrifying declines are largely individuals inured to the human population’s destructive powers. These deniers, who look the other way, are often financially secure or are too out of touch and cynical to care.
Unfortunately it’s usually also these same privileged few that make the laws, or rather prevent new protective laws from being enacted.
So – in my personal view – we’re not going see any significant impactful regulations delivering major positive impacts on the environment and climate change for another 5 to 10 years. It will not happen until say 20% of the population’s lives are being directly devalued.
So what can be done in the absence of appropriate regulations? Given that we cannot rely on politicians to make the right laws, can businesses (with the ability to react swiftly to consumer demands) break the mould and take action?
I would argue that in the absence of regulations and regulatory capacity, it’s only international, large scale manufacturing or retailing businesses that can start to slow the ship and begin to turn it around.
Big businesses, leveraging their corporate policies, backed up by their commercial clout, can effectively ‘regulate’ their own supply base via their demand chains. Obviously control exerted in this way will have a limited impact on a few demand chains that reach into to source countries where supply chains are initiated. The majority of regions and their populations will be largely unaffected. But it’s a start. It will show what is possible and act as encouragement for politicians to act. Many would say that the FSC (www.fsc.org) and PEFC (www.pefc.org) provided the confidence for EU politicians to enact the European Union Timber Regulation (EUTR) in 2013 that banned the import of illegal timber into the EU.
A key internal benefit for businesses adopting this approach is that they can state that their products having heightened Environmental, Social and Governance (ESG) qualities. This enhances their brand. and helps differentiate their products in a highly competitive market place.
But how do they convince a sceptical customer base that what they say is true? The only way to build a convincing level of trust is through transparency. In this situation transparency can be regarded as consisting of a supply chain map showing all the actors and documentary evidence showing how the product moves down the supply chain from source to the consumer facing retailer. Through the use of such modern due diligence techniques (supported by online systems and processes) products can be cost effectively imbued with intrinsic ESG qualities.
Although you cannot touch, sniff or technically measure these new qualities, it is entirely possible to demonstrate that they are present by using modern due diligence approaches.
There are 3 basic ESG due diligence steps:
1. Qualify the inherent demand chain risks that threaten to significantly devalue the required ESG qualities – specified in the corporate policy
2. Use the data sets gathered from supply chain actors to map the supply chain so that it’s easy to identify the critical control points – where raw materials or product pass from one supply chain actor to the next
3. Gather documentary evidence from each and every key supply chain actors (that have a role in a critical control point) to mitigate the risk associated with each of critical control point identified on the supply chain map.
To be effective this approach needs to be supported by well-planned supplier training programmes, expert technical know-how, and excellent data gathering and comms systems. The incorporation of system driven artificial intelligence can make the supplier experience a really comprehensive one.
So if this is an effective process – why in the longer term – do we need regulations to prevent degradation of ESG qualities?
We need robust far reaching regulations in the long term because:
- Implementation of corporate policies is discretionary. When times get hard then corporate requirements – if they increase procurement costs – often get abandoned
- Each corporation sets different requirements resulting in a diversity of demand chain requirements and confused supply chain actors
- Many corporations – particularly the smaller ones are unconcerned about ESG requirements and will purchase on the basis of price alone. Regulation provides an unambiguous trading environment – an even playing field.
Regulations are the long term and permanent solution but take time to be put in place. Corporate policies provide an effective and cost efficient step in the right ‘Responsibly Sourced’ direction.
Frank Miller, TRG Managing Director