If you think that you are out of the firing line on environmental or social issues because youre in the B2B space, think again. The growth of corporate responsibility owes more to responsible retailers than to concerned consumers.
Ikea is one of the largest buyers of forest products. It requires suppliers to demonstrate that their wood is sourced from sustainable managed forests. If you want to sell to IKEA, youll find a way to deal with this. Why is this happening, and could it happen to your company?
Globalisation is changing the way that companies source and sell products and services, but it is also leading to increased industry concentration. For example, half of all coffee beans are sold by just five companies.
The six auto majors each spend £35-45 billion/year on components, which cascades down through over 20,000 suppliers.
Industry concentration means that suppliers are fighting harder to sell to fewer, larger companies. If you are an auto-parts manufacturer or a coffee farmer and you cannot satisfy Ford or Nestlés requirements, you are out of a major part of the market. That gives buyers the power to impose requirements. But why would these requirements include environmental or social criteria?
Companies are judged by the company they keep. Many large consumer-facing, publicly-listed companies have multi-billion pound brand valuations. They are increasingly coming under pressure to show they are responsible across their sphere of influence. This includes their supply chain. If Nikes suppliers have negative environmental or social impacts, Nikes consumers, employees and (increasingly) investors blame Nike. And Nike blames the supplier.
Reputation risk is like a hot potato that is passed down the supply chain. So as competition becomes fiercer, and as your clients pay more attention to reputation risks associated with corporate social responsibility issues, you may find that procurement decisions begin to integrate environmental and social issues too.
This would be impossible if it was not for the emergence of new kinds of standards. Companies can now base buying decisions on CR quality standards, including: organic; FairTrade; sustainable forest and fisheries; environmental management; and good labour practices. All of these standards have been developed specifically to influence supply-chains.
How important is this trend? Last year, India suggested to other World Trade Organisation (WTO) members that environmental and social supply-chain requirements should be brought under a framework of multi-lateral rules. That is unlikely to happen, but suggests the degree of concern.
If it does not cost anything to impose environmental or social procurement requirements, your corporate clients will eventually do it. As a result, the smart companies have already started to plan for CR-related supply-chain requirements.
