With resource scarcity starting to take over from policy as the main driver of Sustainability strategies, the July Green Monday looks at Sustainable supply chains as a strategic issue.
Just 12 months ago, few would have argued its case as a strategic issue. But with commodity prices having risen by 32% over the period, and wholesale UK energy prices for December delivery being 25% up year-on-year, companies that are not engaging their supply chain are potentially facing a future of lower margins than their competitors.
And whilst a clear gap exists between the leaders and the rest of the pack, the market is moving on the issue. The Carbon Disclosure Project recently reported that the number of their member companies who measure Scope 3 emissions more than doubled in 2010 to 43%.
And with innovation playing an increasingly important role in Sustainability, Green Mondays needs to challenge itself as well. For the first time we will be doing a live link-up - we will bring in Puma from the heart of their supply chain in Vietnam, who will tell us about their recently released Environmental Profit and Loss (EPL) accounts. With many companies considering EPL’s, it is an excellent opportunity to learn from a pioneer. Other solutions that we will be exploring include;
Our panel includes 3 of the undisputed leaders in supply chains – SAB Miller, ASDA and Puma. We also pleased to welcome back David Metcalfe, CEO of Verdantix as our market commentator.
How do you push down embodied carbon in construction?
Embodied carbon is the amount of carbon released from material extraction, transport, manufacturing and related activities, and disposal. As EU legislation becomes more stringent and as buildings become more efficient (operational C02 emissions reduce), the relative importance of embodied carbon increases. The discussion focussed on what the construction industry must do to effectively reduce embodied carbon across the supply chain.
- Embodied carbon typically makes up 20-50% of a building’s total carbon footprint. Determining the whole life cycle costs of a building is an increasingly important factor in understanding and managing the carbon emitted from a building as a whole
- Assessing embodied carbon enables better decision making at the design stage with regards to the choice of materials; the construction sector is trying to do this in a consistent way, but multiple standards are already evolving e.g. in Germany, Environmental Product Declarations collects environmental information for building materials, as does CEN/TC 350
- Whilst there is a role for regulation to create statutory incentives for reducing embodied carbon (particularly in the performance of materials), this needs to be done within an already complex regulatory framework
- However regulations and standards alone will not reduce embodied carbon in building projects; key imperatives
o Early involvement of all stakeholders, with a shared long term strategy and targets
- Align the high level ambition and long term objectives of all stakeholders at the outset of the building programme (developers, building owners and operators, architects, structural engineers and contractors)
- Involve the architects, structural engineers and contractors in the design process, the stage when embodied carbon can be most affected and reduced; use standard embodied carbon assessments to make informed choices about the materials used
- Use outcome based specifications which enable all stakeholders to innovate
- Greater public and private sector investment in research and development to create better materials (design out) and increase use of recycled content
The role of life cycle thinking in embedding sustainability into the supply chain
This session discussed the role of life cycle thinking in embedding Sustainability into the supply chain. We focused on trying to understand the value of a life cycle approach to a sustainable supply chain, the balance between corporate and product carbon foot printing and the associated barriers to this approach.
• Taking a top down approach and simply asking a supplier to reduce their carbon footprint by a certain percentage only shifts the burden within the supply chain. Data for data’s sake is not an answer.
o It will not provide a full picture of inefficiencies within the supply chain
o It will not show you where to focus by identifying hotspots
o It does not support a collaborative approach, thus driving sustainability leakage.
o It does not help drive innovation to solve known hotspots.
• However, there are concerns about to a life cycle approach:
o Life cycle approach is typically associated to branding and a green product, is this what we need as a business?
o Being unwilling to share proprietary data!
o Concerns between efficiency and price? If I make my product more efficient are you going to expect it cheaper?
• Suppliers are interested in collaboration and in parallel with an Innovation approach to identifying and solving hotspots in the supply chain the life cycle approach was seen as the right way forward.
• Companies are starting to see that there is more value in a life cycle approach than just a green product and branding - a more focused view on sustainability within the their supply chain.
Assessing carbon performance in your supply chain. How hard can it be?
Costing for Carbon in the supply chain – How can finance take control?
How to avoid accusations of supply chain imperialism
The trend towards greater transparency about product Sustainability performance makes supply chain engagement an essential component of Sustainability for many companies.
• Communications within and about a company’s supply chain are just a sub-set of broader corporate sustainability communications. The same principles of transparency, clear objectives and simple language apply.
• The company approaching its suppliers should be able to communicate an authentic commitment to sustainability by. A company needs to have credibility in the way it manages its own issues before engaging suppliers.
• The main reasons companies are (or should be) communicating sustainability to their supply chain are: managing potential risk to reputation, anticipating regulation, improving efficiency, reducing costs and encouraging product innovation.
• The impact of the consumer is ambiguous – on one hand the internet has made conditions in supplier countries much more visible to consumers – one the other hand many companies with little apparent supply chain scrutiny or transparency continue to trade very successfully.
• Intermediaries such as retailers are having an impact on consumer choice by effectively ‘editing’ the lowest standards out of their product ranges.
• Business to business supply chains are more advanced and some level of sustainability scrutiny is common in many markets. Customers and suppliers are in regular dialogue.
• The inexorable rise of developing and emerging economies is producing larger stronger supplier companies – particularly in high capital investment sectors such as electronics. This may shift the balance of power in the supplier customer relationship making supplies less responsive to demands from western brand owners.
• The phrase ‘supply chain imperialism’ was largely unrecognised. The exception being in the context of forest stewardship in certain emerging countries where there is a potential for disagreement between western NGOs and national government and companies over policies around natural resources including forest areas
Supply chain engagement on sustainability issues will increase. The emphasis on product life cycle performance makes partnership across the supply chain inevitable. Clarity in communicating the purpose and efficiency of the engagement process are essential to success. Western brand owners kick started the process but may find them-selves increasingly marginalised by resurgent economic and cultural power in the East.
The main feedback from Green Corporate Energy 2011
Knowing your limits: Where supply chain sustainability becomes strategic
This table explored the drivers that are helping to turn supply chain Sustainability into a core strategic issue. As explored through the plenary theme, the leaders are moving from compliance to strategy, but how is this achieved?
Moving from compliance to strategy:
1. Understand and articulate the business benefits, the drivers and the risks that will put supply chain Sustainability on the CEO/Board’s agenda
o Business benefits e.g. increase in capacity / yield
o Drivers e.g.20% rise in energy bills, CRC
o Risks e.g. raw materials and commodity price rises
2. Form partnerships to drive forward and bring success to supply chain Sustainability strategies
3. Set high targets which are clear and unambiguous, often driven by:
o Consumer pressure
o Supplier pressure
o Impact on the community and how to reduce this?
o Competition – what are your competitor’s strategies in this space?
The table concluded that no overall tipping point exists for Sustainability to enter the Supply Chain as a strategic issue – there may be different tipping points for different industries depending on how far companies are along the Sustainability journey. Companies need to start by measuring to understand where the risks and opportunities lie. Most companies then begin with the ‘low hanging fruit’, the greatest risk or biggest opportunity areas. Finally, building a relationship and shared vision rather than mandatory regulation was highlighted as the key to working with suppliers and moving them through the Sustainability journey.
What’s come back from the fast track review of FiTs?
The UK Government has confirmed the new Feed in tariff for large scale solar PV projects and Anaerobic Digestion plants following the fast track review. The new tariff structure will be introduced from 1 August 2011.
• New Tariffs mean that large scale Solar PV (5MW) projects no longer meet the hurdle rate for many investors/developers and therefore these schemes will not be constructed.
• Small scale (sub 50kW) schemes are still viable, some investors suggest that sub 250kW are still viable at the new tariff rates.
• The capital cost of panels is falling whilst the commodity price is rising, this will change the viability of solar PV
• There are still unanswered issues surrounding lessee versus landlord in terms of investment and ownership
• The comprehensive review of the FIT scheme will take place in April 2012.
• Corporates should consider small scale arrays where there is space and decide whether to use internal or external finance.
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