Sustainable Supply Transformation

Monday, November 06, 2017

18:00 - 21:00

The confluence of two powerful mega trends is radically transforming the world of business supply chains in unprecedented ways.

The rise of hyperconnectivity and social media has created a generation of empowered global consumers who are more informed and demanding than ever before about the social, environmental and ethical footprint of the companies, brands and products they purchase. The age of anonymity and sustainable lip-service is gone, replaced by an all-seeing, always-connected and ultra-empowered consumer world, where authenticity and sustainability are crucial for business longevity.

At the same time, what has been termed the Fourth Industrial Revolution, has unleashed a brave new world of disruptive digital transformation that is radically impacting business supply chains at all points from extraction and production through distribution and consumption to the end of the product lifecycle.

Leading companies are riding this wave of digital and sustainable supply chain transformation, applying new ways of thinking, new strategies and new collaborative approaches, often in conjunction with disruptive new technologies such as IoT, Blockchain, AI, big data, analytics and digitalisation, with revolutionary impacts right across the value chain.

The end result is a radical rethinking and transformation of their end-to-end supply chains, making them more circular, more ethical and more sustainable, with lower carbon footprints, enhanced transparency and traceability, and more positive impacts across the entire value chain.

For our November Crowd Forum, we investigated how these two mega trends are driving “Sustainable Supply Transformation”.

We found out how some of the world’s most recognisable brands are leading the way and radically transforming their end-to-end sourcing, production, distribution and product lifecycles to create new value propositions in an age of digitally empowered and increasingly conscious consumption. 

Speakers

Axel Threlfall Reuters

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Kate Wylie Mars

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Kirstie McIntyre HP

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Tom Smith Walmart

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Virginia Spiegler University of Kent

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Round Tables

Data-driven supply chain sustainability

Companies are increasingly awash with sustainability data from sensors, devices and systems at all points along the value chain. How can companies best make use of these data resources to drive efficiencies and better sustainability outcomes in their supply chain? How can companies transform their supply chains to be truly data-driven? 

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TABLE 1A

Question posed by Chair: Biggest data challenges in your industry?
• Absence of data in construction
• Obtaining data in an easy to use format
• Blockchain relies on technological capability – small suppliers don’t always have this capability
• Comparing data across competitors easily - unable to benchmark
• Data standardisation is key as has been done with carbon – CDP
• Organisations use different systems – can’t work together
• Contract management – lose influence to obtain data as move down the tiers – a platform to measure contractor sustainability would be useful

Question posed by Chair: Are there examples of good reliable data?
• Sedex
• EcoVadis
• SmartWay

The discussion continued:
Data sharing is needed – this is not always forthcoming. In food manufacturing – suspicion about customers asking for data. Trust is a big issue as was initially the case with Asda’s Sustain & Save initiative and with Tesco until the Tesco Suplpier Network was rolled out.

Sharing is possible if commercial aspects are taken off the table – incentivise suppliers to participate. Need them to see that it makes sense for them to actively engage with driving innovation. Key to this is long term contracts – more likely to invest if they reap the benefits of their innovation as it costs.

Large players can drive the shift by setting required standards but the ease of complying and reporting is key to getting small suppliers involved – who have limited resources.
One person highlighted that when sourcing suppliers, a questionnaire is used but this is never later followed up when a supplier has been selected – just becomes a tick box exercise. Someone later highlights again that sustainability is looked at during the RFP stage but is never followed up and only happens at a high level.
If suppliers give data they need to see the benefit of that too – need to demonstrate value to them.

Problem: No level playing field for data, need KPIs that can be measured and reported against – frameworks do exist but uptake is sporadic and/or they are industry specific. Need for standardisation of the basics.
Need the data to be in a useful form so that it can be properly used.

Maybe need a regulatory push – ESOS for example drove companies to do more detailed evaluation of their energy data
When incentives are in alignment it is possible to make substantial progress e.g. logistics – everyone wants to reduce miles & fuel to reduce impact and cost, which creates a real business case. No alignment = struggle.

Socio-economic factors harder to measure, particularly in complex supply chains. E.g. – how to know that child labour not used for ANY component part? Legislation such as the Modern Slavery Act and the US conflict mineral law is forcing companies to evaluate.

Real challenge for blockchain – mixed products as lots of blended elements involved. Particularly if they go through commodity trading.
Influence decreases the further from the supplier you get - One person explained how their company had to either deal direct or with other equally accountable organisations to ensure sustainability standards. Another attendee reinforced that they had to deal with suppliers very locally to ensure the same.

Question posed by attendee: Are industries starting to club together to get suppliers to meet sustainability requirements?
• Construction – starting
• Restaurants – yes
• Service suppliers e.g. finance – not much (although much shorter supply chain)
Chair explores the large quantities of internet data and how this can be used: someone in this field indicates that in their experience, internet data is not yet properly harnessed for this. Lack of incentives.
Privacy raised as an issue of data collection and sharing. Anonymity may encourage data sharing.

Conclusion
• Not ‘awash with data’
• Not everyone wants to give their data – trust, privacy
• Sometimes it’s difficult to obtain
• Often don’t know what to do with it when collected – often a tick box exercise
• Different ways of doing it – need standardisation (blockchain?)
• Understanding the benefit is key – demonstrate this to suppliers and share to encourage
A simple tech platform with automatic data collection that provides good understandable, usable output that everyone in all industries can use/access would encourage a data driven approach

TABLE 1B

· Three challenges: how to capture quality data, how to use it, how to influence decision-making
· Audit as a tool for data collection is well established (eg SMETA) – challenges can include data quality, auditor quality/ corruption, how to capture qual data, only captures ‘point-in-time’ picture
· Use of mobile phone technology for more dynamic data capture, eg for workers to log complaints – some examples of where this is already working
· Without the right motivation and incentives in place for the people who need to submit the data, it is hard/ impossible to capture good data: this should be a focus for anyone wanting to measure their sustainability efforts. Technology itself doesn’t solve the problem
· Interesting examples of use of block chain to provide supply chain data but quality remains an issue. What potential is there for machine learning to improve data quality?
· Interesting example of using microchips embedded in products to enable circular supply chain
· Discussion of telematics and how effective it has been in making fleets of vehicles more efficient/ lower carbon footprint – removing the ‘human factor’ makes it more straight forward
· Discussion of ESG and its growing signficiace for decision making about investment decisions

Empowering Supply with Renewable Energy

By making the transition to renewable energy throughout their supply chains, companies can reduce costs, improve sustainability, demonstrate leadership and lower carbon emissions. This session will explore the challenges, costs, risks and rewards involved in empowering supply with renewables. 

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TABLE 2

Setting
Companies are eager to bring more renewables in their supply chains in order to improve their carbon footprint, while some particular industries are also concerned about the high carbon footprint products they sell. The speed at which renewable costs are falling is accelerating, but it is not clear yet which technology will become dominant in the different sectors (e.g. electric vehicles).

Obstacles
Switching energy supply contracts may entail lengthy periods of persuasion, in particular if the company needs to bring multiple partners on board. Also, if the cost of switching to green energy is too high, the company is likely to have to wait until renewable energy becomes cheaper, with or without a subsidy. In addition, even if middle management approves a certain initiative, top management needs to be convinced in order for the project to move on.

Red Flags
Lack of clear goals usually implies a path dependence whereby renewable energy is not top of mind and, more generally, inefficiencies persist. Clear, intentional design and goal setting will help in adoption of sustainable practices across the value chain. Also, top-down standard setting may stifle innovation in smaller companies, while industries need to also be wary of sharing extensive amounts of information due to competitive concerns.

Solutions
Corporations can effectively cross-subsidize their different units if renewable energy is considerably cheaper in some geographies. Also, scrutinizing the supply chain may be easier around times when the company itself is reviewing its long term strategic planning. More generally, retailers need to communicate with their suppliers and set sustainability as a clear criterion in their RFPs. As a result, suppliers can be nudged in the right direction. Science-based targets offer a clear guideline that all companies can follow.

Examples
Health and safety practices have become commonplace, yet decades ago industries had to come together to establish common standards. Perhaps a similar shift could take place in sustainability requirements, as companies become more transparent about best practices, efficient uses and cost-effective solutions. Industry associations may be instrumental in driving these changes forward. For instance, major companies in the oil industry are working to eliminate their methane footprint.

Ethical supply chains

Supply chains that harbour slave labour, demonstrate unethical behaviour and questionable sourcing practices present a major reputational and business risk. This roundtable will consider what companies can do to make their supply chains more ethical and how to convince stakeholders it makes good business sense. How can advocates create a compelling business case to gain traction within the company? What are the main barriers to adoption that need to be overcome?

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TABLE 3

• How do you prioritize where you focus on the supply chain?
o Each year every business unit has to do a risk assessment on human rights
o Reacting to things in the news, issues that come up
o B-Corp: Diversity and inclusion, environmental tracking, environmental performance, relationship with the suppliers (mechanisms for feedback)
o Good to have an external partner to challenge you and bring up points you might miss
o Where does our responsibility start and end?
• Businesses cherry pick what they want to talk about – this is a really big risk/problem
o What if an exec is talking about environmental sustainability at a conference, and then a huge tax scandal breaks out about that company – needs to be holistic, not cherry picked
• It’s up to companies to choose where their responsibility begins and ends – how do you think about this?
o From a reputational point of view, you should cover all of it – the whole of the supply chain both up and down, but you obviously need a lot of collaboration in order to achieve that
o Collaborative in terms of data and analysis is key
o Where are the risks? You can’t do everything, so how do you choose where you focus within your supply chain
- Focus on tiers?
- Focus on high risk geographies?
- Focus on biggest product lines?
- Where does the evidence point?
- This includes the whole value chain (including customers and end users) and not just up to when you sell the product
• How do you engage communities and tie that into the value chain?
o Micro distribution in under nourished parts of the world
o Shared value basis
• What are the main barriers to creating ethical supply chains?
o Missing scale and consistency – it’s hard to do. How do you make it big quickly and efficiently?
o Commercial and financial imperative is usually the biggest burden they have all been set targets which are unachievable if it’s legal to or you can get away with offloading the costs to society, the environment, the customer, companies will do it
o Economics is always going to be a number one driver
o How do you communicate to your suppliers? Authentically? And understandably? You have to bring your suppliers onboard – it’s a relevant and imperative request – try to bring them onboard as partners rather than just feeling like their being told to
• How do you make sustainability accessible and affordable?
• What you expect as a base has been increased
o Recyclable. Not made with child labor. We just expect this now
o The social license to operate is now harder to get than it was 10 years ago

Low-Carbon Supply Chain Transformation

Low-carbon transformation in day-to-day business operations makes good sustainable business sense. But what about throughout the supply chain? How can companies use their influence with suppliers to drive down carbon emissions at all points throughout the supply chain? Are there sound business drivers for low-carbon supply chain transformations? Can science-based targets help? 

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TABLE 4

Obstacles:
• It can be difficult to achieve a shared value of making the supply chain more sustainable between suppliers and buyers as both parties are not always as invested in being more sustainable.
• There is no 'one shoe fits all' - all suppliers are different and require different approaches and have different challenges associated with them. To ensure that each of the company’s suppliers are able to be as sustainable as possible they should be dealt with in a way that is specific to their needs and values.
• A company’s supply chain is ever changing. It requires continuous mapping to be more 'agile' when things change - By being up to date and continuously mapped allows the company to understand their supply chain better, and be able to adapt to changes more effectively.
• If a company decides to diversify it can be faced with a substantial increase in supply chain complexity that it is a challenge to manage. E.g. a brewer (about 4-5 raw materials) diversifying into spirits (10s of additional raw materials).
• Addressing the sustainability of the supply chain is less likely if the benefits are not aligned with central business objectives (notably profit) and in-house sustainability roles are not part of the core decision making processes.
• Not many companies have a sustainability 'officer/manager' within their procurement department.
• Middlemen (brokers & distributors) between primary suppliers and final consumers seem to be a particular source of obstacles. They can be a barrier between shared sustainability aims of producers and consumers and in some cases the source of corruption.
• It seems to be more difficult for public companies to address the sustainability of the supply chain over private/family owned companies. Family owned companies usually have values which they have more control to address (should they decide to address the sustainability of the supply chain). Public companies have shareholders that can make this more difficult though there is an increase in vocal shareholders advocating change.
 
Solutions:
• Collaborative, open discussions between companies and their suppliers, both individually and in groups, seems an effective approach to address sustainability in the supply chain – speaking openly about the challenges and potential solutions. (Philips stopped ‘auditing’ their supply chain and instead worked more closely with them and developed trust).
• There is a case that suppliers that are more capable of having open discussions would seem likely to also have a competitive edge: It can be a route to innovation and new business opportunities.
• Look to integrate supply chain sustainability requirements within core business functions & processes. E.g. retendering cycles, design reviews.
• Hardwire issues into contracts rather than as add-on requirements.
• Explore options for digitising assets & materials.
• Identify routes to better link supply chain sustainability with business objectives e.g. ‘carbon productivity’ http://carbonproductivity.com/
• Providing education & training to procurement employees to see the value in sustainable resources.
• Implement procurement staff performance targets relating to sustainable supply chain issues.
• Once certain sustainability goals or processes are put in a contract it is important to follow these up with measurement to ensure they are met.
• Consider implementing the ISO 20400:2017 Sustainable Procurement standard
• Blockchain could help, including addressing specific challenges that can arise from middle men: Potentially minimising their ability to corrupt and even cutting them out altogether.
• If a company makes specific sustainability requirements of its supply chain it can be effective to explicitly reward and acknowledge the suppliers’ achievements (beyond simply awarding work), fostering the relationship and future progress.
• As sustainability issues are built into the supply chain it creates additional pressure / motivation to sustain this due to the reputational risk if it slips back.

Science-based targets for sustainable supply transformation

Setting greenhouse gas emission reduction targets in line with climate science is a great way to future-proof growth. It is also a crucial way for companies to improve the sustainability of their supply chains. How can companies drive greater sustainability in their value chains by applying science-based targets? What are the key steps on the road to SBT commitment? How do you get business-buy in for commitment? 

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TABLE 5

Barriers and Challenges
Business perspective
• Plethora of frameworks and initiatives in this space. Some companies are unwilling to commit to the science-based targets initiative- will this be a framework that sticks?
• Feeling in business that while they are held to these science-based targets, governments remain short of their requirements regarding the Paris Agreement
Data Quality
• Many suppliers are unwilling to disclose the relevant data
• Commercial sensitivity- how do you change the mind-set around disclosure not being in the best interest of the supplier
Proxy Data/uncertainty
• Methodologies of how proxies are reached often not explicit- poses problems for both sides- suppliers unable to engage or respond to the figure and customers unable to verify it
o When it comes to practice- is some data better than no data at all?
• At the Scope 3 stage- businesses generally happy to use estimates- but moving forward to making decisions, businesses often want something more concrete
• Uncertainty surrounding whether the target is feasible for the business- technologies available in the next 10 years aren’t known
o Younger companies often better at embracing this uncertainty/having faith that innovation will come;
o Will more traditional businesses change fast enough?

Internal Buy-in
• While some companies are very passionate about the subject area- many require commercial gain as an incentive
• Concrete incentive from customers often isn’t there- if large organisations demanded science-based targets, those with the capacity would respond.

Leveraging up the supply chain/the business case
• The initiative- the message is at least easily communicable
o Targets are inline with climate science, and part of a global effort
• Consumers pressure will be vital- trajectory of what consumers are asking for: greater transparency and sustainability
• Communication- be explicit as to why you need the data
o E.g. regards cost reduction motivations- can suggest that the supplier can offset these cost reductions through their other customers
• Climate change poses a real material risk to organisations
• Power of pressure groups or the questions of investors at AGMs to initiate change

Will we achieve the targets?
• Some see a lack of accountability in the relatively young initiative as a potential problem
• Others- we may not reach the targets but by having them we will achieve more progress than if we weren’t striving for something
They can act as a narrative to bring organisations on a shared journey

Supply chain digitisation & disruption

The growing trend of digitisation is radically disrupting and transforming the practice of supply chain management. With IoT, blockchain, big data, 3D printing, digital platforms and analytics, companies are driving radical improvements right across the value chain. This roundtable will invite participants to share insights, pose questions and consider options for supply chain digitisation in their own companies. 

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TABLE 6

Blockchain
Opportunities:
o Provide social and financial identity, enabling BoP participation in the economy. E.g.: getting aid directly to the people; land registry project in Bangladesh, where the asset (i.e. the land) is a tokenised asset stored in your e-wallet.
o Companies could have their own internal currency, allowing them to move money around internally using an internal distributed ledger and providing transparency. However, in a business do you really need to have a distributed ledger and all its complexity when you only need something simpler?
o Blockchain for crowdfunding: you put money on a ledger that will go specifically where you want it to go.
o Barclays working with start-up Halotrade, using blockchain to provide suppliers with access to cheaper financing and driving transparency in supply chains. It can incentivise down the chain e.g. if supplier meets certain criteria.
o Need visibility in the supply chain to ensure human rights are respected and digitisation can really drive transparency and enforce compliance down the supply chain. Need to wait for the result of current pilots.

Obstacles:
o Learn from the past: need to learn from the Internet experience (e.g. dark web).
o Privacy: need to retain financial identity and not give it away as with social networks.
o Understand technical capability: still trying to figure out the blockchain landscape.
o Scaling up: conceptually easy to understand; difficult to see how it can scale up.
o Blockchain in banking: successful pilots in a controlled environment, but unlikely that banks will push for blockchain at the expense of transaction-based income.
o Need collaborating across sectors (rel. SDG goal #17 ‘Partnerships for the goals’).

Other digital technologies (e.g. AI, robotics)
• Impact of drones/robots in agriculture. 2 movements:
1) Vertical farming: indoor, full control of the environment, 365 day farming etc.
2) The opposite, continue to farm outside but completely automate the process.
• Virtual Reality (VR). E.g. tiger protection project in Thailand, you buy a piece of land and using VR you can monitor the tigers.
• How are organisations accessing and trialling these technologies? Often the relationships are already there (e.g. Diageo and IBM).
• What are the best models to create joint wealth? Crowdfooding did an exercise with Google to help cocoa farmers in Ghana. Through a crowdfunding project Big and small organisations got together to design an SMS-based solution from the ground up.
• What will be the driver for business to embrace these technologies? Some think that it be price. Others think it will be customers or governance/regulation. Technology is the easy part. It can help accelerate a good business strategy, only if you have a good strategy to start with. Technology either takes the pain away (e.g. cost efficiencies) or it can let the business gain competitive advantage (e.g. Amazon’s innovativeness).
• The big elephant in the room: social/human rights issue. E.g. autonomous vehicles; 500m farmers with no access to these technologies; organisations able to manufacture much more locally. What happens with the impacted people?
• Do we really need to automate everything? No, it is our choice. Technology does not have any agency of its own, it’s up to us.
• Change is not going to happen overnight. As long as living systems adapt, we have the capacity in our community to develop new skills.

The Circular Supply Chain

With interest in circular economy principles and practices growing, companies are increasingly looking to close the loop in their supply chains. How can businesses demonstrate leadership by making their supply chains more circular? What are the biggest challenges of going circular? What are the key business drivers for closing the loop? 

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TABLE 7

Obstacles / Challenges /Problems
(*CE = Circular Economy)
i. Communication: Informing customers about current CE activities; transfer the message of CE to the customer; transfer the standards of CE to the customer
ii. Global vs Local Supply Chains: Making the whole industry & society more circular; addressing all members of the supply chain
iii. Recycling: CE practices appear to be especially challenging for the recycling and waste management of cities
iv. Networking Opportunities: It appears to be difficult, to find partners to collaborate or network with
v. Regulations / Legislation: Government is lacking behind with its CE-knowledge; slow implementation of standards/ regulations on behalf of the government
vi. Product design: recyclable product design may vary from industry to industry
vii. Customers: general buying behaviour of customers; customer commitment / involvement in recycling processes & CE activities

Examples of ‘best practices’:
Retailer sector:
− Bicycles: Customers return used children’s bicycle to the shop; bicycle is then either resold or used for spare parts
− Carpets: Old and used carpets are returned / collected, cleaned and subsequently used to produce other textile products
− Groceries: Rebuy plastic bags from customers, to ensure plastic is reused and not thrown away
Chemistry sector:
− Components of chemical products can be reused e.g. tarmac, packaging material
Aerospace industry:
− This industry sector is already very well developed regarding CE activities due to standards and traceability

Key business drivers for CE practices
− Regulations & standards
− Costs (general costs, plus costs to implement CE practices for the first time)
− Legal compliance

Solutions for CE practices
− Effective communication via networking platforms / task forces / involving start-ups
− Effective and open collaborations & relationships (even with competitors)
− Consideration about the product / product’s components and their use in the aftermarket
− Advertising the complimentary benefits for customers & other parties involved in a circular supply chain
− Sharing capacity between manufacturers
− To start off: implement CE in local supply chains, before going global
− Effective communication with customer about CE activities

Towards a plastic-free value chain

As awareness grows about the catastrophic impact of plastic pollution in our oceans and ecosystems, companies are facing increasing demands to remove plastic from their supply chains. But what are the emerging plastic alternatives? How can companies create a plastic-free supply chain strategy? 

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TABLE 8

This roundtable discussed that one of the most significant challenges that manufacturers and major brands face today is finding alternatives to plastic which because of its non-biodegradable material properties mainly ends up in landfills or in the ocean. Having a table full of people from various industries (consultancy, multi-national, banking, museum to name a view) it was an engaging discussion about the feasibility and possibility of a plastic-free supply chain.

Warnings
• Plastic in the supply chain is not only concerning from an environmental perspective but companies are increasingly becoming under scrutiny from the media for their linear use of the non-biodegradable material in their supply chain and products. While plastic might currently be the cheaper most widely option available, brands need to increasingly monetarise the effects of potential bad PR because of its use.

Obstacles
• While in many cases plastic does not seem to be a necessity to use and can be replaced, in other areas such as drinking bottles the solution are not as straight forward as plastic is precisely used because of its unique material properties. The plastic bottle was here the most prominent example discussed. While theoretically replaceable with a glass bottles it can in practice only be limited implementable (e.g. strict health and safety regulations).
• Another obstacle discussed was high consumer expectation. Many people, for example, do not want to drink out of a water fountain, but expect bottled water to be available. Hygiene standards or cultural practices may here be in the way. Costumer engagement seem to be key in the finding solutions.
• Lastly, the round table saw company polices and ownership as an obstacle. While firms such as Mars can relatively easy implement change as they are still privately owned, most multinationals have shareholders and their power is therefore considerably limited. Further, does change need to necessarily be initiated top down? To what extend is it possible to change a company’s plastic usage from within?

Solutions
• One solution multiple times mentioned was that in particular in the area of packing material design itself can play a significant solution to eliminate plastic all together. For example, in many instances plastic packaging can be replaced by card board and is unnecessarily used.
• In many areas, thorough research and innovation seems necessary to find feasible solutions. Next, communication and consumer engagement seems key in making change happen in the long term.
• Another potential solution discussed was the possibility to use recycling as a short-term solution if suitable replacement materials are not commercially available yet. The biggest obstacle to large-scale recycling seem the necessary infrastructure. Here the cooperation with governments is key.
• Plastic is in many cases used unnecessarily and could be replaced.

Examples
The most interesting example came discussed was the endeavour of a global multinational which has committed to eradicate all single-use plastics from its supply chain.

Transparency and traceability

How can digital tools be used to improve T&T in the supply chain? How can supply chain and sustainability managers demonstrate the business case for investment in digital tech for T&T? How can companies create competitive advantage by improving T&T in their supply chains? 

Venue Detail

Bank of America Merrill Lynch: King Edward Hall

King Edward Hall | 2 King Edward Street | London | EC1A 1HQ

Directions

Bank of America's offices are a very short walk from St Paul's tube station (Central Line). Exit the station at Cheapside/Newgate Street. Go past the BT centre, with it on your right-hand side and take the first available right down Edward Street. Continue down this road for 80m and the entrance to the venue is on your left-hand side.

Do not go to the main reception desk at their offices when you arrive. You are looking for an entrance that leads you directly into the King Edward Hall.
Who's Attending