We’re still very early into 2019 and all signs point to an interesting year ahead. Just a couple of weeks ago, climate change has been the talk of Davos, indicating the global businesses community has woken up to the severity of environmental concerns on society, brand reputation and the bottom line.
From a business ethics perspective, the United States recently pressed charges against Chinese technology company Huawei for stealing trade secrets from its American rival and committing bank fraud – one example in a longer list of situations that stole headlines late last year, including illegal activity by Microsoft, Goldman Sachs, Nissan and more. Between tightening regulations — Sapin II, FCPA – and higher ethics standards from stakeholders and consumers, accountability for anti-corruption is stepping into the sustainability spotlight.
Other noteworthy wins over the past few months go beyond the private sector. World powers such as Britain pledged legislation in 2019 to cut plastic pollution, Germany promised to phase out coal by 2038, and Copenhagen has made plans to become the first carbon neutral capital.
What does this momentum tell us about the state of sustainability this year – and what does the current landscape specifically mean for procurement teams? Answers to these questions lie in a few critical trends assembled with the input from our team of experts here at EcoVadis.
- Rising protectionist politics and trade wars will spur volatility and localization in supply chains.
Costly trade wars are turning the global trade landscape into an all-out battle, particularly between America and China. At the same time, fuel price volatility is disrupting the logistics and transport of products. Together, these events set the scene for tension and volatility throughout the supply chain. Ongoing trade wars and fuel price instability, which many analysts anticipate will continue well into this year, will make it exponentially more difficult and expensive for products to cross global frontiers.
This means we expect to see organizations move supply and manufacturing efforts to regions not as volatile, including to home turf (e.g. American brands re-localizing to the U.S.). This means organizations will need to qualify new suppliers and keep a close watch on their global upstream value chain to ensure they don’t compromise sustainability.
- “Fake news” could seep into the new technologies that provide direct feedback on labor and environmental conditions deep in the supply chain.
Working with multiple layers of suppliers can get murky as global organizations can’t promise 100 percent transparency on factory emissions or employee working conditions and treatment – but there’s an app for that. Pollution monitoring applications and worker voice technology bring direct feedback on local conditions so that supply chain teams can keep closer tabs on what’s happening in the sourcing and manufacturing of their products.
Organizations should be aware, however, that these emerging apps are exposed to the same potential for manipulation. Companies will need to look for assurance that their data providers are using the most advanced tools to ensure integrity of the output, as they push toward end-to-end supply chain visibility.
- Corporate commitment to supply chain transparency is going to skyrocket.
Just as global organizations have become more concerned with investing more in a circular supply chain, the C-suite will become just as concerned with human rights abuses in the coming year. This isn’t only to protect profits and brand reputation, but to ensure safe operations and avoid consumer boycotts.
There are new modern slavery disclosure rules, the latest being Australia’s Modern Slavery Law, that are in development across various countries around the globe, and organizations will need to implement further internal controls to keep up with these new regulations and keep pace with competitors’ disclosures.
- Global organizations will be on high alert as bribed government officials proactively break or loosen laws to attract new business.
While consumer concern used to focus on big corporations bribing the government, there’s now equal concern for the opposite. Consider in Brazil, for example, where President-Elect Jair Bolsonaro is expected to vastly deregulate Amazon forest resource management to persuade global companies to do business there.
Many organizations’ suppliers in countries where this is most probable – like Brazil – will be tempted to take advantage of this lack of oversight in 2019 and beyond. When there are no federal watchdogs, organizations will have to strictly enforce its own ethical codes of conduct. Business leaders need to consider a combined environmental and social management approach to fully mitigate the effects of political bribery.
All in all, we expect to see more courage and commitment from the business world this year when it comes to addressing these underlying trends. The real change, however, happens when chief procurement officers get involved and truly influence buying decisions by incorporating ethical and sustainable practices across all categories. Whether it’s a sprint or a jog toward sustainable outcomes depends on the unique circumstances within an organization, but with increasing pressure from all stakeholders, the reality is that companies need to prioritize sustainable procurement this year, or they may not move forward at all.
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