[MUSIC] Where do you think a company's responsibility when it comes to environmental and social impacts begin, and where does it end? Looking back only a few decades, the boundary for corporate responsibility was typically drawn around the physical facilities that a company owned. And the environmental and social impacts directly related to the activities within those facilities. Indeed, in the early 90s when sports company Nike was first confronted about working conditions in their supply chain, their initial response was, we don't own the factories. But Nike soon caught on to the fact that something had changed about the way stakeholders like consumers and NGOs were conceptualizing the scope of corporate responsibility. That scope is today for many, closely aligned with a life cycle of the products that a company manufactures or trade. Based on the logic that if it's bad to own a factory which pollutes or abuse human rights, then it is also bad to use, or make a profit, from the goods that that factory make. My name is Beatrice Kogg and today I will talk about how companies manage responsibility upstream in the supply chain. When we use the term supply chain we think of it as starting with the organizations that extract or produce raw materials and ending when the product reaches the consumer. In the supply chain materials, components, and products flow downstream as they change hand from supplier to buyer. There's a financial flow that travels upstream as the buyer pays the supplier for delivered goods. And to make all of this work information needs to flow in both directions. There are two things I'd like you to keep in mind when you think about the management of environmental and social impacts in the supply chain. The first is that issues that need to be addressed will not always arise in the first tier. Indeed, when sport company, Puma, did an analysis of the environmental profits and losses arising throughout the supply chain, they found that 85% of the cost arose from impacts beyond tier one. The second thing that I'd like you to keep in mind is that, as you may have guessed, in reality, the supply chain very rarely looks like a neat chain but rather like a complex and rather messy web. The supply chain of a medium or large size company often involve very large numbers of organizations, sometimes, up to tens of thousands of companies in the first tier alone. And these are often dispersed globally, and each organization that is a part of the chain will have its own unique set of characteristics and capabilities. Historically, the focus of supply chain management has typically been to reduce cost and risks, improve quality and service level, and increase the speed and agility by which the buying company can respond to changes in customer demand. But today, an increasing number of companies also focus on addressing sustainability issues within the supply chain. So, how do companies do this? Say I have a company that sells baby clothing and it is my ambition to run a sustainable business. The first challenge that I can face may be simply to understand what environmental and social issues that are of relevance for me. And then, because I may find that there are many issues, make decisions about how to prioritize. Another challenge can be to translate my understanding of what is bad to definitions of what is good. If I don't want my products to be produced in factories with poor working conditions, then what is the definition of good working conditions? By what criteria should I assess my suppliers, and the product's that I buy? Luckily, today there are many organizations that develop standardized criteria or guidelines for good practice related to many important sustainability issues. Once I know what I want to achieve in terms of improved sustainability, I need to start thinking about how to achieve my objectives. What can I do to influence the practices and decisions of relevant actors in the supply chain and how can I verify that their practices actually meet defined sustainability requirements? The issue of control or verification can require both expert knowledge and significant resources. As sustainability related performance almost always needs to be verified on site. I cannot look at the delivered garment and see that the workers who made it were treated fairly, and I can't determine how the cotton was farmed or how the wastewater from the dye house was treated by analyzing the delivered goods. When we study what companies do to address sustainability performance upstream, it is clear that there is no universal solution that fits all issues in our context. But rather a wide range of approaches are used. Some of these approaches are very much aligned with traditional supply management practices. But we also see companies do things that are not typically thought of as supply chain management but still have the ambition to address issues that arise in the supply chain. Let's use Swedish fashion retailer H&M as an example to illustrate a few different approaches. H&M actively worke to address a wide range of issues, but we will focus on two of them. Their main approach to improve working conditions in garment production involves direct interaction with their suppliers in the first tier. H&M have a code of conduct for suppliers detailing what they expect from these suppliers in relation to areas such as legal compliance, occupational health and safety, workers rights, and the environment. H&M employes specialists that monitor compliance with the requirements stipulated in the code and they work together with suppliers to motivate and enable them to improve their levels of compliance. However, H&M have also used more indirect approaches to get at particular issues of relevance that they find challenging to address through the supply chain. For example, engaging in dialogue with political decision makers in Bangladesh with the agenda to increase the legally stipulated minimum wage there. Another issue that H&M works to address is the negative environmental impacts associated with the farming of cotton. One of the strategies that H&M used to address this problem is to contribute to expanding the market for organic cotton. And they are today one of the world's largest users of certified organic cotton. But they are not directly interacting with the cotton farmers. In this case, H&M rely on a third party to define the sustainability criteria and verify that relevant actors along the chain are in compliance with these. So, our expectations on companies have changed or expanded. Today, companies need to pay attention to sustainability aspects upstream to a much larger extent. And over the last two decades an increasing number of companies have started to develop and implement a range of approaches to address sustainability upstream. However, we still have plenty to learn about how companies can do this, both effectively and efficiently. The outcomes of many initiatives so far are far from perfect, but, real improvements have also been achieved. [MUSIC]
