The stats below come from a major international report on the status of the world’s environment published in early May ’19.

Those in denial of these horrifying declines are largely individuals inured to the human population’s destructive powers. These deniers, who look the other way, are often financially secure or are too out of touch and cynical to care.

Unfortunately it’s usually also these same privileged few that make the laws, or rather prevent new protective laws from being enacted.

So – in my personal view – we’re not going see any significant impactful regulations delivering major positive impacts on the environment and climate change for another 5 to 10 years. It will not happen until say 20% of the population’s lives are being directly devalued.

So what can be done in the absence of appropriate regulations? Given that we cannot rely on politicians to make the right laws, can businesses (with the ability to react swiftly to consumer demands) break the mould and take action?

I would argue that in the absence of regulations and regulatory capacity, it’s only international, large scale manufacturing or retailing businesses that can start to slow the ship and begin to turn it around.

Big businesses, leveraging their corporate policies, backed up by their commercial clout, can effectively ‘regulate’ their own supply base via their demand chains. Obviously control exerted in this way will have a limited impact on a few demand chains that reach into to source countries where supply chains are initiated. The majority of regions and their populations will be largely unaffected. But it’s a start. It will show what is possible and act as encouragement for politicians to act. Many would say that the FSC (www.fsc.org) and PEFC (www.pefc.org) provided the confidence for EU politicians to enact the European Union Timber Regulation (EUTR) in 2013 that banned the import of illegal timber into the EU.

A key internal benefit for businesses adopting this approach is that they can state that their products having heightened Environmental, Social and Governance (ESG) qualities. This enhances their brand. and helps differentiate their products in a highly competitive market place.

But how do they convince a sceptical customer base that what they say is true? The only way to build a convincing level of trust is through transparency. In this situation transparency can be regarded as consisting of a supply chain map showing all the actors and documentary evidence showing how the product moves down the supply chain from source to the consumer facing retailer.   Through the use of such modern due diligence techniques (supported by online systems and processes) products can be cost effectively imbued with intrinsic ESG qualities.

Although you cannot touch, sniff or technically measure these new qualities, it is entirely possible to demonstrate that they are present by using modern due diligence approaches.

There are 3 basic ESG due diligence steps:

1. Qualify the inherent demand chain risks that threaten to significantly devalue the required ESG qualities – specified in the corporate policy

2. Use the data sets gathered from supply chain actors to map the supply chain so that it’s easy to identify the critical control points – where raw materials or product pass from one supply chain actor to the next

3.  Gather documentary evidence from each and every key supply chain actors (that have a role in a critical control point) to mitigate the risk associated with each of critical control point identified on the supply chain map.

To be effective this approach needs to be supported by well-planned supplier training programmes,  expert technical know-how, and excellent data gathering and comms systems. The incorporation of system driven artificial intelligence can make the supplier experience a really comprehensive one.

So if this is an effective process – why in the longer term – do we need regulations to prevent degradation of ESG qualities?

We need robust far reaching regulations in the long term because:

• Implementation of corporate policies is discretionary. When times get hard then corporate requirements – if they increase procurement costs – often get abandoned

• Each corporation sets different requirements resulting in a diversity of demand chain requirements and confused supply chain actors

• Many corporations – particularly the smaller ones are unconcerned about ESG requirements and will purchase on the basis of price alone. Regulation provides an unambiguous trading environment – an even playing field.

Regulations are the long term and permanent solution but take time to be put in place. Corporate policies provide an effective and cost efficient step in the right ‘Responsibly Sourced’ direction.

Frank Miller, TRG Managing Director

This will have an impact on their suppliers who will need to demonstrate how they are taking greater responsibility for product quality. It’s also an opportunity, however, for suppliers to rethink their use of IT systems to increase efficiency and control in order to lower the cost of demonstrating product compliance.

The Challenges for Suppliers:

Sourcing Information:

• How will you keep up-to-date with the changing quality requirements and regulations?
• Do you have a dependency on the buyer to tell you what’s required that also differ from retailer to retailer?

Many suppliers rely on their buyer to inform them of any regulation and requirement updates. This can be tricky if you supply to numerous retailers with different requirements. Test houses can also advise suppliers of the requirements and regulations for their products. Some suppliers have in-house experts, this is more tailored to suppliers who manage their testing in-house. Finally, suppliers also have the option of subscribing to 3rd party services which can provide them with a compliance library tailored for them and regular webinar training sessions.

Managing Information:

• How will you provide objective evidence to demonstrate you are managing product quality that meets the expectations of your buyers?
• What IT systems do you need in order to provide greater transparency about your products’ compliance and the integrity of your supply chains to all your buyers?
• How do you select the IT system that will provide greater buyer confidence?

There are two options for suppliers. Either the supplier needs to have an in-house IT system (requiring constant development and maintenance) OR the supplier can outsource to another company to help cost efficiently manage their product compliance.

Outcome:

With the ever-increasing demand for product compliance in the retail industry being pushed in to the hands of suppliers, the importance of being able to collect, keep up to date with and manage compliance related documentation has never been greater. This change will give a competitive advantage to those suppliers who realise this and act to improve their information sources and I.T management systems. Those who do not take on these new compliance responsibilities risk failing to be able to meet the expectations of buyers thereby damaging future sales opportunities.

~ Frank Miller, TRG Managing Director