Financial stakeholders are failing to positively influence supply chain responsibility, despite having considerable potential to support, incentivise or hamper responsible conduct, according to a report from The Economist Intelligence Unit (EIU) – Responsible supply chains in a globalised world.
Customers more influential than banks
The report charts the evolution of sustainable and responsible supply chain management, noting that the number of sustainability reporting instruments has risen from 60 in 2006 to 383 in 2016, with the number of countries covered rising from 19 to 71. But the report finds that consumers are having an even greater impact than regulators on the responsible and sustainability behaviours of companies in their global supply chains. The report stated: “in every market we surveyed, customers were cited by firms as one of the top influences driving them to make their supply chains responsible”.
But the problem is complex for companies with extended supply chains and thousands of suppliers. This, as well as dealing with the increasing volume of reputational and regulatory risks, requires sophisticated systems with appropriate internal structures, well-designed supplier management systems and, in many cases, external support.
Four key supply chain challenges from the EIU report:
Complacency is evident and progress has stalled in some economies. Four out of five respondents described their firms as having responsible supply chains, yet under a quarter addressed some of the key issues such as climate change or child labour. While a small majority of companies had made supply chain responsibility a higher priority in the last five years, a full 30 per cent had decreased their focus on this over the same period. In some economies, progress had stalled.
2. Difficulty in quantifying
Issues for which the impacts are harder to measure or forecast are not as well addressed. Issues for which it was relatively straightforward to demonstrate quantifiable short-term risks and benefits/opportunities received more attention from firms than less tangible or longer-term issues. For instance, companies were more likely to address health and safety risks (illustrated in disasters such as the Rana Plaza factory collapse) and recycling (which can generate revenue) than climate change.
3. Some issues are ignored
Issues that only affect a sub-set of the population are falling through the gaps. For instance, issues which disproportionately affect women and children appear to be side-lined compared to general labour issues. This could be a result of prioritisation methods used by firms to direct the focus of responsible supply chain efforts, achieving maximum overall impact but missing certain groups.
4. Financial professionals missing chance to influence
Financial stakeholders are missing opportunities to positively influence supply chain responsibility. Just 27 per cent of executives cited banks or financial institutions as a key influence on their responsible supply chain policy, and just 20 per cent cited stock exchanges. Yet interviews revealed that financial stakeholders have a good deal of potential to support, incentivise or hamper responsible conduct.
5. Suppliers too big or too small to influence
Some suppliers are less subject to positive influences. For instance, a) where a supplier is too small or anonymous to face much reputational risk, and is not subject to pressure from business customers, financial institutions or consumers (for example, a small or medium-sized enterprise [SME] in a developing country which is not listed and only supplies local firms), and b) when a supplier is so large that the brands buying its products have limited influence over it.
Supply chain complexity is the number one hurdle to responsibility, cited by 49 per cent of executives. Most companies have a long way to go in tackling this challenge, with a majority enforcing their responsible supply chain standards among direct suppliers only – leaving themselves open to risks further down the chain.
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