Sustainability in the Value Chain PDF

**CHAPTER 4: SUSTAINABILITY IN THE VALUE CHAIN** "*Looking at the world through a sustainability lens not only helps us \'future proof\' our supply chain, it also fuels innovation and drives brand growth*." -[Paul Polman](https://www.brainyquote.com/quotes/paul_polman_887078?src=t_supply_chain) S...

**CHAPTER 4: SUSTAINABILITY IN THE VALUE CHAIN** "*Looking at the world through a sustainability lens not only helps us \'future proof\' our supply chain, it also fuels innovation and drives brand growth*." -[Paul Polman](https://www.brainyquote.com/quotes/paul_polman_887078?src=t_supply_chain) Sustainability drives innovation by pushing companies to rethink their processes and products. In the quest to reduce waste and improve efficiency, businesses often discover novel materials, cutting-edge technologies, and creative solutions that meet sustainability goals and strenghten product offerings and operational efficiency. **SUSTAINABLE VALUE CHAIN** Customer preferences and resource scarcity are shaking up traditional business models. Companies are increasingly focused on the origin and value of their resources. With mounting pressure from regulators, customers, and investors, businesses must manage their value chains sustainably, tackling issues of resource use, waste, and social impact head-on. For quite some time, sustainability has evolved beyond the narrow domain of CSR managers. Every business unit, from operations to supply chain management, plays a crucial role in sustainable practices. - **The 2030 Agenda and Sustainable Development Goals (SDGs)** - **International Trade and Its Challenges** - **Evolution of Trade** - **Making Trade Sustainable** - **Impact and Recommendations** **SO, WHY ARE SUSTAINABLE EXPORTS IMPORTANT?** Sustainable exports provide businesses with numerous destinations for their products, enhancing market reach and increasing sales opportunities. Exporting sustainably produced goods brings in essential foreign exchange earnings, which are vital for the economic stability and growth of contemporary economies. **Challenges Ahead...** - **Resource Mismanagement:** Poor management of natural resources leads to the depletion of these resources, reducing the overall value addition of sustainable products and contributing to unsustainable development practices. - **Natural Resource Curse:** Overexploitation of natural resources often results in economic decline, as seen in the \"natural resource curse,\" where countries rich in natural resources fail to achieve sustainable economic growth. **VOLUNTARY SUSTAINABILITY STANDARDS (VSS)** Voluntary Sustainability Standards (VSS) have origins tracing back over 100 years, but their significant growth began in the 1990s. Distinct factors and pathways have influenced VSS\'s rapid adoption and proliferation in recent decades. VSS guidelines set out what producers, traders, manufacturers, retailers, or service providers need to do to meet various sustainability metrics. Altogether, it includes respecting human rights, ensuring worker health and safety, minimizing environmental impacts, and more (UNFSS, 2013). - - - **HOW VOLUNTARY SUSTAINABILITY STANDARDS (VSS) WORK** 1. **Integration of International Norms:** VSS start by incorporating elements of international agreements into their rules and procedures. 2. **Setting Specific Standards:** These general principles are then translated into specific, measurable standards, allowing for clear compliance assessments. 3. **Assessment and Monitoring:** VSS implements systems to ensure continuous compliance, including third-party audits and certifications. **CERTIFICATION PROCESS OF VOLUNTARY SUSTAINABILITY STANDARDS** - **Step 1:** An inspector conducts a pre-audit to see if the entity can be certified. - **Step 2:** A full audit assesses current practices against standards and may include requests for corrective actions. - **Step 3:** The entity implements these corrective actions. - **Step 4:** A follow-up audit checks if further actions are needed. - **Step 5:** If all standards are met, the certificate is awarded, typically valid for one year initially. **LINKAGE BETWEEN VSS AND SDGS** Research from [ProTerra Foundation (2022)](https://www.proterrafoundation.org/news/voluntary-sustainability-standards-and-the-sdgs-is-there-a-connection/) found the following 4 SDGs to be the most relevant in alignment to VSS: - **SDG 8 (Decent Work and Economic Growth)**: VSS often focus on ensuring fair labor practices and decent working conditions within supply chains. As a domino effect, this aligns with the goal of promoting inclusive and sustainable economic growth. - **SDG 12 (Responsible Consumption and Production)**: VSS frequently promote sustainable consumption and production practices. Usually, this includes reducing waste, using fewer resources, and ensuring products are made in ways that minimize environmental impact. - **SDG 13 (Climate Action)**: Given the global urgency around climate change, many VSS incorporate criteria aimed at reducing greenhouse gas emissions, promoting renewable energy use, and enhancing overall environmental sustainability. - **SDG 15 (Life on Land)**: VSS standards often address biodiversity conservation, responsible land use, and protecting ecosystems. All these efforts contribute directly to ensuring life on land thrives sustainably. **MECHANISMS OF CHANGE** **Race to the Bottom:** Some scholars argue that international trade can lead to a \"race to the bottom\" in social and environmental protections. Some countries might lower standards to attract business, negatively impacting labor rights and the environment. **Race to the Top:** Other experts believe trade can drive a \"race to the top.\" Multinational corporations and global value chains can spread stricter social and environmental standards worldwide. Firms often adopt the highest standards from the strictest jurisdictions to streamline operations and reduce costs, promoting better practices globally. **Social Upgrading =**Improvements in labor standards, such as wages, working hours, and worker safety, leading to better social conditions and quality of life for workers. - **Pathways:** Can be achieved through minimal adjustments (superficial) or deep, transformative changes (embedded) in labor practices. **Environmental Upgrading =** Reducing the environmental impact of production processes, including better resource management, waste reduction, and sustainable practices throughout the product lifecycle. - **Pathways:** Includes integrating environmental considerations into production processes and shifting towards more sustainable farming and manufacturing practices. So what mechanisms are leading to changes in the supply chain? 1. **Consumer Demand:** Increasing awareness and demand for ethically produced goods. 2. **Business-to-Business Demand:** Reputation management and compliance with sustainability standards. 3. **Civil Society Pressure:** Advocacy from unions and environmental groups pushing for higher standards. 4. **Public Regulation:** Government policies and regulations enforcing sustainable practices. 5. **Multi-Stakeholder Collaboration:** Joint efforts to address sustainability issues effectively. **IMPACT OF TECHNOLOGY ON SUSTAINABLE CHAINS** Tech innovation, especially AI, is the game-changer for making our global supply chains more sustainable and valuable. Wang et al. (2023) provide an in-depth analysis of how technology and natural resource management affect the value of sustainable exports, focusing on China from 1980 to 2020. 1. **Artificial Intelligence** 2. **Natural Resource Management** **COVID-19 IMPACT & VSS -- CASE STUDY** - **Disrupted Supply Chains** - **Response from Private Regulators** - - **Audit Postponements:** Many VSS programs delayed audit deadlines to accommodate disruptions. - **Remote Audits:** Over half of the VSS switched to conducting audits virtually, allowing continued compliance checks despite travel restrictions and lockdowns. - - **Flexible Reporting:** Some VSS allowed more lenient reporting requirements, easing the burden on operators. - **Temporary Rule Changes:** A few VSS provided COVID-related exemptions to certain compliance indicators, recognizing the extraordinary circumstances. Producers in developing regions face greater challenges in meeting compliance, accessing necessary technology, and recovering from the pandemic's economic impacts. - **Limited Use of Adjustments:** Risk assessments often restricted audit policy adjustments, particularly affecting operators in high-risk developing countries. For instance, the Aquaculture Stewardship Council limited remote audits for operators in high-risk countries, all of which were in developing regions. - **Lack of Flexibility:** Only a small number of regulators introduced substantive changes to performance rules, disproportionately impacting producers in developing countries. Producers faced decreased export demand and struggled to meet unchanged standards amidst the pandemic. - **Technology Costs:** Implementing new technology for remote audits requires stable and fast internet, which is costly and less accessible in developing countries. Few VSS programs provided financial assistance to offset these costs. - **Entry Barriers:** Many VSS did not modify initial certification requirements, temporarily barring new producers from entering programs and restricting market access. - **Recovery Lag:** Developing countries experienced COVID-19 outbreaks later than developed countries, likely leading to delayed economic recovery. This lag means producers in developed countries may resume normal business activities sooner, widening existing inequalities. **KEY TAKEAWAYS** - **Sustainability Sparks Innovation**: Looking at the world through a sustainability lens helps companies rethink and improve their products and processes, leading to cool new materials and cutting-edge tech. - **Customers Want Ethical Options**: People care more about where their stuff comes from and how it's made. Companies need to focus on sustainability to meet these new demands. - **The UN SDGs Set the Standard**: The United Nations' Sustainable Development Goals give us a clear plan for tackling big global issues with sustainable practices. - **Voluntary Standards Make a Difference**: Standards like VSS represent the pillars to guide operations for products that are made responsibly. - **Tech Drives Green Practices**: New technologies, especially AI, are game-changers for making supply chains more sustainable and efficient. - **Smart Resource Management Pays Off**: Taking care of natural resources better boosts the value of sustainable products and helps the environment. - **Trade Can Push Higher Standards**: International trade can encourage companies to adopt better social and environmental practices, leading to higher standards everywhere. - **Demand for Ethical Products is Growing**: More and more people want to buy goods that are made ethically, and businesses are responding by improving their practices.