In this interview, David Moran explains how companies can organize ESG initiatives in a targeted manner, the role that executive management plays in this, and how to convince suppliers that this new course is the right one.
Mr. Moran, what does sustainability in the supply chain mean specifically?
A sustainably managed supply chain doesn’t have a detrimental carbon footprint. The precise meaning, of course, very much depends on the product. Basically though, a responsibly managed supply chain in our sector is always founded on three pillars: ethical procurement, environmentally responsible procurement, and animal welfare. But the definitions of ethics, ecology and animal welfare aren’t always clear-cut. Discussions about these issues vary greatly. We already have some very clear definitions for ethical procurement. Child labor, for example, is unequivocally prohibited.When it comes to the term “sustainability”, on the other hand, in many areas we are only just starting to look at what it does and doesn’t mean.
Why do so many companies still find it so difficult to put the right measures in place?
In a lot of companies, the problem is that management delegates the matter. There might be a sustainability officer, but they are rarely appointed at the highest level. Or it’s all delegated to the procurement department, which then has to find its own way to make the concept a reality. The outcome is the same in both cases – responsibility for the matter doesn’t lie with management, so there’s no one to take ownership and drive things forward.
In that case, do the legislators need to intervene?
That can help by establishing a clear framework and sets minimum requirements. It forces companies to meet the required standards, which is often the starting point for sustainability. This is important because smaller steps are needed initially before getting to the really incisive measures. The principle of “walk before you can run” applies here.
If the legislation only requires the minimum, why should a company do more?
Obviously, it’s harder to put voluntary measures in place. But the benefits are also far greater, as consumers are often much further ahead in their thinking than the legislators. If you just do the bare minimum, then your customers will only honor that in a very limited way. You have to go further to meet their expectations. This is particularly true for industries like ours where the end consumer is extremely important. That said, it would be naive to think that B2B-based companies can escape this trend.
So, how does procurement combine sustainability criteria and cost efficiency then?
In principle, procurement can apply any guidelines as long as there is a clear framework. However, it’s true that sustainability has its price – that’s why it’s important there is a clear reason behind the decision and for executive management to communicate clearly that the costs are secondary to begin with.
How should companies decide on what course of action to take?
There are two keys steps for implementation. Firstly, the “why” needs to be defined for each measure. For example, why do we have zero tolerance when it comes to child labor? Because it’s a legal requirement and non-compliance would break the law and constitute a violation of the obligation we have toward our shareholders. We then need the “why” for the second step.
Which step is that?
Every sustainability measure needs a sponsor. This should explicitly not be the procurement department, but rather whoever is behind the “why”. In our example concerning zero tolerance for child labor, it’s about dealing with shareholders in the right way, so the CFO would be the logical sponsor. They’ll have a clear understanding of the positive impact of the measures and also be the one that benefits from them the most. In the same way, they will also be able to defend them if any conflict arises. The operational implementation can then be handed over to procurement, because achieving the best result within clear guidelines is what buyers are good at.
How should procurement communicate the new approach to suppliers?
The suppliers must know clearly what the company stands for, so that they can act accordingly. This also applies to prioritization – if a company decides to put sustainability first and price second, this is important information for the suppliers. What helps enormously is to summarize all the specifications in one document. This is the first thing new suppliers receive, and it contains everything they need to know about both quality and ESG criteria. Especially for suppliers outside Western Europe, who are often not yet that far advanced, it then becomes clear how important the topic is to procurement and which specific rules they have to adhere to.
Should procurement also be prepared to relocate parts of the supply chain to Western Europe?
That may become an issue in the short term, but that has nothing to do with a lack of control of suppliers outside Europe. That loss of control is a myth. It’s more about consumers there lagging behind in terms of what they want. Those requirements will level out in the long term and then we’ll also start buying more from those regions again.
All of that will lead to higher prices, especially in the food industry. Are you worried about that?
Consumers’ willingness to pay is completely disconnected from their expectations in terms of sustainable production and procurement, especially when it comes to food. That is the biggest challenge we will face as an industry in the years ahead. Customers need to understand that a responsible, ethical supply chain comes at a certain price. Communicating this will be a key task for us.
Here you can download the magazine free of charge:
To receive the magazine issue, fill out the contact form. You will then receive the entire issue by mail.