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Building stronger value chains
Building stronger value chains
News Aug 30, 2013

Consumers increasingly want products that don’t cause deforestation, climate change, or suffering for plants, animals and people who depend on forests for their livelihoods.

More and more these days consumers are becoming increasingly interested in the environmental and social stories behind the products they buy.

Consumers increasingly want products that don’t cause deforestation, that don’t cause climate change; that don’t cause suffering for plants, animals and the people around the world who depend on forests for their livelihoods.

Consumers are coming to understand how their purchases pull products through value chains. They’re becoming more cynical.

The recent factory collapse and serious abuses of workers’ human rights in Bangladesh and the horsemeat scandal in Europe told consumers that they really are right not to trust the companies selling them products. They were lied to. And there are many exposes highlighting where companies or labels say one thing and reality deep at the far end of value chains tells a more harrowing story.

So consumers are asking MORE questions:

“Where does this product come from?”

“What’s its story?” “Has it caused Deforestation?” “Has it killed Orangutans?”

And they want to know about social issues too: “Was it made using child labour?” “What about workers rights?”

It’s true that today, this concern only goes so far. We still love a bargain so price remains the key factor in most of our buying decisions and we’re still wooed by beauty and design. Yet, consumers and innovative companies responding to their demands are extending the concept of “beauty and design” to include environmental and social innovation.

NGOs are driving this innovation by naming and shaming laggards. They’re using social media to highlight unhappy stories embedded in product value chains. Back in 2010, Nestlé was rocked by a one minute Greenpeace video that went viral on social media around the world showing an office worker opening a Kit Kat to find an Orangutan’s finger inside. He didn’t notice and went about eating it, blood everywhere. We’ve seen similar NGO campaigns in the pulp and paper and palm oil sectors naming and shaming brands that are not looking after these issues.

Consumers are shying away from brands linked to environmental and social issues. And having moved away, we’ve seen that it takes them a LONG time to come back. There are real risks here. In response, companies are really getting out there to compete based on their environmental and social innovations. This opens the risk of greenwashing but NGOs and the social media community are there to slap any such practice. It is creating differentiation in the market.

This really is the key point that I want to make: for so long, businesses have seen environmental and social issues as costs for their business, risks they have to manage or hopefully get away with ignoring. Yet, it doesn’t have to represent ONLY a risk – this is a huge opportunity!

Sorting out the environmental and social issues in value chains represents good business. We’ve seen so many times over the past fifteen years that those companies with a verified and positive story to tell around environmental and social issues secure real business benefits – tangible benefits such as increased price competitiveness, stronger bonds to their suppliers, and intangible benefits such as happier workers and an enhanced brand.

We’ve seen companies move from Pariah to Hero in a very short space of time by dealing with these issues. If you think of this solely as a risk, you tend to hide away, to slink into the shadows. For small companies, that’s been a good strategy. NGOs don’t come looking for small companies, they target the big guys, so in the past, small companies have been able to stay under the radar.

But by slinking away, you strangle opportunity for change, for learning that drives innovation, enhanced competitiveness; you stay where you are while everyone else struggles, changes and grows in the hurly burly world of competition. Even if NGOs aren’t there to beat you up, you’re missing an opportunity to innovate. For me it doesn’t make sense. And at any rate, NGOs aren’t stupid and are now speaking to banks and financiers asking whether the companies they provide financial services to are behaving ethically.

So how do you go about sorting this out?

In the timber industry, risk management usually means “FSC” and that commonly means getting FSC Chain of Custody certified. Nine times out of ten folk don’t ever process FSC wood but the COC greenwash gives them an answer when customers or NGOs ask them about their wood. “I’m FSC certified” gets you off the hook. Critically though, it doesn’t drive forest management improvements where we need them most – in the tropics. Companies routinely process illegal wood in FSC COC certified factories but are celebrated as heroes for their certificate. It’s an unfunny joke and we need something more.

Companies linking themselves to FSC are effectively outsourcing their risk management strategy and their marketing opportunities to a system they don’t control. Getting FSC COC certified is not innovation. Relying solely on FSC will, I believe, become a risk itself in future. More and more, I’m not sure it’s wise.

So what should you do?

There’s another way of looking at this whole conundrum and critically, for us, it’s a way that has real positive impacts on forest management in the tropics.

At TFT, we encourage business leaders to ask themselves questions, and to look inside themselves for the answers, not outsource their responsibility to others:

“What do YOU want YOUR product story to be?”

“Do you want your product to cause deforestation, to drive climate change?”

“Do you want your product to be linked to dead Orangutans, to the extinction of the Sumatran tiger?”

“How about child labour?”

“Poisoned rivers?”

“Exploited workers?”

What about customers? Do they care? Many don’t, but more and more do. Even if they don’t, we know from our members – big and small retailers across Europe and the US – that innovating to sort out these issues has hugely positive impacts inside companies AND even if customers still mostly look at price, a good product story helps them feel good about the company offering it. It enhances the company brand and customer loyalty because consumers want the companies to look after these issues. They’re coming to understand that deforestation and climate change requires them, their kids or grandchildren to pay a price in the long term that they’re increasingly reluctant to pay. Yes, it’s changing – people are looking more long term in the decisions they make. So… our suggestion to the companies we work with is to state very clearly their values. For example, we’re helping companies in the wood products, pulp and paper and palm oil sectors to make No Deforestation policies:

  1. We will act in compliance with all laws and regulations
  2. We will respect the rights of indigenous and local communities
  3. We will protect High Conservation Value Forests
  4. We will protect secondary, High Carbon Stock forests
  5. We will protect peatlands

Five key pillars.

We’re now building No Exploitation policies, specifically for the palm oil industry. These have three key pillars:

  • Respecting the rights of indigenous and local communities
  • Responsible resolution of conflicts
  • Responsible labour practices

Notice that there is no mention of any certification scheme there. Some companies are putting in additional lines for that but we’re not demanding it.

“Getting FSC or PEFC certification” is NOT a values statement. It places full responsibility on delivering responsible products on the schemes and we know that that’s not always wise.

Just to be clear – we’re not against certification. Certification is OK but it has some fundamental weaknesses most critically that it stifles innovation. For me it merely represents a milestone on a journey. If you’re trying to ensure that your products don’t cause deforestation, and as part of that, a forest that supplies you products can achieve FSC then great. But what if the forest is not engaged in any deforestation, is ticking all the boxes of the five key pillars but doesn’t want to get certified? Or it doesn’t have the money to do it? Why force it? Why not accept – and get trusted NGOs or local communities to verify it’s true – that the operation is acting “responsibly” and is not causing deforestation. It’s not clearing peatlands, it’s looking after its workers, etc.

What do you want YOUR product story to be? Write it down; that’s your Values statement, your policy.

Next step is to go out into the bush and check how you’re doing. For that, you have to know where your product comes from – TRACEABILITY is absolutely critical. You can’t know if your product is causing deforestation unless you know, with certainty, where the wood comes from – you need to get to the stump. And don’t be fooled into thinking that an FSC COC certificate does that – it doesn’t. Only once you’re at the stump can you know if you’re standing in a National Park. Only then can you start asking questions – how was it harvested? Is there a Forest Management Plan? How were the workers treated? Etc.

In our experience, such an exercise usually uncovers issues; usually, your wood doesn’t match your policy. That’s OK. The key thing here is TRANSPARENCY. If you find issues, don’t cover them up; report them. Tell NGOs and your customers that you found them. More importantly, tell them what you’re doing about them.

That’s the next step – TRANSFORMATION. Work with your suppliers to encourage them and support them to change their business practices to meet your values. This is the hard part, where most of the stress comes. But it’s also where most of the innovation comes too – solving problems demands innovation.

At TFT, we speak about VTT – VALUES, TRANSPARENCY, TRANSFORMATION

It’s a process that never stops – it’s a journey. Your inherent values underpin the journey but your thoughts and decisions are influenced strongly by your life experiences and by talking to others. They’re also influenced by problems you face, by mistakes you make, by risks you take and by goals you achieve.

What if a supplier tells you to bugger off? You only buy 2% of his production and he’s not changing everything just for you. That’s a real problem. It’s a risk to move to another supplier but if you do and he helps you meet your values and you start telling great stories to your customers, it will strengthen your business.

As you set about trying to work out where your product comes from, you’re going to see and learn many different things. Talk to people, open your eyes, your ears and most importantly your mind to take everything in and understand where the risks and opportunities lie. You’ll see some bad things. You’ll be told no end of greenwash bovine; hone your BS indicators, you need them.

Our experience tells us that one of the most powerful bonds in human society is between a supplier and his customer. No supplier wants to lose a customer even a small one so don’t think, “I have no leverage”. You do. Using it usually has two very strong effects.

The first is – you get to know your supplier and his suppliers and his suppliers’ suppliers MUCH better. You build strong relationships and usually stronger and shorter value chains.

The second is that you can really reduce costs and that increases competitiveness. Traceability systems really help identify where there’s waste in a system. This could be at a particular machine in a factory, a particular worker or group of workers, or from a particular factory. We’ve seen whole factories demolished and rebuilt once lessons have been learned from traceability systems. That’s innovation.

They also let you see where people are not adding value – as is often the case with middlemen and traders; they’re just there to pass the documents onto the next guy, who adds 5-10% onto the product cost before handing the documents onto the next relation. Get that rubbish out of your system.

The last step is communication – don’t be afraid to communicate. Communicating your journey to your customers, to NGOs, to your bank, to your partners and kids is really very important. It creates feedback! And you’ll learn a lot listening to feedback. No one expects you to be perfect tomorrow but if you take people on the journey with you, they can better understand and give better advice when you – inevitably – hit a roadblock. Remember though – no greenwashing! Only ever communicate the truth because you will be outed via social media if you greenwash.

And look, it really is OK if your underlying values are to make as much money for yourself as possible. No stress…don’t be ashamed. A key reason why people go into business is to secure their financial security. My point is that in this changing world, where more and more people are concerned for environmental and social issues, that making that money will increasingly only be possible if the story behind products is environmentally and socially responsible; that’s the win: win.

Related News:

Areas of work:
Healthy forests

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