Elephant in the Boardroom: People Are Missing in Corporate Supply Chain Goals

While companies are designing goals that prioritize their environmental footprint, they are not addressing the impact these goals have on people in their supply chains. We found that only 12 percent of large companies have people-centered supply chain goals. These goals include targets for improving working conditions and safety; investing in reskilling, entrepreneurship, and education; supporting workers’ and communities’ well-being; and increasing supplier diversity.

Large companies that set sustainable supply chain goals must also confront an obvious, but overlooked problem: supplier-buyer relationships are unequal. Smaller companies in a supply chain do not always benefit from nor share the ambitions of large companies or buyers. Large companies have more resources, including technical and financial, to devote to meeting sustainability goals. Smaller suppliers often do not have the internal capacity to gather and report on complex environmental information about their products and processes. Adding to this challenge, a large company may be far removed from upstream suppliers. The company may not have much visibility nor awareness of the people (e.g., business owners, workers, and communities) who are farming, mining, or manufacturing the raw materials and products it relies on. Yet, these are the people who will be asked to adjust and transition to new production methods or technologies.

Smaller suppliers that are far removed from a large company are likely not even interested in that company’s GHG target. What is in it for them? Fundamentally, the suppliers want to continue to sell their products to the downstream buyer. However, if they are not selling directly to the large company, they may not have sufficient incentives because their direct customers are not willing to pay higher prices. Without additional financial incentives or resources, smaller suppliers will be unable to make upgrades to their equipment, materials, wages, or working conditions.

We found that approximately 90 percent of corporate supply chain sustainability goals are designed to push or pull direct suppliers, rather than create partnerships with mutual value. Thus, we present a challenge for large companies and their stakeholders: design upcoming goals as investments in people and partnerships, and create financial capacity and value for smaller suppliers and those working for them. Specifically, consider three priority questions:

1. Who is impacted by transitions to supply chains of the future? Consider mapping and identifying “pain points” beyond Tier 1 suppliers.
2. What is in it for them? Consider emphasizing technical support and transitions instead of only focusing on audits and compliance.
3. Where can we invest for mutual benefit? Consider innovative contracts that help both the large company and smaller supplier.

Key Findings:

• Sustainability will be won or lost in supply chains. Most of a company’s impact on people, nature, and climate occurs in its supply chain. For many, 80-90 percent of their greenhouse gas (GHG) emissions are linked to suppliers’ extraction and production processes.
• However, supply chains are competitive and complex, generally driving suppliers to produce goods at the lowest possible cost. Large companies’ sustainability goals create additional expectations and costs for suppliers — a particular challenge for small- and medium-sized enterprises.
• So, what kinds of supply chain goals are large companies setting?
  • Most goals push and pull; few partner. Our review of more than 1,000 supply chain goals revealed most companies “push” or “pull” suppliers to comply with sustainability objectives, while fewer than 10 percent take a “partner” approach. Without technical support and financing, smaller suppliers can struggle to both meet cost pressures and invest in sustainability goals.
  • Missing: people-centered investments in supply chains. Many large companies set goals related to climate and nature, but only 12 percent of companies have at least one goal focused on people. Only 3 percent of companies have goals focused on reskilling or upskilling workers, and fewer than 3 percent have goals that improve working conditions.

_{Preview image by PC Anto for WRI India}