A recent article on GreenBiz by Scot Case "Why trickle down sustainability doesn't work" has been echoing around in my mind for days. I like articles that challenge core assumptions, shine a light on blind spots and I think Case has done just that.
The overwhelming narrative in sustainable business these days is big business recognizes impacts in supply chain, big business sets ambitious targets to reduce these impacts, big business creates supplier codes of conduct and assessment/verification programs to ensure compliance, and...we assume this makes a positive difference both for source and manufacturing communities as well as for the business.
Case writes that three assumptions underpin "trickle-down sustainability":
Every business decision has potentially adverse human health, environmental or social impacts that economists refer to as negative externalities. Negative externalities can include exacerbating climate change, encouraging unsafe working conditions and expanding the use of chemicals with uncertain human health risks.
It is possible for all negative externalities to be identified and traced throughout supply chains.
If enough large companies or institutional purchasers (federal or state government agencies) consider the negative externalities when making business strategy and purchasing decisions, alongside of traditional business concerns such as price, profit, performance and availability, it will unleash profit-driven market forces powerful enough to mitigate the negative externalities.
Much like trickle-down economics, what makes sense in concept may not work that way in practice. Just as money doesn't follow the laws of physics (by running downhill like water) but the laws of economics (by running to those with the power and influence to capture it), sustainability objectives won't naturally flow seemlessly down the supply chain spreading wildflowers and happiness along the way.
Case suggests, and Penn State researchers Mark Anner (School of Labor and Employment Relations) and Veronica Villena (Smeal College of Business) have also discovered, what often happens is not quite that simple. Such mandates are often met with skepticism, defensiveness and are easily dismissed. Or worse. They can also become a reason to further reduce the freedoms of your workforce, squeeze margins, and incentivize illogical behavior just to (appear to) satisfy a demand from a big customer. And if you cannot meet a requirement and this is your sole contract, your incentive to misrepresent the truth is very high.
"Yet only 15% of respondents say they have complete supply chain visibility into the sustainability performance of tier one and two suppliers, and only 6% for tier three." -EcoVadis Report
I was recently in meeting with a large multi-national company, a well-known brand that many of us love. They have around 300,000 growers around the world and are working to certify they are efficient, safe, profitable enterprises that are socially and environmentally innovative. Of course, this is a huge challenge. For credibility (and just to handle the workload) outsourcing the certification work to a reputable third party is the path they have taken. How can you know what is really happening "on the ground" for your 300,000 suppliers? You can't. You have to trust reports, dashboards, and other forms of abstractions of reality that roll-up data into neat charts and graphs that show variances, outliers, and standard deviations. You can't manage what you don't measure (a very popular phrase that is sure to win you points) and the charts make top executives happy so on and on we go. But does all this actually matter?
As Case suggests, companies may be good at assessing what I would call "goals and tools". To just verify paperwork and scorecards and aspirations is alone a large task and one impeded with cultural, language, geographic barriers and power dynamics. But as difficult as that is, it may not be enough. Companies need to also make sure their "values" reach the depths of their supply chain and more so that the actual "on the ground" results are what the big company originally intended.
The four level model below is meant to avoid the "trickle down" trap. Most companies do well with the first two levels, less so on the bottom two levels. Through industry collaboratives and third-party certifiers, working with local experts, NGOs, local government, and researchers, we must find the way to ensure that companies highest values and goals reach the base of the pyramid of suppliers. This may be possible only by flipping the model upside down and planning from Results back to Goals, involving those who will be living with the Results in the shaping of the vision. This is quite different than setting targets at headquarters and hoping they run downhill. Evidence suggests they will not. Better to start from the ground up and then push from the top down.