Driving Sustainability Through the Supply Chain
Right now, pharmaceutical companies are well and truly in the spotlight. Every day we hear about thousands of people being vaccinated, and the race pharma companies are in to bring to market not only new vaccines but vaccines that are capable of handling new variants and strains of the Coronavirus as it continues to evolve.
Currently, the COVID-19 crisis is front of mind for organisations and must be dealt with as a matter of urgency. But, once organisations have stabilised the pandemic situation in the short-term, the biggest task will be tackling the long-term environmental crisis and embracing sustainability. Going forward, sustainability should be at the top of the corporate agenda as today, consumers are becoming increasingly vocal around their expectations for brands to act on sustainability and ESG issues. Furthermore, 80% of a company’s environmental footprint sits in the supply chain, so reducing the supply chain’s carbon footprint is imperative.
How one of the world’s largest investment companies is advocating sustainability
To this point, Blackrock CEO Larry Fink’s 2021 letter to fellow CEOs highlights the importance of creating durable value. In this letter, Fink outlined issues such as , , , and and talked about how sustainability risk is investment risk. Fink goes on to describe how sustainability is a key component of the way Blackrock manages risk, constructs portfolios, designs products and engages with companies. He says: “We have long believed that our clients, as shareholders in your company, will benefit if you can create enduring, sustainable value for all of your stakeholders.”
Fink outlines how the pandemic has enveloped the entire globe and changed it permanently, transforming the way we live, the way we work, learn, access medicine, and much more. He talks about how sustainability and a deeper connection to stakeholders drive better business and to this point how, in 2020, purposeful companies with better environmental, social, and governance (ESG) profiles have outperformed their peers. In fact, 81% of a globally representative selection of sustainable indexes outperformed their parent benchmarks, and a broader array of sustainable investment options will continue to drive investor interest in these funds in 2021.
How COVID-19 has driven a digital revolution
As we emerge from the pandemic, we find ourselves in the midst of a digital revolution. COVID-19 has accelerated digital transformation initiatives, enabling organisations to change how they operate and bring in new innovations that deliver more sustainable practices. For example, a well-known beverage brand, Heineken, has embraced innovation and technology to bring 3D printing into the supply chain from a maintenance perspective. Heineken has stopped shipping expensive parts long distance, which was creating a big carbon footprint, and is now bringing maintenance parts closer to where they are needed. It has 40 sites all over the world with 3D printing machines which are rolling out the maintenance parts already designed and printed. This is a great example of a very traditional model that has been completely altered thanks in part to some very innovative thinking and technology.
One individual who is a real advocate of sustainability is Jim Massey, former VP of Sustainability at AstraZeneca, which as a global company, seeks to leverage its reach, scale and expertise to effect change in a range of sustainability issues. AstraZeneca actively seeks stakeholders’ input to help refine its approach to supporting communities in improving health. In 2018, the company worked with an independent consultancy, which did an extensive materiality assessment that identified 16 priority material issues that helped sharpen its focus. It was clear from the more than 2,000 responses that there was a strong expectation for companies to act on sustainability in areas as diverse as disease prevention and treatment, product environmental stewardship, and workforce well-being.
Massey firmly believes that we do have a huge opportunity to operate on a more sustainable basis within healthcare and recognise the wide range of factors that contribute to health. These range from promoting prevention and supporting healthcare infrastructures to developing an innovative pipeline for making medicines available, as well as ensuring that we operate in an environmentally sensitive manner – all on a sustainable basis. Jim advocates how we need to plan for the future, delivering sustainable growth and making decisions with the long term in mind.
Sustainable targets driven by science
As you can imagine, AstraZeneca is a company that is driven by science, and that also means having science-based targets. For example, in managing its carbon emissions, it had the targets from its operations confirmed by the Science Based Targets initiative as aligned with limiting global temperature rise to 1.5°C above pre-industrial levels – the most ambitious goal of the Paris Agreement. AstraZeneca has also made clear commitments in areas such as switching to renewable energy sources and electric vehicles by joining The Climate Group’s RE100 and EV100 initiatives, and it now has electric car charges at various sites.
But this is also about supporting suppliers in building their own sustainability capabilities and holding them to high standards. AstraZeneca aims to work with suppliers whose values are consistent with theirs and supports principles for Responsible Supply Chain management for ethics, labour, health, safety and environment, envisioning a supply chain that delivers commercial benefits while meeting supply chain sustainability.
The importance of sustainable procurement
To this point, AstraZeneca is the first pharmaceutical company to share an online map showing the countries of critical direct partners (the active pharmaceutical ingredient, formulation and packaging and device suppliers). The map discloses data from 96 countries, showing AstraZeneca’s sourcing and manufacturing around the world involved in delivering medicines to patients as well as site environmental status.
Additionally, in 2019, the company launched its Positive Sourcing Programme for sustainable procurement driven by its collective responsible sourcing actions – actions that create a more inclusive, resilient and transparent value chain. The company’s ambition is to achieve 100% ethical spend - ensuring that all categories have a sustainability strategy and performance measures in place by 2025.
The world has changed. Before 2020, vaccines typically took 10 to 15 years to develop. Today, we have multiple companies across the globe, delivering vaccines that they developed in under a year. They are demonstrating the power of companies to respond to human needs. As we move forward from the pandemic, we face tremendous inequality around the world, and we need companies to embrace a form of operation that supports global environmental and societal needs. But this is not just about sustainability. It is also about doing good for both people and the planet to ensure everyone around the world at least has the opportunity to earn a living wage.
Germany Adopts Revolutionary Supply Chain Human Rights Laws
While the title states that Germany’s newly adopted that targets human rights abuse across global supply chains is “revolutionary” ─ which it is ─, it certainly shouldn’t be. But nonetheless, today, on June 11th, 2021, the German Parliament has ushered in a long-awaited shift to mandatory company compliance rules. After months of negotiation, the German lawmakers finally pushed it over the finish line within the final days of the current legislative period. The bill will see German multinational corporations held legally responsible for any human rights or environmental abuses found across their global supply chains.
“The German government has taken a critical step to ensure that companies operate responsibly,” said Juliane Kippenberg, associate director, children's rights division, at Human Rights Watch. “Respect for human rights in global supply chains is not something that should be optional.”
This news comes at a time when global corporations are already being pushed towards environmental, social and governance (ESG) compliance, with a massive drive to reduce Scope 1, 2, and 3 carbon emissions from their supply chain operations and a concerted effort to avoid suppliers and manufacturers that do not meet the standards that industry-leading companies are now expected to meet.
Who will the new law affect?
With Germany’s new legislation, organisations that fail to meet the rules and regulations could be forced to pay fines potentially equivalent to 2% of their annual global turnover. However, it isn’t applicable to all.
According to Reuters, under the act, companies above a certain size will be forced to establish set due diligence procedures that prevent the abuses; from 2023, only companies with more than 3,000 employees in Germany will be affected. From 2024, the rules will expand to companies with more than 1,000 employees.
Statistics from within the country suggest that the first stage of this regulation rollout will affect 900 companies, while the second stage will put 4,800 companies under the spotlight. The bill will also enable the government to temporarily exclude from public tenders companies that receive fines in excess of €175,000.
“Incalculable risks arise for companies,” said Joachim Lang, general manager at the Federation of German Industry. A word of warning from a respected leader, at a time when industry lobby groups and wholesale businesses fear that the new law increases bureaucracy and suggest that price rises may be inbound.
The Take of German Giants
After looking at the incoming legislation, Daimler AG, known more commonly as the automotive giant Mercedes-Benz, a company which, should there happen to be any ESG-compliance issues along its multinational supply chain, would pay a hefty fee, is welcoming of the push for change but hesitant about certain aspects of the bill.
“Daimler's position is: The respect for human rights is a central aspect of our sustainable business strategy. We, therefore, welcome the progress made on the Supply Chain Act. Although the regulations are very ambitious, the proposed legislation has a sound approach overall. It is based on internationally recognised human rights and on international agreements. And it gives companies more legal certainty in an area that has so far only been partially regulated.
Supply chains are not "chains" but rather exceedingly complex networks: Daimler alone has over 60,000 direct suppliers - and many more sub-suppliers. For this reason, we also consider the proposed risk-based gradual model to be sensible. The responsibility of the companies lies primarily in their own business area and with their direct suppliers. Companies must then take action in the deeper supply chain if there are concrete indications of human rights violations. Daimler AG already does that today.
Even though we support the proposed legislation in principle, we consider some aspects to be critical, e.g. the planned fines of up to 2% of the average annual turnover. Instead of threats of sanctions, we consider concrete measures, which companies must take in the event of deficits, to be more expedient. In addition, certain wordings are still vague and leave room for interpretation. Terms such as, e.g. "fair standard of living" should be phrased precisely in order to create legal certainty. Furthermore, documentation and reporting requirements should not lead to unnecessary bureaucracy and should be harmonised with existing rules. On the one hand, this does not help the people on the ground, and on the other hand, it puts a burden on the companies – and the implementation can pose substantial challenges for smaller companies in particular.”
This law is arguably one of the most important developments in the supply chain space so far this year. But it must be remembered that changes do not and will not happen at the push of a button and that democratic principles should be applied to the discussion prior to enshrining legislation into tablature. Environmental and human rights advocacy is a hike, not a brisk walk around the park ─ so, for German companies, it’s time to get their boots on the ground and start assessing their global, interconnected supply chain operations. And, hopefully, they’ll set a stellar example for the rest of us.