Over the past decade, large companies have been setting ambitious sustainability targets to address global challenges like climate change and deforestation. Achieving these goals requires participation from their small- and medium-sized enterprise (SME) supply chain partners (i.e. Scope 3), yet few large companies have figured out how to equitably engage those SMEs.
SMEs bear much of the burden in helping large companies implement and meet sustainability goals across the value chain. They are asked to increase yields, meet quality standards and reduce pollution. But what do larger companies know about what their suppliers, manufacturers and producers need to meet expectations? And why should they care?
All Quiet on the Supply Chain Front
Early findings from a WRI working paper to be published in 2023 on corporate supply chains suggest a huge blind spot when it comes to understanding and addressing the needs of their SMEs. An initial analysis of more than 1,000 corporate supply chain goals shows that fewer than 10% aim to empower SMEs.
Large companies often ask businesses along their supply chains to comply with reporting goals, emissions reductions targets and production standards. Fundamentally, SMEs want to comply. Improving product quality and reducing pollution increases product value, which maintains positive relationships with their buyers. Failure to do so puts their own business at risk as larger companies can procure necessary goods and services elsewhere. However, adhering to large companies’ goals takes significant investment of resources and time – both in short supply for SMEs that face more immediate challenges like keeping the lights on and hiring and paying workers.
This project’s objective is to address the systems that make it difficult for SMEs, their workers and communities to thrive in a changing climate. Some large companies help smaller suppliers directly by financing clean energy and efficiency upgrades or learning what suppliers want in terms of training and increasing incomes, while some have offered to build schools, hospitals or water treatment plants for their supplier’s community. What is missing are supply chain initiatives that create a more level playing field for supplier-buyer relationships.
Corporate Challenge
WRI is challenging large companies to go beyond setting targets: Find out what SMEs need. Where are their pain points? What systemic challenges are preventing them from reducing pollution and adapting to a changing climate?
Some interesting examples that the upcoming paper will include:
Mint
Companies rely on mint and mint oil to make a variety of products, from candy to toothpaste. Research shows about 80% of this mint comes from India, where farmers face an increasingly volatile growing environment as a result of climate change and global supply chain disruptions. How can large buyers of mint better understand and assist suppliers as they deal with soil, water, heat and other challenges that directly affect farmers’ livelihoods?
EV Battery Critical Minerals
Demand for electric vehicles (EVs) is projected to soar in the next 30 years. The World Bank Group estimates that the production of critical minerals may increase by 500% by 2050 to meet growing demand for clean energy technology such as EVs. WRI’s Platform for Accelerating the Circular Economy (PACE) predicts a 20-fold increase in lithium, cobalt and nickel to meet electrification needs.
Automotive companies are investing billions to ensure a reliable supply of the critical minerals needed to develop and produce EVs and batteries. How can large companies invest in the communities where those materials are extracted and in the workers who process, service and maintain those batteries? How can they support those supplying recycling and waste services at the end of those batteries’ lifetimes?
Cotton
The global apparel market is valued at approximately $1.5 trillion. The cotton needed to meet worldwide demand for clothing has significant environmental and social implications. Several large companies are launching efforts to address water, climate and working conditions. Some are experimenting with recycling and reusing clothes to create circular economy business models. But what can they do to ensure the SME workers in textile industries, critical to many emerging economies, are part of a just transition to cleaner production and more sustainable consumption?
Help Us Create Better Supply Chains
If large companies integrate SMEs voices into their sustainability plans, they could more swiftly identify and address pain points in their supply chain to more easily reach their own sourcing, emissions reductions and impact goals. By listening to SME voices and addressing their needs and pain points, large companies can ensure that they are collaborating to solve the most pressing issues affecting suppliers and their communities. This could mean providing local mint farmers with safer living and working conditions. This could look like better labor protections for EV battery workers. This could consist of investing in a seamless, circular process for textiles.
How can you help us? WRI is looking for stories and voices from supply chains – both innovative approaches and opportunities for improvement.
Where else are you seeing equity and SME challenges in supply chains? Do you work for an SME or are you interested in asking or hearing the answers to some of these questions?
Help us amplify their voices and better understand what would create more balanced and sustainable supplier-buyer relationships.
Call for Input from Large Companies & SMEs (office.com)
WRI’s work on this topic is part of the Climate-Resilient Employees for a Sustainable Tomorrow (CREST) initiative, with generous support from Ares Charitable Foundation. CREST aims to help spur systemic change and inspire innovative approaches to climate change and labor challenges that countries can integrate into their economic strategies.
Note: Corporations (Walmart and Mars, Inc.) named or linked above have also provided financial support to WRI. This blog post solely reflects the views of the authors.
