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When Sustainability means Accountability

May 20, 2013 1 comment

PREMISE: with this post we aim at raising attention around the relationship between Sustainability and AccountabilityAccording to literature (e.g., Sharma and Henriques, 2005), the development of sustainability-oriented strategies and practices is greatly driven/influenced by stakeholders’ demand.  Stakeholder groups (Governments, NGOs, Local communities, shareholders, customers, etc.), however, have different and contrasting goals, which results in a disparate number of sustainability requirements (Hall and Vredenburg, 2005).  Therefore, in practice, sustainability-oriented strategies and practices vary extensively in terms of focus (CO2, Water, Energy, Waste, Health and safety, Child labor and Workers Rights, etc.) and  extension (e.g., be developed inside a firm’s boundaries or, instead, cover several tiers of a supply chain).  The question, thus, becomes: What should companies account for? and, Why? Here, we approach the sustainability-accountability issue, concluding that future research should be developed to provide some more insights.

Few months ago we provided initial evidence of the growing trend characterizing  sustainability-oriented programs  in businesses.  Nowadays, this trend does not seem to slow down:  a recent  KPMG International CSR Survey found that 95% of the world’s 250 largest companies are strongly committed towards sustainability and are actually disclosing information around their environmental and social impacts.

By carefully observing the phenomenon of sustainability, one may also recognize an enlargement in the scale of sustainability-related strategies and practices: from a focus on the focal organization and on environmental issues, towards a more supply chain oriented perspective that covers both environmental and social dimensions of the triple bottom line. For instance, corporate initiatives are moving from Scope 1 (i.e., emissions I own and emit – direct emissions) required by regulation, towards Scope 2 (i.e., indirect emissions reporting due to electricity and district heating and cooling) and even Scope 3 (i.e., indirect emissions along the entire value chain, from sourcing to utilization of products and even recycling them). The Greenhouse Gas Protocol (GHCP) initiative is a SCOPE 3 remarkable example. On the social side, a recent important initiative is the “conflict minerals’’ provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act

Given this trend,  the question becomes: what should companies account for? and why? Trying to address this question, we looked at existing initiatives around this topic. The existing G3 guidelines (i.e., third version of the Global Reporting Initiative), for instance, state that:

The Sustainability Report Boundary should include the entities over which the reporting organization exercises control or significant influence both in and through its relationships with various entities upstream (e.g., supply chain) and downstream (e.g., distribution and customers).

The emphasis here is on what a firm can directly control for.

Conversely, the current G4 draft (e.g., last version of the GRI guidelines) includes substantially more indicators for supply chain performance than G3, and suggests that companies should account for all the material aspects of their business. Materiality, however, is something very broad: the G4 principle suggests that a firm’s report “should covers topics and indicators that substantively influence the assessments and decisions of stakeholders”. This recalls a general definition of materiality as what would be useful to stakeholders considering a “total mix” of information in their decision making (for further details, see a recent study by the Harvard University on “materiality and sustainability“).

The issue of materiality leads to the concept of accountability. Broadly speaking, accountability refers to the necessity for businesses (pertaining to any industry) to take cognizance of stakeholders’ perspectives  and manage any issue that may be salient to them, although out of their control. Stakeholders may indeed affect a firm’s performance by varying the provision of resources that are necessary to its survival and success. Nowadays, even stakeholders that find it hard to directly exert power on a firm (e.g., citizens) may take advantage from several initiatives managed by other stakeholders groups (e.g., NGOs) and indirectly influence the way companies conduct their business. An example is provided by the recent “End Ecocide” initiative or the “change.org” organization.

The broad definition of materiality used by G4 raises several concerns. For instance, a recent post by the UCLA university says:

e.g., for a bank, does “focus on materiality” mean that social aspects of lending practices should now be reported? For an auditor, how can they truly assure that a firm’s sustainability report is accurate, if that report now has to include many disclosures that fall well outside the firm’s boundaries? The process behind this more extended reporting can be valuable: firms have reported that mapping their value chain as part of their sustainability reporting efforts led to a better understanding of the structure of their supply chain. But it is a stretch from current practice to ask CEOs to sign statements that certain aspects are simultaneously material and effectively outside the firm’s control.

Concluding, two questions need to be addressed by academics and practitioners: (1a) What does accountability mean in the context of sustainability? (1b) How does the definition of materiality influence the behavior of companies and the way they address sustainability issues? (2a) What about the mismatch between control and accountability? (2b) How does this impact a firm’s triple bottom line?

What’s your opinion concerning this issue???

References:

Hall, J., Vredenburg, H., 2005. Managing stakeholder ambiguity. MIT Sloan Management Review 47, 11-13.

Sharma, S., Henriques, I., 2005. Stakeholder influences on sustainability practices in the Canadian forest products industry. Strategic management journal 26, 159-180.

The copper global value chain and the black hole of China

By Ruggero Golini and Mattia Cornolti, Università degli Studi di Bergamo, Department of Engineering
 

Raw materials global value chains are becoming increasingly relevant for the world economy. In this article, we focus on the global value chain of copper and copper-based alloys that are used in a broad variety of applications in everyday life. Copper, in fact, is an indispensable asset today and presumably will continue to be so in the future. However, its global value chain shows some peculiar characteristics with a dominant role of very few countries.

The copper global value chain can be divided into four main stages:

  1. mining production
  2. fabrication and manufacture
  3. product use
  4. end-of-life management

Let’s focus on the first two stages (mining production and fabrication).

The mining production phase includes the following sub-phases: extraction, smelter and refinery.

Extraction of copper-bearing ores is the initial production activity. There are three basic ways to mine copper: surface, underground mining and leaching. Open-pit mining is the predominant mining method in the world. In the beginning of the 20th century world production was less than 500 thousand tons of copper, but then it has grown about by 3% per year to reach over 16 million tons in 2011. The leading country is South America that grew from less than 750 thousand tons of copper in 1960 to 7 million tons in 2011 (of which 5.3 come from Chile).

Next, smelting is the process used to produce pure copper. The output of this phase is called anode or blister. In 2011, world copper smelter production reached 15.8 million tons copper (that is, about 100% of the extracted copper). Recently,  the new process of leaching has been introduced and increasingly used (SX-EW). Primary smelters use mine concentrates as their main input. Secondary copper smelters use copper scrap that derives from either metals discarded in fabrication or finished product manufacturing processes (“new scrap”) or obsolete end-of-life products (“old scrap”). In this sub-phase Asia is the dominant player with a share of world copper smelter production jumped from 27% in 1990 to 55% in 2011. Taking into account 2011 primary and secondary smelting, China accounted for around 30% of world copper smelter production, followed by Japan (9%), Chile (9%) and the Russian Federation (5%). Finally, the copper is refined.

After that, in the fabrication phase we analyze the production of semis. The semis is the copper with a defined shape such as cathodes, wire bar, ingot, billet slab and cake into semi-finished copper and copper alloy products. Semis fabricators are considered to be the “first users” of refined copper and include ingot makers, master alloy plants, wire rod plants, brass mills, alloy wire mills, foundries and foil mills. Also in this phase, Asia is the dominant player and in fact it accounted for 66% of semis production in 2010 with more than 15.2 million metric tons, up from 22% in 1980.

From this brief analysis the most relevant result is the leading role of China. While Chile is the main exporter of copper, China has the lead in the following phases (table 1). This explains why there is a huge export flow from Chile to China or raw copper, but then the international trade flows of refined copper are very limited especially those out flowing from China. As a matter of fact, the production remains concentrated in China until the copper is used in final products creating a kind of black hole.

Table 1 Ranking dominant countries involved in copper production.

References:

Global Supply Chain Configurations In The Manufacturing Industry

Local-GlobalGlobal supply chain management refers to exchanging information and coordinating efforts with suppliers and customers, in order to support globalization strategies determined by companies. Globalization does not only refer to the act of selling all around the world, but also to sourcing and manufacturing on the global scale, and all of this needs to be coordinated flawlessly.

Within this context, a recent book and an  article we published (Golini, 2011; Caniato, Golini and Kalchschmidt, 2013) provides a conceptualization of the above-mentioned phenomena and ends up with the guidelines considered to be useful for companies in supporting their globalization strategies. First of all, four different global supply chain configurations are identified. Next, for each configuration, the best investments in the supply chain that aim to improve performance are defined. Finally, the effect of contextual variables is taken into account, and, in particular, it shows that the structure of the supply chain from one end to another (also called the value chain) holds a crucial role. The results are supported by empirical data from an international survey (International Manufacturing Strategy Survey).

The four global supply chain configurations identified

Four main configurations of global supply chain according to the percentage of sourcing, manufacturing and sales outside the continent are identified (See Figure). These configurations have been labeled and defined as follows:

  • Locals: local sourcing, manufacturing and distribution;
  • Barons: local sourcing and manufacturing, global distribution;
  • Shoppers: global sourcing, local manufacturing and distribution;
  • Globals: global sourcing, manufacturing and distribution.

Next, we considered the investments made to manage effectively the supply chain. This investments are classified in:

  • Sourcing-related investments, that are coordination of the flows of goods and information with suppliers, suppliers development, specific supply strategies and risk management;
  • Distribution-related investments, that are coordination of the flows of goods and information with customers and specific distribution strategies.

Locals, as a general tendency, invest less than the others; specifically, Locals invest less than Shoppers on supplier development and distribution strategy; Locals invest less than Barons in coordination with suppliers; Locals invest less than Globals in supplier development.

Finally, looking at the performance (cost, quality, delivery, lead time, flexibility), we found that every cluster can benefit from investment in the supply chain, usually in more than one performance indicator. However, looking at each cluster we found more detailed results. In particular,:

  • Locals can further improve their delivery, lead time and quality performance if they review their distribution strategy and implement supplier development;
  • Barons, on the contrary, should be careful about investment in coordination with suppliers and customers, as this appears to be detrimental for their quality performance;
  • Shoppers benefit from every supply chain investments, without specific areas that are more or less beneficial;
  • Globals receive very little help from investments in the supply chain, as their effect is limited to improve flexibility performance. Probably, this can depend on the many different sub-configurations that Globals can have and that make investment in the supply chain more or less beneficial.

This work offers a new perspective on global supply chain management useful for research and practice. Results provide evidence of the different configurations of globalization that can and are adopted by firms, providing some hints on the characteristics of each of them, which can help managers to define their globalization strategy. Moreover, this research shows which investments in the supply chain are more beneficial to improve the performance according to the different configurations.

References

Caniato, F., Golini, R., Matteo, K., 2013. The effect of global supply chain configuration on the relationship between supply chain improvement programs and performance. International Journal of Production Economics, Vol. 143, No. 2, pp. 285-293.

Golini, R., 2011. Global Supply Chain Management In The Manufacturing Industry: Configurations, improvement programs and performance. Sestante – Bergamo University Press, Bergamo.

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