Sustainability in global value chains: Closing the gap between ambition and action
Note: the publication below is for informational purposes only.
How to close the gap between the ambitions for more sustainable global value chains and the current adaptation of businesses? While there are many opportunities for private and public sector to collaborate, misunderstandings and lack of collaborative actions that are properly financed prevent tangible results.
The gap between ambition and action
With a growing world population, an emerging middle class, scarce resources and unprecedented impacts of climate change, one thing is obvious: the current ‘linear model’ of our economy is not going to provide the answers to enable equitable living. New approaches like the green or circular economy models are emerging but are not yet at scale. The financial system is decaying and is continuing to push business to focus on short-term profits and generating ‘products and services’ that generate revenues but do not add value to society.
Despite the good intentions, there are many barriers that currently inhibit progress towards more sustainable businesses. One of them is the language barrier between private and public sector, as demands often stay vaguely articulated or are subject to voluntary action. It is encouraging to see many initiatives initiated by policy makers, NGOs and collaboration platforms, clearly aiming to advance sustainability in business. But collaborative action and binding guidelines between private and public sector are only a prerequisite for initiating a fundamental change in building up sustainable value chains.
While the negative effects of the current economic model are becoming more obvious every day, the businesses community, representatives of the public sector and intermediaries alike, still don’t understand how to move from good intentions and ambitions to achieving tangible results. Too often, good approaches are ‘softened up’ in the process of consensus building between stakeholders, most of them to the point where everyone can agree, but nobody will act. Even following up on progress against agreed actions is not ensured. Implementation is left to the business, with no real control of what actually has been achieved (and at which scale).
Inspiring the change towards sustainable business models
Sustainability in global value chains has been identified as a key objective of the Sustainable Development Goals (SDGs), the new EU trade strategy and development agencies. While the public sector in Europe and Africa is becoming more open to collaborate with the private sector to achieve development goals, there is still a massive gap between ambition and tangible results.
To get more multi-national and small and medium sized enterprises (SMEs) to create sustainable and inclusive business models, we need a common understanding on how to make the change towards sustainable global value chains. Top management often have difficulties to understand how development efforts can help the business to build stronger and more resilient value chains. Many see development efforts outside of the businesses sphere of influence an issue that society needs to deal with, with taxpayers’ money. Most business leaders look at value chains solely through a lens of economic and risk parameters, when they evaluate where to source materials from and how to balance cost with delivery performance and flexibility.
To change the status quo, business leaders need to understand what elements of global goals and trade policies are relevant for them and how sustainability can be used as an opportunity to improve business in an economic, ecologic and societal way. We are no longer talking about business as usual. Now it is about moving sustainability from being a side activity of the business (communicated through a nice CSR Report), towards sustainability in the core business: in strategies, products, supply chains and relationships.
Getting the job done: The four essential steps and eight building blocks to address
In my book, ‘Sustainable Value Chain Management’, I describe an inclusive approach to embed sustainability as part of a company’s strategy, without scarifying profits, markets and stakeholder interest. Sustainability is an opportunity for business, not a cost factor. To operate a sustainable business model, companies need to embed sustainability as part of their strategy, their products, supply chains and in the relationships they maintain with multiple stakeholders. Internal and external communication in a consistent manner is critical to change the business and to maintain integrity between ambition and action.
There are four essential steps to build an organisation that is sustainable from ‘inside-out’ and that builds its strengths on the capability to interact in a multi-stakeholder environment with diverse interests.
STEP 1 “Speak in a language that people understand”. To capture the opportunities in a multi-sector approach we need to overcome the ‘language barrier’ between private, public players as well as intermediaries. Business managers often don’t understand how sustainable value chains deliver economic, ecologic and societal benefits.
Talking in a language that the audience understands is the first step required to break the language barrier: moving from vague terms to clear deliverables, enforcing commitment and asking for deadlines and results. Don’t let business use consensus language and pay lip service to sustainability without taking substantial action.
STEP 2 “What matters for my business?” Despite the fact that business leaders tend to generally agree with the demands for
more sustainable business, it is often not clear how sustainability can help to stay ahead of the competition in a particular industry. The key is to translate complex concepts into relevant issues for businesses. The SDGs are a great example of using a language that businesses understand, specifically as they have been developed together with decision makers from the industry. It is important to recognise the efforts of the UN Global Compact, the Global Reporting Initiative (GRI) and the World Business Council for Sustainable Development (WBCSD) to make the SGDs understandable.
At the same time, business managers have not yet established the mechanisms to translate complex demands into the relevant opportunities. Often they look for help from industry peer groups, instead of working with the public sector. Yet, there are only a few experts with deep expertise that are able to do this translation between sectors and within businesses, most of them working for the private sector today.
Current funding structures of multi-sector initiatives prevent going beyond the level of recommendations and do not address specific industry issues. It requires the right mix of public and private sector experts to get the job done. We need new ways of multi-sector collaborating and funding if we want to see sustainable value chains at scale.
STEP 3 “Turning relevant issues into actionable projects”. Once the relevant opportunities for the business have been identified, it is critical to turn ambitions into actionable work packages and projects that lead to tangible results. Integrating sustainability from strategy to day-to-day operations and along the end-to-end value chain can be a daunting task. Often it is more difficult to overcome internal barriers in a business. Company culture will always win over strategy, if there is no clear management commitment for sustainability and an explanation why a certain course of action will make the business stronger as a whole.
Successful projects require the capability to drive cross-functional collaboration within the business, as well as dialogue and interaction with key influencers outside the company to structure the right approach to deliver the change. Many businesses don’t have that capability today. This requires to collaborate in a cross-functional manner and sometimes to change the target policies.
To embed sustainability in the core business, it should be implemented in all (or parts) of the following 8 ‘building blocks’ of sustainable value chains: (1) Value creation strategy; (2) sustainable products; (3) sustainable operations; (4) enterprise architecture; (5) stakeholder collaboration; (6) integrated business planning; (7) sustainable cost reduction; and (8) sustainable partner management. All of the building blocks have their touch points with society and environment and thus the potential to create triple value.
STEP 4 “Deliver the change and make it stick”. To implement the desired change in the business at scale takes time. Product strategies are not changed easily or fast. Global value chains are a network of hundreds or thousands of relationships that need to be managed. Besides the technical content of a project, the existing hierarchy and capabilities of the organisation provide a risk during implementation because it can take time to convince the entire organisation about the need for change. Constantly ensuring ‘buy-in’ and ‘stay-in’ of stakeholders is the key to success.
Generating economic, ecologic and societal benefits. Implementing sustainability in the core business is challenging but yields many benefits. Several businesses have embraced the sustainability opportunity through multi-stakeholder collaboration and through building sustainable business models. This includes multi-national corporations and SMEs across various industries. It is these businesses that are convinced that approaches like ‘Shared Value’ are beneficial for business and society alike. They invest the resources and partner with public sector, NGOs and intermediaries to change the status quo.
Examples like the StarShea in Ghana (supported by SAP and local NGOs) and Nestlé’s Rural Development Programs in Central and West Africa, demonstrate how the interest of businesses can be reconciled with the objectives of development programs. As a result, business that have adopted a sustainable value chain generate multiple benefits: economic growth through more sales of sustainable products, reduced resource intensity along the value chain and positive societal impact through stronger relationships supported by local community investments – for example with suppliers that are getting higher income and education.
There is no need to discuss if there is a businesses case. You need to create the business case for it and go beyond the traditional thinking of economics.
The time to act is now! Are you ready to join the movement?