Greening the supply chains of corporate America

International Herald Tribune — 6 November 2007
By Claudia Deutsch

NEW YORK: Home Depot did not sell organic roses this past Mother's Day. Local ones were too expensive, and the amount of carbon emitted in shipping cheap ones from Venezuela seemed to eclipse any environmental benefit gleaned from avoiding pesticides and such.

"We're working with local farmers to help them grow organically and still be price competitive," said Ron Jarvis, senior vice president for environmental innovation for Home Depot. Until that happens, though, "We'll stick with conventional roses."

Call it Phase 3 of the greening of corporate America. Companies have embraced alternative energy, bought hybrid fleets, and otherwise cleaned up their own acts. Many have helped customers go green, stocking green products, selling carbon offsets along with airline tickets, or letting them choose to pay extra for "green" electricity.

Now they are looking to their supply chains as the next frontier for combating climate change.

"Carbon footprint is absolutely new territory," said W. Drew Schramm, a senior vice president at Herman Miller and a member of the committee on social responsibility at the Institute for Supply Management. "We're not sure how we'll measure it, we're not sure how we'll deal with it, but we've told our suppliers, 'Get ready, because we're going to ask you a lot of questions.' " Environmental experts and supply chain consultants say they are hearing such comments more and more. "Companies are finally looking at their full carbon footprint, and seeking a model for distributing responsibility for it," said Emma Stewart, the director of environmental strategy for the nonprofit group Business for Social Responsibility.

That may be the true goal. But the rhetoric is rarely couched in terms of sharing blame. Instead, it emphasizes how much more efficient - and thus, less costly - green operations can be.

"Corporate America has approached this with the attitude of 'green is gold,' " said Daniel Mahler, a partner at the consulting company A.T. Kearney. Recalcitrant suppliers eventually will lose business, predicted John Davies, vice president of green technology research at AMR Research, "but first, companies will try to show them how greener practices can make them more viable in the long term."

The push may soon change the nature of what is on store shelves. In September Wal-Mart Stores announced a pilot program with suppliers of seven common items - DVDs, toothpaste, soap, milk, beer, vacuum cleaners and soda - to measure and reduce the amount of energy they use. Home Depot already gives marketing and display preferences to its EcoOptions line of environmentally friendly products and has said that it would favor any supplier that came up with a new category of green product, like a recyclable power tool.

Nor are retailers the only ones dangling the carrot of more sales along with the stick of lost business. When costs and convenience are comparable, the banking group HSBC flies its employees on the airline with the lowest emissions. If that airline costs more, it tries to negotiate a better price, rather than just fly with the cheaper-but-dirtier one.

"We want to influence the system long term," said Francis Sullivan, deputy head of group sustainable development for HSBC.

In 2005 General Motors started a pilot program in China in which it shared best practices on manufacturing and energy efficiency with its suppliers and then asked the suppliers to suggest goals for reducing costs and carbon emissions. It is now expanding the program to other countries.

"We focused on best practices at our own facilities first, because we weren't going to ask these independent companies to do something we hadn't done," said Elizabeth Lowery, vice president for environment, energy and safety policy at GM.

Timberland is reaching even further back into its supply chain. Because making rubber is a carbon-intensive process, Timberland is working with Vibram, which makes rubber soles, to use more recycled content. Because pesticides and herbicides can lower soil's ability to absorb carbon, Timberland is also using more organic cotton in some lines. And it recently introduced a footwear line called Earthkeepers that uses only material that has met strict criteria for low carbon impact.

"If you are going to design carbon out of a product, you have to understand every place in the life cycle that carbon comes in," said Betsy Blaisdell, manager of environmental stewardship at Timberland.

That understanding can be hard to come by. Companies are still grappling with whether to include carbon emitted in transporting materials to their shops - or from mines and fields to their suppliers' factories - in their own tallies of carbon emissions. And verification of a supplier's green claims can be hard to come by.

General Electric, for one, does not include supply chain emissions when it calculates its own carbon footprint. "We've drawn the boundary around activities over which we have operational control, and our reduction efforts are focused within that boundary," said Peter O'Toole, a GE spokesman. GE is not alone. Earlier this year A.T. Kearney and the Institute for Supply Management asked 40 large companies about their sustainability policies. Almost 60 percent had formal policies for their managers and designers, but only 36 percent had formal policies for their purchasing people to follow. Still, that percentage seems likely to grow, and that could create a nightmare of its own: What if a supplier's biggest customers differed in their definitions of "green"?

Corporations are already tackling the potential problem. Blaisdell said there already was "cross brand collaboration" among footwear companies to "create a common means of evaluating the supplier's carbon footprint."

Gavin Neath, senior vice president for global corporate responsibility at Unilever, said that the company was "uncertain as to whether we should be putting direct pressure on our suppliers at this stage." Nonetheless, he said, Unilever was talking to competitors about collaborating. on the issue. "Unilever has 10,000 suppliers across 65 countries, and auditing them all would be a lengthy, laborious process," he said. "And imagine if a supplier got six different questionnaires from six customers."

That worries electronics companies as well. In response, 30 of the biggest ones have signed on to an Electronics Industry Code of Conduct, laying out what they expect from suppliers in terms of social issues and environmental performance.

Many of the companies still work one on one with some suppliers on carbon reduction projects, and few, if any, have handed suppliers ultimatums to go green or else. But each company uses the same questionnaires and sets similar goals.

"If you're going to make a real difference, you have to let go of your corporate ego," said Bonnie Nixon Gardiner, the global supply chain manager for social and environmental responsibility at Hewlett-Packard, which purchases $53 billion of products each year. "Many of us are operating in the same regions, with the same suppliers, even in the same factories, so our voice together is going to be much more powerful."

Even the U.S. government has gotten into the act. In 2004, the Environmental Protection Agency and the Department of Commerce formed the Green Suppliers Network, which will teach a small company - usually at the request of a larger company that buys from it - sophisticated management and manufacturing techniques that can make it less carbon intensive and more profitable. The Network charges a fee of $4,500 or $6,500, depending on company size, but the cost is sometimes picked up by the larger company.

"We don't go in saying, 'Go hug a tree,' " said Kristin Pierre, program manager for the Green Suppliers Network. "We say, 'we will help you be more efficient in the way you use time, labor, materials and energy.' " That is the mantra that corporations chant, too.

"We don't say, 'reduce greenhouse gases or we won't buy from you,' because it's better if people see their own interests aligned with greenhouse gas reduction," said Susan Tomasky, executive vice president for shared services at American Electric Power, which is encouraging numerous suppliers to undergo a technical review from Network specialists.

Indeed, a small but growing number of suppliers are taking steps to go green even before they feel pressure to do so. They see it as a pre-emptive strike and a competitive tool rolled into one.

"We know the requests will be coming from our customers, and this is how we can differentiate ourselves from the pack," said David Wright, the innovation manager at the PrimeAsia Leather Company, a tannery in China that has been steadily increasing its use of solar and wind energy and energy-efficient reflective paints. "And we can always go back and demand more energy efficiency from our suppliers, too."

In fact, many suppliers already include "greenness" when they bid for business. Sullivan, of HSBC, said that some office supply companies had been bragging to him about their "carbon neutral" paper. He said he was a skeptic, in that most of the green claims were not verifiable. But he also said that he welcomed such pitches nonetheless.

If nothing else, they show that the supplier recognizes HSBC's focus on curbing climate change.

"If we have two bids that are equal in every other way, of course we prefer the company that seems to share our values," Sullivan said.