Navigating the waters of supply chain sustainability

Navigating the waters of supply chain sustainability

Katharine Earley summarises some of the key water challenges raised by supply chain professionals at 2degrees Live, with a focus on tea and cotton. 2degrees Live united nearly 200 sustainability professionals in London this month to discuss best practice in driving efficiency across the supply chain. The event focused on the pressing issues of water, energy and waste, and took the form of a series of dynamic presentations and case studies from companies including Coca-Cola Enterprises, GlaxoSmithKline and Unilever, combined with practical, interactive discussion groups.

With demand for water set to outstrip supply by 40% by 2030, the question of how to use more water more efficiently within global supply chains has never been more acute.Closing this gap may cost up to $50-$60bn over the next two decades, estimates management consultancy firm McKinsey. Meanwhile, the world’s biggest companies – particularly in the food and beverage, agricultural, industrial manufacturing and energy sectors – are likely to see price increases and usage caps as competition intensifies to maintain access to Earth’s precious fresh water supplies, which represent just 3% of the planet’s water.

Among the key drivers in making supply chains more sustainable are business continuity and reputation. One participant mentioned that fund managers are actively lowering share prices if they perceive that companies are not mitigating water risk.

Business continuity
As the Carbon Disclosure Project’s Frances Way highlighted at 2degrees Live, if you don’t have water, you don’t have a business. And the price and quality of water are also important factors to consider in maintaining a sustainable supply of water. Frances eloquently explained to a packed room of supply chain professionals that meaningful and systematic reporting on water is essential to business continuity. Despite a growing interest in reporting water impacts, and a formal Water Disclosure Project in place since 2008, Frances confirmed that 30% of companies surveyed by the CDP in 2011 didn’t know what impact water scarcity could have on their business.

Climate change, water scarcity and consumption rates
The UN predicts that by 2025, two thirds of the world’s population will live in water-stressed regions. Typically, Western consumers use a significant proportion of the world’s water via their daily water footprint, with UK consumers using 4,645l of water a day, for example. Companies therefore face the challenge of reducing water usage in their operations as well as the overall virtual water usage of end users. This is no mean feat when you consider that in tandem, climate change and water scarcity are raising the price of raw materials. Just this year, we have seen corn supply in the US fall by 23% as a result of severe drought, resulting in many US companies having to buy non-domestic corn at a higher price.  The drought is set to send global food prices soaring, as reported this week by the Daily Telegraph.

The challenges

1. Capacity building
Small holder farmers and growers in developing countries are often at the front line of climate change. They see what’s going on but they don’t necessarily have the means to tackle it. One of the key challenges for tea companies, explained a tea expert within our ‘water’ discussion group, is how to incentivise suppliers to act responsibly, particularly when they’re operating in a volatile market and don’t make much margin in the first place. It seems unreasonable to expect them to invest in resources to help them meet ethical sourcing criteria. However, at the same time, there is an increasing demand on these suppliers from further up the chain to use more sustainable practices.

Eventually, due to corporate level sustainability goals and sustainable procurement regulations, manufacturers may not be able to buy from certain suppliers if they don’t change their ways. For example, tea growers must use appropriate personal protective equipment if they want to obtain the Rainforest Alliance certification, but how do they afford to buy it?

It was quite clear that one of the major challenges tackled by our group was the need for effective capacity building within the supply chain and how to finance or facilitate the education of suppliers.

2. Measuring the impact of sustainable practices
In cotton farming, one of the key challenges is how to measure reductions in water usage, when you consider that there are 4m smallholder cotton farmers in India alone. Cotton Connect works with 50,000 smallholder farmers, predominantly in India and China, helping them to grow cotton more sustainably. The company simultaneously helps corporate organisations to introduce more sustainable methods to their cotton supply chains.  As many 2degrees readers will be aware, the cotton supply chain is incredibly complex, and typically uses a high volume of both water and pesticides. 2,600 of water are used to make one T-shirt, according to Cotton Connect, with water usage accounting for 87% of the environmental impact of cotton production.

More efficient irrigation methods are required, together with more efficient management of current methods, but again, how should this be financed? Add to this the world’s explosive population growth and the pressing issue of food security – which may result in fields used for cotton growing being swallowed up by food crops – and the challenges intensify.

3. Bridging the knowledge gap
It’s clear that an education process is required among suppliers, but speaking to the professionals in our discussion group, it became apparent that there’s also a huge need to narrow the gap between water management research taking place at an academic level and knowledge that can be applied within businesses. There’s a great need for meaningful collaboration of academics, research organisations and the private sector – to identify what information would be useful and share it appropriately.

Similarly, there’s also a need for water usage data at supply chain level – often it’s only possible to obtain country level figures, but these are not detailed enough to use as a means of making meaningful water reductions or planning efficient water management processes. Where data is available, for example from the World Bank, it must be used in an effective way.

4. Preparing for rapid urbanisation
One participant suggested that rapid urbanisation in developing countries, higher water consumption rates among a growing middle class (in India, for example) and rocketing levels of urban poor would create severe water challenges in many regions of the world. It was agreed that since different geographical locations face diverse water and resource challenges, there’s no blanket solution that can be applied to all.

A particular challenge faced by tea supply chains is how to make rural life attractive to transient workers in developing countries, who are often lured away by the attractions of the city.

Potential solutions

1. Collaboration

It was agreed that what’s needed above all is a collaborative approach and greater transparency on water issues. Partnerships, both between research organisations and businesses, and between different corporate organisations – will be instrumental in tackling the substantial challenges represented by water scarcity. One participant reminded the group that Waitrose and John Lewis had just experienced a 20% profit rise due to working in partnerships with suppliers, setting a good example to follow.

The group concurred that companies need to start sharing knowledge outside of their four walls, and that it’s vital to share lessons learnt at a global level and apply them at a local level. Continuing to develop more efficient water management practices will be fundamental, while, as with many sustainability challenges, it will be extremely useful to tackle multiple issues at once – water, climate change, food, energy and waste.

2. Investment
On the question of how to finance the education of suppliers, our group put forward some smart ideas. They agreed that the finance could result from a combination of microfinance, corporate responsibility budgets and the resource and time of manufacturers. In addition, they agreed that working in harmony with NGOs and respected project developers in the sustainable development space could help to further the education process.

The prospect of requesting investment internally for education is not without its challenges, as the most important priorities within a tea business for example are still price and quality. The manufacturer may wish to leave educating suppliers to organisations such as the Ethical Tea Partnership.

3. Efficient irrigation
One option in terms of more efficient irrigation is drip feeding crops. Again, working with partners is important when establishing practical solutions. The benefits of drip irrigation compared to flood irrigation in cotton farming include a 60% efficiency increase in water usage, a 20% increase in yield and 30% more efficiency in fertiliser use. Accurate measurement of all these elements is critical.

One participant explained that a different marketing approach was also needed to make this work. Manufacturers could focus on explaining to suppliers that sustainable practices would help deliver a maximum yield. The question of who pays for drip irrigation is also important – it costs as much as $1000 per acre. Potential solutions include contributions from farmers, asking brands and retailers to contribute, and government subsidies.

Interestingly, despite the best efforts at efficient irrigation, our tea colleague reminded us that in fact, the greatest environmental impact in the tea supply chain occurs when the consumer boils the kettle…

4. Rigorous reporting
With the consolidated reporting options offered by the CDP, a supplier can produce one report that’s valid for all its customers, thereby creating greater efficiency in the reporting process. In addition, Unilever and L’Oreal are signed up to a new and improved CDP water reporting process.

A spokesperson from Branston suggested that in the future water footprinting and carbon footprinting may be rolled into one ‘ecological footprinting’ reporting process.

A final word…
Despite the giant challenges faced by global supply chains in terms of minimising their environmental impacts and using water more sustainably, I was encouraged by the intelligence and commitment of those professionals both in our discussion group and at the wider 2degrees Live event. Many thanks to all who attended and shared their insights on supply chain sustainability. Our planet needs you!

This article was published on the 2degrees network website.