It’s all well and good for a company to build a green headquarters, release annual corporate responsibility reports and track its greenhouse gas emissions. But if it doesn’t extend that tracking to its suppliers, it’s at least partially responsible for the environmental impact of those companies, as well.
Perhaps more important to most businesses, one supplier’s negligence can become a financial risk to everyone up the supply chain. If a supplier is caught, say, dumping toxic chemicals or using child labor, it’s only a matter of time before the news taints a company’s public image (see: , and, most recently, ).
In response to various public health and labor scandals back in the late 1990s, many global companies began to drill down into their supply chains as a way to better understand and manage their own risks. Over the course of the last decade, that management has extended to the environmental performance and impact of suppliers. Wal-Mart has been making headlines for the last two years for its supplier scorecards.
Now, is taking its supply chain management another step forward with a new system of environmental management and public reporting rules announced Thursday.
All of the company’s 30,000-plus suppliers are now required to define a management system around three areas: energy conservation, greenhouse gas emissions, and waste management/recycling. Suppliers are expected to create a system, set goals, measure their performance and publicly disclose their progress toward their goals. They're also expected to set similar requirements for their suppliers.
"This will require companies to think about how their basic day-to-day work intersects with environmental concerns, and for many of them, energy and CO2 will be a part of it, but so will issues like the creation and handling of hazardous waste, or the recycling of waste, or the choice of materials they use in their products," says Wayne Balta, IBM’s vice president of corporate environmental affairs and product safety.
While IBM can't audit all of its suppliers every year, it will be checking up on them, particularly those in industries with the most troubled histories. As with its supplier code of conduct, if suppliers fail to meet the new requirements, they'll get a warning and IBM will try to work with them. If that still fails, their future in IBM's supply chain will be in jeopardy.
Flexibility to Embrace New Systems
This isn't the first time the company has asked its suppliers to take charge of their environmental impacts. In 1998, IBM encouraged suppliers to pursue registration in order to align their environmental management systems with Big Blue’s own. And in 2004, the company published its , which cover everything from labor practices to ethics to environmental impacts.
The difference now, according Balta, is in the company’s systemic approach and its emphasis on the integration of responsible management systems into the core of each supplier’s business.
Balta says it’s also important that the company is focusing on what it wants suppliers to do, not how they should do it. The new requirements deliberately avoid prescribing a particular type of management system or public reporting tool in order to allow suppliers the flexibility to develop the systems that work best in their particular industries and contexts, he says.
IBM is certainly not the first global company to require its suppliers to be more environmentally and socially responsible. Hewlett Packard was a leader in seeking out transparency in the supply chain, and Wal-Mart’s of its suppliers have helped to green dozens of industries. Still, Balta maintains that Big Blue’s systemic approach is unique.
IBM has always been big into “systems,” and in the last few years, that word has been used a lot to describe its Smarter Planet initiatives, which incorporate everything from municipal water management to transportation to electrical grids. The company sees cities as “systems of systems” that need to be optimized, and it uses the same language to describe its own business.
In the case of its supply chain, taking a systemic approach is crucial to building long-lasting success for all parties involved.
“If you adopt an approach to environmental and social responsibility that’s based on management systems and business processes, first of all that’s familiar to businesses. And second, it allows you to evaluate sustainability in a horizontal way across your business, which is much more holistic than just looking at, say, climate change and CO2 emissions," Balta explains.
"By taking a systems approach to environmental issues, companies will be able to pinpoint which parts of the environmental arena matter most to them and then focus in on those parts.”
From IBM to Entire Industry
It’s an approach the company will also be sharing with the other members of the Electronics Industry Citizenship Coalition (), chaired by IBM’s manager of supply chain social responsibility, John Gabriel.
The Coalition — formed in 2004 by Hewlett Packard, Intel, Dell and IBM, along with Business for Social Responsibility (BSR) and the United Nations Environment Program’s Global e-Sustainability Initiative — was formed to address supply chain issues throughout the electronics industry. The companies figured that since many of them shared suppliers, it would behoove them to get together and agree on what they should be demanding of them. To that end, the EICC published a Code of Conduct in 2005, based largely on IBM’s Supplier Code of Conduct.
“This approach could be applied to any industry,” Balta is quick to point out. “Any organization and any industry — including government — could look at what we’re doing and what our suppliers are doing and apply it to their sector.”
Again, it’s all about the systemic approach. “Ultimately we’ll all retire from our professions, but if we leave behind a systemic approach our successors can pick it up and run with it without dropping the ball,” Balta says. “And that’s an important contribution.”