The Greening of the Supply Chain

Conscientious consumers and investors are influencing the marketplace by selecting sustainably sourced products.

In the award-winning American movie classic Forrest Gump, Forrest’s mama famously tells him, “Life is like a box of chocolates. You never know what you’re gonna get.” Perhaps that was a true analogy in the era of that movie’s setting, but in these days of heightened awareness and accountability, chocolate is one of the most scrutinized foods on the planet. Dark or milk chocolate, 52 percent or 82 percent, non-GMO-verified, certified organic, Fair Trade, Rainforest Alliance Certified—conscientious consumers, increasingly endeavoring to change the world with their choices, know what they’re getting when it comes to chocolate and many other products.

They also know what they won’t be getting. Consumer watchdog groups such as Sum of Us (www.sumofus.org) advocate boycotting popular chocolate candies produced by food giant Nestlé because of the company’s reported lax environmental standards as well as forced child labor allegations involving the company’s cocoa plantations in Ivory Coast. Ethical Consumer, a UK-based consumer activist magazine, maintains a list on its website (www.ethicalconsumer.org) of the best and worst boxes of chocolate based on the palm oil content. The worst list includes boxed chocolates that contain palm oil that is not sustainably sourced. The magazine also ranks 28 boxed chocolates and 101 chocolate bars based on their respective company’s environmental and ethical practices.

Charged by Pope Francis to “care for creation through daily actions,” supported by the policies of world leaders who ratified the Paris Climate Change agreement, encouraged by celebrities like Leonardo DiCaprio (environmental philanthropist, UN Messenger of Peace, and co-producer of Before the Flood), buoyed by dynamic social media, and aided by eco-friendly apps (Buycott, Oroeco, and GuideGuide), consumers are increasingly choosing to consume differently—making decisions based on whether a product has been manufactured with environmentally sourced materials, assembled by workers who are treated fairly, and produced in factories that adhere to fair business practices.

Consumers are changing priorities

“Sustainability practices are increasingly cited as an important factor in purchase decisions,” affirms Basak Kalkanci, an assistant professor of operations management at Georgia Institute of Technology’s Scheller College of Business. She cites a 2015 Nielsen Global Survey that indicated that 66 percent of global respondents say they’re willing to pay more for products and services that come from companies that are committed to positive social and environmental impact, up from 55 percent in 2014 and 50 percent in 2013.

Kalkanci, whose research interests are in supply chain management (including social and environmental reporting and sustainability), notes that younger consumers (future decision-makers) are especially supportive of sustainable offerings, with the Nielsen Survey indicating 72 percent of 15-to-20-year-olds were willing to pay extra for sustainable offerings. “It appears that companies that are branding themselves as environmental stewards have a distinct opportunity to grow market share and build loyalty among millennials,” she adds.

Investors are going green, too

Consumers aren’t the only ones voting with their dollars. “Investors are also increasingly paying attention to the social and environmental impacts—and any future costs associated with them—when they assess a company,” Kalkanci explains. “For example, a research study shows that analysts are more optimistic about the future financial performance of firms with better corporate social responsibility ratings.”

Designated sustainable, responsible, and impact (SRI) investors are significantly shaping the investment industry. According to a report released in June 2016 by the Forum for Sustainable and Responsible Investment, in the United States, the value of assets that take into account environmental, social, and governance (ESG) factors in investment analysis or shareholder engagement grew 76 percent between 2012 and 2014 to reach $6.57 trillion. Accordingly, last year investment research firms MSCI and Morningstar each launched products that provide investors with assessments of how mutual funds perform on ESG issues. This increased transparency and accountability has resulted in companies making greater improvements in their environmental practices.

The vilification of palm oil

For a rapidly growing number of consumers and investors, the size of a company’s carbon footprint can be perceived as a tremendous asset—or as a liability. Palm oil, an edible oil derived from the pulp of the fruits of the oil palm, is one of the most widely used oils on the planet, found in everything from cosmetics to cookies, and it is arguably one of the most destructive. Climatologists, human rights organizations, and business experts alike frequently point to palm oil plantations as one of the worst business models in existence. The traditional palm oil production methods that have been practiced for the last few decades resulted in mass deforestation of essential tropical rainforest (and the subsequent emission of a tremendous amount of greenhouse gasses from burning peat bogs), significant social injustice, and an entirely unsustainable future for the industry. In Indonesia, the world’s largest palm oil producer, deforestation has doubled since 2001, and now more than 10.8 million hectares that were formerly rainforest are used to grow the oil palm. In the process, vital habitats for numerous species of animals (elephants, orangutans, and tigers) are destroyed, and villagers are displaced and sickened by the noxious slash-and-burn smoke.

For decades, the devastating impact of palm oil production wasn’t a mainstream concern—only a few scientists, environmentalists, and ethical investors were concerned about the ongoing irreversible damage to the rainforests and the dire effect on the planet. But due to better scientific research and much greater public awareness, conscientious consumers are scrutinizing every step of the supply chain, and palm oil buyers are now putting pressure on growers to adopt more sustainable practices. In 2004, the industry, with help from the world’s leading conservation organization, World Wildlife Fund (WWF), created the Roundtable on Sustainable Palm Oil (RSPO) to set standards for sustainable production that address environmental, economic, and social issues.

According to an August 2016 Bloomberg article, currently only 17 percent of the world’s supply of palm oil is certified sustainable, and numerous companies have been cited for violations. Last year, the large Malaysian plantation owner IOI Corp. Bhd. had its certification suspended for four months, prompting buyers, including several international producers (Nestlé, Unilever, Kellogg’s, and Mars), to cease trading with IOI. The esteemed ratings agency Moody’s responded by noting that IOI has suffered a blow to its reputation that could result in further losses if the suspension is not resolved within a year.

Environmental groups such as Greenpeace and the Union of Concerned Scientists can also harm companies’ reputations by publically calling out the ones that they determine aren’t doing enough to make suppliers adhere to RSPO standards. Last September, World Wildlife Fund released its 2016 Palm Oil Buyers Scorecard, which reviewed the palm oil policies of 137 companies across the world and graded them accordingly. WWF reported that 107 out of 137 companies assessed indicated that they had some sort of public commitment to use Certified Sustainable Palm Oil (CSPO), but only 77 companies had committed to use 100 percent CSPO by 2015—the year widely declared by the industry itself as being its target “tipping point.” Ninety-six companies reported that they had used some CSPO in 2015.

Meanwhile, on a small island in the Philippines …

With corporations, small businesses, consumers, investors, and nongovernment and government organizations across the globe increasingly making sustainability a priority, dedicating resources to sustainability practices, and hiring sustainability professionals, it’s safe to say that sustainability isn’t just today’s popular buzzword. “Sustainability is a non-negotiable megatrend,” says Bernd Seger, head of the Fiber Competence Center, Fiber Management, for Glatfelter’s Composite Fibers Business Unit. “In 2008, when we first committed to sustainable sourcing for abaca, a plant we use for specialty fibers, I often had to explain [to farmers in the Philippines] what sustainability meant. There were no Fair Trade products on the shelves at ordinary grocery stores; you had to go to a specialty store. But it is obvious that the idea is spreading and becoming mainstream, and the market for sustainably sourced products is rapidly growing,” Seger says.

Glatfelter, a global supplier and leading manufacturer of specialty papers and fiber-based engineered materials headquartered in York, Pennsylvania, began using the fiber from abaca (pronounced a-ba-KA), a tropical plant related to the banana plant, in the 1960s, and over decades, grew to become the largest producer of abaca pulp in the world. Seger says along with that milestone came a sense of responsibility for the people who make a living growing abaca and the realization that Glatfelter needed to do things differently than had been done in the past.

“In the Philippines, where 85 percent of the world’s abaca comes from, smallholder farmers with small plots in remote areas are the primary growers of abaca. There are more than 120,000 farmer families. It’s nothing like the big banana plantations that practice monoculture farming and use a great deal of pesticides and insecticides. It’s indigenous here: Abaca is grown on small plots where nature planted it, so there is little need for harmful chemicals. We realized the need for sustainable growth and harvesting of abaca to secure the supply chain and to ensure that these farmer families continue to have the income they need,” Seger explains.

Seger launched the Catanduanes Abaca Sustainability Initiative (CASI) in 2012, using sustainable agricultural network standards already established by the Rainforest Alliance, a nongovernment organization committed to ensuring sustainability and operating in more than 70 countries. The rigorous environmental and social standards, which are applied similarly to crops such as tea, coffee, and cocoa, are designed to protect ecosystems, support biodiversity and waterways, conserve forests, reduce agrochemical use, and safeguard the well-being of workers and local communities. Glatfelter provides the farmer families technical farming support, aid to cover the costs associated with sustainable crop certification, education supplies, medical assistance, and social programs. Seger explains, “We play an active role onsite where the raw material is grown and produced (primarily on the island province of Catanduanes). We build communities and give a face to the Glatfelter name.”

It’s a win-win situation, according to Seger. Glatfelter is able to provide abaca farmers with a sustainable, environmentally stable livelihood while satisfying customers who are committed to using certified-sustainable raw products to meet consumer demand. “It has not been an easy path. It requires effort and resources, but it is working. It is rewarding, and it is worth it,” Seger says.