Trickle-down Sustainability, it could work?
Those concerned with the topic of Sustainability may have one day thought “Why don’t bigger companies that want to be more sustainable force the smaller companies that supply them or their contract manufacturers to do so as well? The idea of companies at the top becoming more sustainable and in turn making those in it’s value chain become sustainable as well is referred to as “Trickle-down Sustainability”. While at first glance it may seem like a simple solution that could solve a myriad of problems, it can in fact be quite difficult to implement.
What does Trickle-down Sustainability ideally look like?
To make sure we’re all the same page, let’s start with an easy to follow example about how Trickle-down Sustainability would ideally work. The term Trickle-down Sustainability refers to a kind of domino effect caused by companies that sell products requiring those along its value chain to be more sustainable which will in turn cause those along the subsequent value chains to become sustainable as well. So if a Conglomerate decides it will only do business with sustainable companies/suppliers etc.. it would have the effect of forcing many of these companies and suppliers and the supplier’s suppliers etc… to adopt sustainable practices.
What Trickle-down Sustainability actually looks like
In reality how things would most likely work is that the sustainability will either stop around the first to second tiers of the value chain, or that it will never make it to or past the first tier. As an example let’s make a simplified value chain for a computer keyboard. The keyboard will require a pcb, switches, a case, keycaps, a usb cord, firmware for programming the keyboard, stabilizers, soldering materials, and tools. All of these components will come together at the manufacturer to be put together then sold to the public. These would be the second tier (image a pyramid) under the manufacturer.
Under each of these would be another tier. If we look at the pcb’s, they need resistors, the pcb board, and tools to design and assemble them among others. The next tier below that would be the resistor manufacturer who would have their own value chain for creating and producing the resistors. The bottom of this pyramid would be those mining/excavating the raw materials.
Now that we have a dizzying idea of a value chain, let’s think about what is most likely to happen. The keyboard maker, lets call them X-keys, decides they want to be more sustainable because they actually care about being sustainable or they want to use it for marketing purposes. They tell their pcb supplier that they want them to use eco-friendly materials and use more sustainable practices in their company (be paperless, use less plastic, etc..). The pcb manufacturer has a few choices. They can do as they are asked, which may cost them a lot in time and money. They could mislead X-keys by saying they are doing things to be more sustainable without actually doing so. They could decide that they have enough business that they don’t need to waste time being more sustainable to satisfy X-keys’ demands.
If the pcb manufacture decides to lie, will X-keys do their due diligence and make sure that the pcb manufacture is being more sustainable? Or will they more than likely take the pcb manufacturer’s word and if proven otherwise throw the pcb manufacturer to the wolves? As soon as it’s said, throwing them to the wolves seems like the most obvious and likely thing to happen and also seems justifiable. One might say, “How can we blame X-keys? They were lied to. It’s not their fault. They were trying to be more sustainable and its the thought that counts.” But were they really trying to be more sustainable? It seems like they could’ve tried a little harder when you look back (on this hypothetical scenario) to what they did and didn’t do.
Trickle-down Sustainability’s problem and possible solutions
Getting back to the problem at hand, what can be done to make Trickle-down Sustainability work? It seems like such a great idea and a giant leap in the right direction.
For Trickle-down Sustainability to work, it would require companies to take more interest in companies outside of themselves and their processes. Companies would have to look closely and understand every part of their value chain, even the parts that they don’t deal with directly. It would also require a way of measuring sustainability and also regulations that can be enforced by either the government or an outside governing body. But even then, unless each part of the value chain in each can see the benefit of sustainable practices and want to make sure their own value chain is as sustainable as possible, there’s not much that can be done.
In the past 3 years alone there are over 22,000 new consumer goods companies (data via TechHarbor by Deloitte), many of whom will share similar contract manufacturers. Many of these new companies are aware of the risks of not responding to the increase in the customer’s expectations regarding the social responsibility and sustainable practices of a business. Many of these companies may use contract manufacturers which makes it likely that they will be sharing parts of their value chains with each other. Where one company requiring those along its value chain to be more sustainable is more likely to fail, many companies making the same demand may be one way to make Trickle-down Sustainability work.
Over the last few years there have been different initiatives to help contract manufacturers adopt sustainable practices. One of the big initiatives involves certifications. These certifications are used as tools to help educate suppliers and validate their work towards being more sustainable. This has made a difference in many industries such as the coffee industry. One of the other things companies offer is programs to help their contract manufacturers that include financial incentives. This makes it easier to adopt more sustainable practices and facilitates the trickle down effect.
Another tool to help move companies towards sustainability is being able to measure and score the sustainability of a company. As an example The Higg Index was created to help Apparel companies accurately measure and grade their performance at each stage of their journey to becoming sustainable. Keen (a footwear company) uses The Higg Index not only as an educational tool but also as a way to motivate contract manufacturers to alter their approach.
TechHarbor is a proprietary tool developed by Deloitte Tohmatsu Consulting (Deloitte) that offers the up-to-date data on more than 2.2 million startups and 230 thousands investors, categorized by technology and industry specialization.
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