Sustainability 2011/12

Supply Chain

Bennett Freeman

Senior Vice President
Sustainability Research and Policy
Calvert Investments

Bennett Freeman

Someone other than myself once said that the acid test of corporate responsibility is how a company manages labor and environmental issues not just in its own operations, but across its supply chain. I believe that Ford has met that acid test by demonstrating greater transparency on supply chain labor and human rights in particular.

The demand for supply chain transparency is irreversible, and the corporate social responsibility (CSR) agenda has moved well beyond philanthropy and community. We first began to see interest in supply chain issues in the mid 1990s, in the context of sweatshop labor campaigns against footwear and apparel companies. That focus widened quickly to other sectors, including the auto industry and consumer electronics, and we continue to see reverberations today.

I would credit Ford with recognizing relatively early the significance of labor concerns in the supply chain, and I believe Ford has been willing to discuss and address these issues longer than most of its industry peers.

In the summer of 2011, Calvert determined that Ford had met all criteria for inclusion in our Signature Strategies Funds, the first U.S. automaker to do so. To be included, companies must demonstrate robust environmental, social and governance performance. We were impressed with Ford’s strong workplace policies and programs for its own operations and those of its suppliers, and with the leadership Ford has shown in addressing conflict minerals in its supply chain.

Our analysts also liked the fact that Ford’s Code of Basic Working Conditions endorses both the U.N. Declaration of Human Rights and the ILO Tripartite Declaration of Principles. In other industries, it’s been like pulling teeth to gain acknowledgment of the ILO. We also were pleased with Ford’s working conditions plant assessments, its identification of high-risk countries, and its willingness to help with capacity building with strategic suppliers.

More and more, companies are recognizing that just as management of supply chain issues, such as quality and delivery, is important to business, so, too, is sound management of supply chain labor and human rights. Companies face not just operational risks, but brand reputation risks, too. My own view is that when it comes to CSR, it often takes a combination of external pressures and internal recognitions to create positive change.

There has long been a gap between so-called “mainstream” and “socially responsible” investing, but that gap has narrowed significantly, particularly around issues of executive compensation, corporate governance and climate change.

A number of pension funds in the U.S. and Europe have stepped up their scrutiny of these matters, and some of the major Wall Street asset managers now have their own Environmental, Social and Governance (ESG) performance indices. Although we haven’t seen a whole lot of mainstream interest in supply chain labor issues, I think that will come next.

Calvert and others in the Socially Responsible Investing (SRI) community welcome the growing focus and commitment among mainstream investors to take these issues seriously. I do want to note that although Calvert is a leader in the so-called SRI space, we see ourselves as mainstream. After all, we have half a million shareholder accounts in the U.S. and invest in some of the world’s largest multinationals. In other words, the sharp distinction between SRI and mainstream investing is blurring, and I think that’s a positive for everyone.

Even the companies that are most committed to supply chain sustainability will still have gaps and will still make mistakes. The challenge is to embrace and demonstrate a commitment to continuous improvement, and to understand that there are no final victories. You can’t take a snapshot and say, “By god, we’ve cracked the code.” Working conditions constantly change across industries, particularly as new technologies emerge.

The reality of supply chain issues in the 21st century means that problems will occur and recur, so commitment, adaptation and innovation must be the constant watchwords of any corporation.