As the World Economic Forum comes to Ha Noi for this year’s ASEAN meeting, we’re reminded of how far Viet Nam has come since the country first hosted the gathering in 2010. Viet Nam experienced over 6% GDP growth last year, but it’s not the only country in the region with a remarkable growth story.

Indonesia, Thailand, Myanmar, the Philippines and Cambodia – countries that all followed in the footsteps of Viet Nam as first-time hosts of WEF’s annual Asian regional meeting – along with others in the ASEAN bloc, are experiencing strong growth too. The 10 member states are expected to generate GDP growth rates between 3% and 8% over 2017-2021.

While the growth of these individual countries is impressive, the real success story belongs to the region. ASEAN has long heeded the connectivity imperative, and the benefits of regional cooperation and economic integration, through initiatives such as the ASEAN Economic Community (AEC), are paying dividends. ASEAN commands a combined GDP of about $2.4 trillion, and GDP per capita has increased by 63.2% from 2007 to 2015. If it were a single country, it would be among the top 10 economic powers in the world. To further drive growth, ASEAN and its six strategic partners will come together in November for the hotly anticipated signing of the Regional Comprehensive Economic Partnership. This will create the world’s largest free-trade area, representing nearly 30% of global GDP, and demonstrates ASEAN’s commitment to removing barriers to trade and expanding market access both within the region and with its partners.

With a population of over 600 million, ASEAN is the world’s third-largest market. It also offers the third-largest labour force, behind China and India, and has some 67 million households that are part of the “consuming class”, a figure that could almost double to 125 million by 2025. Between 2007 and 2014, ASEAN trade increased by a value of nearly $1 trillion. While nearly a quarter (24%) of trade was within the region, this was followed by trade with China (14%), Europe (10%), Japan (9%) and the United States (8%). During the same period, foreign direct investment rose from $85 billion to $136 billion. As nations elsewhere redefine their approach to international trade, one thing’s for sure: ASEAN is open for global business.

Embracing the 4IR

While significant steps have been made to enhance the free flow of goods, services, investments and people, new challenges lie ahead. The technological advancements brought on by the Fourth Industrial Revolution (4IR) are placing new demands on governments and businesses across the region. However, the 4IR also presents great opportunity, if member states can respond to its challenges with speed, flexibility and agility in order to make these new technologies part of its success. Entrepreneurship could play a key role here. SMEs are the backbone of local economies across ASEAN, and often the largest source of local employment across all economic sectors. In countries such as Thailand and Viet Nam, for example, they account for nearly 99% of all registered businesses and employ more than 70% of the workforce. To unleash this potential, the region must ensure that policy reflects the interests of SMEs, affording them the best environment for growth.

E-commerce is a prime example of how 4IR technologies are disrupting traditional sectors. While e-commerce remains relatively underdeveloped in ASEAN today, accounting for less than 1% of total retail sales, this will soon change as internet penetration spreads and the region’s consumer base continues to grow. Given this potential, large local providers such as Lazada and Tokopedia are competing for market share with global players. With SMEs poised to play such a key role in the region’s success, it will be crucial for governments to ensure the internet infrastructure they require is in place, so that entrepreneurs can future-proof their businesses and actively participate in e-trade.

4IR technologies are also enabling logistics providers to take supply chains to the next level in terms of speed and accessibility. This is contributing to the rise of e-commerce, but also driving business more broadly across the region. Drones are operating in warehouses, artificial intelligence is automating processes and blockchain has the potential to transform decentralised supply-chain functions. Logistics providers are also offering online freight forwarding platforms that ease the process of doing business for SMEs, both within the region and more globally. Unsurprisingly, global logistics hub Singapore is leading the way in adoption of technologies into the supply chain, through its Smart Logistics initiative.

Taking an agile approach

However, to truly ascend the global value chain, ASEAN needs to look beyond trade facilitation and advancements in technology. In reality, the very 4IR technologies that are driving growth are at the same time disrupting the region’s traditional strengths in low-end manufacturing in the form of automation, robotics and 3D printing.

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Governments and businesses need agile approaches to upgrade education, R&D, lifelong learning and skills development. This will create the necessary conditions for ASEAN to better close income gaps, create employment, support SMEs, expand the pool of knowledge workers and – ultimately – to rise in global value chains. Therefore, preparing the capable and young workforce for new realities must happen with close coordination between industry, governments and civil society. These will complement the tremendous efforts leaders are already making in supporting cross-border trade and enhancing mobility.

While there is much for the region to consider as it sets its sights on ascending the global value chain, what is clear is that now is the time for ASEAN to shine. The theme of this year’s World Economic Forum summit, ASEAN 4.0: Entrepreneurship and the Fourth Industrial Revolution, could not be a more timely one.

Written by Sushant Palakurthi Rao, Head of Global Partnerships, Agility

This article was originally published by The ASEAN Post in collaboration with the World Economic Forum.

Read the full article here: https://www.weforum.org/agenda/2018/09/trade-entrepreneurship-and-the-future-of-asean

As environmental, social, labor and governance imperatives come into sharper focus, the business case (again) for putting sustainability at the core of a company’s strategy.

Growing evidence suggests that businesses everywhere are putting sustainability at the core of their strategic thinking, planning and operations after decades of disconnect between their stated objectives and actions.

Sustainability is finally being embedded into business activity. One reason is that corporate data and academic research have begun to show a return on sustainable initiatives and practices, particularly at companies willing to broaden their definition of Return on Investment and adopt longer time horizons.

Another reason is the growing clamor from a spectrum of stakeholders – consumers, B2B customers, insurers, institutional and individual investors, regulators, community leaders, watchdog groups, employees and job candidates – for companies to demonstrate that they are responsible actors.

The sustainability movement is maturing. Considerations about social and environmental impact are shaping nearly every facet of corporate activity – nowhere more than the supply chain.

“Customers used to think about things in isolation like greening a warehouse, measuring CO2, or getting more visibility into their suppliers,” says Mariam Al-Foudery, Agility Group Chief Marketing Officer, who oversees sustainability and corporate social responsibility.

“Now more customers are looking at the whole supply chain and identifying practices that are connected and mutually reinforcing, things that have impact across business units and operational locations over the long-term.”

In a 2017 survey by EcoVadis and the HEC Paris business school, 97 percent of procurement officers surveyed listed sustainability as one of their top five priorities. Seventy-five percent of responding companies said they were using sustainability and corporate social responsibility criteria when selecting new suppliers.

What is sustainability?

Sustainable businesses try to meet the needs of the present generation without compromising the ability of future generations to meet their needs. They focus on good treatment of employees, impact on the environment, impact on local communities, and business relationships with suppliers and customers.

“Sustainable procurement is no longer a nice-to-have – it’s an integral business function responsible for protecting and improving brand reputation, driving revenue and mitigating business risk,” says Pierre-Francois Thaler, co-CEO of EcoVadis, an independent group that provides business sustainability ratings and analysis.

Not everyone is as enthusiastic

Yossi Sheffi, director of the MIT Center for Transportation & Logistics, says sustainability advocates have succeeded in framing the issue as one of “profits versus planet” or “societal good versus corporate evil.” He says that narrative ignores the role of businesses and their supply chains to provide jobs and deliver improved living standards. Sheffi argues that there is a difficult balance to strike and that the real friction is between those demanding environmental stewardship and people who seek jobs and affordable goods.

“Companies are championing their environmental credentials in glossy reports, speeches and media interviews,” Sheffi writes. “At the same time, however, many will admit, off the record, either that they do not believe in the need for this effort, or more commonly, that current initiatives do not meet any reasonable cost-benefit test even if global warming is real and the danger acute.”

Better processes

Others insist there is mounting evidence that sustainability adds real value.

“Embedded sustainability efforts clearly result in a positive impact on business performance,” according to a Harvard Business Review article co-authored by Tensie Whelan, director of the Center for Sustainable Business at New York University’s Stern School of Business. (See Q&A on page 10).

Whelan and her co-authors argue that sustainability delivers significant cost savings from increased operational efficiency and that it drives companies to innovate by creating better processes, new products and equipment, and improved working conditions.

When sustainability is part of corporate DNA, it can “engender enthusiasm from employees, customers, suppliers, communities and investors,” the HBR authors conclude.

The Sustainable Business Council says there is ample research to show that sustainability lowers the cost of capital, results in better operational performance, and has a positive effect on stock price. Sustainability is a major factor in building and protecting corporate value, the SBC says. Consulting firm McKinsey has estimated that the value at stake from sustainability concerns is as high as 70% of earnings before interest, taxes, depreciation and amortization.

“Forty years ago, the bulk of a company’s value linked directly to its tangible assets,” the SBC says. “Now only about a fifth relates to a company’s financial performance and physical assets. The rest reflects intangible assets like brand, intellectual property, and whether a business has a social license to operate.”

When sustainability is part of corporate DNA, it can “engender enthusiasm from employees, customers, suppliers, communities and investors.”

BY 2035: THE CHANGING ENERGY PICTURE

• Fossil-fueled cars will require 40 percent less fuel to go one mile.
• Energy intensity – the amount of energy required to produce a unit of GDP – will be half what it was in 2013. (Traffic congestion can cost as much as four percent of a country’s GDP.)
• Demand for electricity will grow twice as fast as energy demand for transport.
• Seventy-seven percent of new electrical capacity will come from wind and solar; 13 percent from hydro. (Installed cost of solar has fallen by 70 percent since 2009.)
• The population will have grown by 1.5 billion.

Source: McKinsey Sustainability & Resources Productivity

Agility innovation

Like its customers, Agility is taking aggressive steps to get greener. It is working with carriers to slash CO2 emissions, rethinking warehouse construction and management, piloting use of solar energy in building cooling, and investing in energy-recapture technology for trucks.

Mindful of its social impact, Agility pioneered protections and standards for workers in the Middle East more than a decade ago and has been a leader in sharing best practices and publicly advocating for stronger protections. In 2017, Agility introduced its first stakeholder policy, laying out goals and commitments to protect the environment, safeguard workers rights, improve communities where it operates, and be responsive to the needs and concerns of a variety of different interests.

“The biggest challenge for us and most logistics providers is on the customer side,” Al-Foudery says. “Customers want strategies, tools and technology to help them meet their sustainability goals.” One such tool gives Agility customers the ability to compare and optimize the environmental impact and cost of individual shipments using a nearly infinite variety of shipment types, routes, load sizes and configurations, and other factors.

Zero-impact target

A leading apparel powerhouse approached Agility with the goal of building sustainability into the design and manufacturer of its vast, globally sourced product line. Agility worked with the customer to create an information and standards framework and to build measurement and performance targets into its supply chain.

The apparel customer’s objective is a low/zero-impact, closed-loop supply chain: dramatic cuts in CO2 emissions and energy per unit of manufacture; facilities running 100 percent on renewable energy; 0 percent waste; doubling of supply chain efficiency every 18 months to two years.

“That can be scary, but customers with big, ambitious goals are sometimes the easiest to work with because they’re totally committed. They will take risks in order to become leaders,” Al-Foudery says. “They’re ready to innovate and break from established practices and willing to reward partners who help them achieve their goals.”

Sustainability efforts by consumer products companies and retailers typically get more visibility than those of B2B companies.

Alarmed by oceanic pollution, Nestle, Procter & Gamble, Coca-Cola and Unilever are among those searching for alternatives to plastics from fossil fuel polymers.

Supply chain priority

“The typical consumer company’s supply chain creates far greater social and environmental costs than its own operations, accounting for more than 80 percent of greenhouse-gas emissions and more than 90 percent of the impact on air, land, water, biodiversity, and geological resources,” McKinsey says. “Most of the environmental impact associated with the consumer sector is embedded in supply chains.”

Ethical Corp. estimates that there are about 400 sustainability labels, including Fairtrade, which got its start in 1992 but is being overtaken by alternatives. Sainsbury’s, the UK supermarket chain, is among those that have shifted from the third-party Fairtrade certification, creating its own “Fairly Traded” label.

Unilever and Nike are recognized leaders on environmental and social initiatives. Campbell Soup works with farmers to optimize fertilizer use and improve soil conservation. Walmart gives suppliers incentives for their sustainability performance. Alarmed by oceanic pollution, Nestle, Procter & Gamble, Coca-Cola and Unilever are among those searching for alternatives to plastics from fossil fuel polymers. Target, Keurig and others are pushing suppliers of industrial plastic items such as crates and trash bins to use more “post-consumer” material.

Worker rights

The safeguarding of worker rights and improvement in working conditions is often the most difficult issue on the sustainability agenda.

Five years after the Rana Plaza factory collapse that killed 1,100 garment industry workers in Bangladesh, independent assessments report improvement in factory safety and monitoring by the government and local companies. But two organizations representing western brands and retailers recently said local authorities still aren’t prepared to assume responsibility for policing safety standards.

Worker rights can be a contentious issue even for global leaders such as Nike, which developed many of the best practices now used by apparel brands and manufacturers. Nike has voiced objections to advocacy groups positioning themselves as third-party auditors, arguing that there is a conflict of interest for groups that are both campaigning and auditing. For their part, advocacy groups say many audits go too easy on brands and manufacturers.

But failure to tackle environmental and social risks can have punishing consequences. Apparel companies that contracted with Rana Plaza garment makers fell from lists of most-reputable companies in the aftermath of the tragedy. Aussie GrainCorp reported that drought cut its grain deliveries by 23 percent and led to a 64 percent drop in 2014 profits. Unilever estimated that it loses 300 million euros a year as worsening water scarcity and declining agricultural productivity contribute to higher food costs.

It is through experimentation and innovation, not spreadsheet projections, that viable sustainable business models emerge.

The business case for sustainability

Forum for the Future, an international sustainability nonprofit, says the companies set to benefit are those that can “capture the less tangible benefits as well as direct financial savings, for example, the clear reputational benefits of the initiative.”

The business-case numbers “are much ‘softer’ than decision-makers are used to,” the Forum says. As a result, “companies get stuck in a vicious cycle: they want a business case before giving permission to go-ahead with a project, but the information to build a business case can only be generated from the experience of going ahead.”

George Mason University professor Gregory Unruh says it’s time to look at the business case for sustainability a bit differently. “Multi-dimensional sustainability value is just hard to fit into a discounted cashflow analysis,” he writes.

Despite being hard to measure, Unruh writes, “investors are now realizing that sustainability performance feeds the long-term bottom line. And that’s causing managers to question traditional business thinking. So instead of spending time building a perfect business case, many are pursuing business model innovation experimentation, taking a page from Silicon Valley start-ups. It is through experimentation and innovation, not spreadsheet projections, that viable sustainable business models emerge.”

A look at the Gulf region where solar energy has been a tough sell in the face of cheap electricity subsidized by governments with abundant oil and natural gas.

Standard photo-voltaic solar systems have proved vulnerable to searing desert heat and frequent sandstorms. System installation costs have been too high, and paybacks too long and uncertain.

Today however, after a prolonged period of low oil and gas prices, Gulf countries are reducing or eliminating subsidies to consumers and commercial customers. Ambitious national economic diversification plans call for energy conservation and mandate cuts in consumption, along with blueprints for development of green communities and cities deriving most if not all of their energy needs from renewable sources.

Technology advance

The introduction of revolutionary new high-vacuum solar thermal systems – a robust and highly efficient means for generating thermal energy – is proving to be a game-changer. Solar thermal is ideal for the intense Gulf heat and one particular type of high-vacuum technology is capable of operating with minimal output losses even after severe sandstorms.

Air conditioning for Agility’s corporate headquarters in Sulaibiya, Kuwait is provided by a solar-driven cooling system that ran automatically and unattended for over 365 days with 98 percent reliability. In addition to delivering consistent and reliable energy output, the system, powered by a solar field manufactured by TVP Solar, SA of Switzerland, contributed 43 percent of the points necessary for the new building’s LEED Sliver certification. Highest output is achieved from 10am to 3pm each day in a climate where outside temperatures can reach 54 degrees centigrade (129°F), supplying 70 percent of the facility’s required cooling load.

Investment

Agility has invested in TVP Solar and is introducing the technology to commercial and industrial customers, says Steve Lubrano, CEO of Alternative Energy Solutions, an Agility affiliate.

Lubrano says the solar-thermal system and its components are relatively maintenance-free and are integrated into existing buildings. Despite blowing sand and dust, users need not worry about precision cleaning of panels because of their remarkable efficiency and ability to capture both direct and diffuse light.

The technology is becoming even more attractive as electricity costs rise and solar-thermal payback periods fall from a previous six to nine years to a more feasible three to five years.

Interest is expected to intensify as Gulf governments look to expand and “green” their energy production capabilities to ensure supplies for new industry and for energy-intensive uses such as water desalination.

“Oil-dependent countries have come to realize that if they’re burning it, they can’t sell it. That might not be a problem today, but it will be down the road,” Lubrano says. “So we’re seeing a sea change. Kuwait, UAE, Saudi Arabia and others have implemented energy mandates and have made plans for cities powered almost exclusively by renewable sources. We’ve gone from a lack of interest to, wow, ‘You mean you can provide energy and reduce electricity demand at the same time?’ ”

When implemented at scale, Lubrano says, “Yes, we can.”

Oil-dependent countries have come to realize that if they’re burning it, they can’t sell it. That might not be a problem today, but it will be down the road.

Best practices for sustainability in supply chain also mean tough questions for companies. Agility’s Mariam Al-Foudery lays out some key areas for consideration.

Best practices for sustainability are evolving as rapidly as any aspect of business, driven by new technology and an urgency for companies to demonstrate that they are effective environmental stewards and positive contributors to society.

Here are some key areas where logistics providers and their customers need to focus.

• Traceability
  

  Do you have upstream supplier visibility? Do you do supplier assessments and benchmarking?

• Labor
  

  If migrant workers are in your employee mix, are you certain that they aren’t being exploited by labor brokers and unscrupulous recruiters, a problem that is particularly problematic for companies that hire from India, Nepal and East Africa?
  Have you continued to focus on living and working conditions? Are you confident you have transparency into subcontractors? Have you created effective worker-grievance mechanisms? Are you educating and training workers on their rights?

• Energy
  

  When you expand your truck fleet, are you adding CNG fueling stations and LNG vehicles?

• Packaging
  

  If you are a consumer company, what about dimensional weight pricing?

• Warehousing
  

  Have you looked at automation and cleantech in cargo handling and warehousing?

• Port selection
  

  Are you routing shipments through “green terminals” that manage and contain possible pollutants and police for invasive species?

• Logistics digitization
  

  Agility is among those using advanced algorithms to evaluate multiple scenarios and create optimal plans with the least environmental impact. Multi-echelon Inventory Optimization is another tool available.

• Data and measurement
  

  Are you capturing, sharing and analyzing data with your logistics provider so you can get real-time feedback to optimize operations and make sure you are conserving, recycling, recovering and reusing as much as you can?

A sustainable vegetable garden in the arid demilitarized zone between Sudan and South Sudan brings relief to workers supporting the peacekeeping mission.

At the remote end of the supply chain, Agility’s GCC Services team of 105 expats and local staff supplies international peacekeepers with food and bottled water that is trucked hundreds of miles from the Port of Sudan to the mission in Abyei, Sudan.

Desperate for a quiet respite and something fresh to eat in a conflict zone, GCC personnel built a composting operation to turn kitchen waste into fertilizer and began bringing seeds back to Abyei when they returned from leave. The result is a lush, pesticide-free garden of herbs, vegetables and fruit.

The Abyei kitchen garden has yielded large quantities of nutritious beans, peas, jackfruit, guava, lemons, bananas, cassava, tomatoes, aubergines, cucumber, okra, watermelon, lettuce, coriander and other produce.

“This sounds like a small thing, but it’s not. Conditions in Abyei are austere, and the workdays are very long,” says Rashad Sinokrot, CEO of GCC Services. “The kitchen garden has created shade and greenery where there isn’t much of either. It’s been a stress reliever and teambuilder, and demonstrated that you can do something sustainable in a very harsh environment.”

The United Nations calls modern slavery – human trafficking, child labor and debt labor – the world’s second-largest criminal industry.

Efforts to monitor and crack down on modern slavery have forced companies worldwide to scrutinize their supply chains.

The most widely known attempt to mandate corporate transparency is the United Kingdom’s Modern Slavery Act of 2015. As a result of annual reporting by companies, the UK government estimates that at least 13,000 people are victims of forced labor, sexual exploitation or domestic servitude, Thomson Reuters reported recently. More than 5,000 potential victims were referred to UK authorities last year, a record number.

Worldwide, the Council on Foreign Relations estimates there are 40.3 million victims of enslaved labor and that one in four victims is a child. The Modern Slavery Act “has done a lot to raise awareness,” Kate Roberts, head of office at the Human Trafficking Foundation, told Thomson Reuters. “Unfortunately, in practice, we’re still waiting to really see many tangible outcomes from it yet.” The Business and Human Rights Resources Centre notes similar “lagging” efforts in FTSE 100 firms with operations in the UK.

How it works

• Who reports:

  Any organization that conducts business in the UK and has an annual profit of £36 million ($50.1 million) must issue a statement within six months of the financial year’s end detailing how it has audited the supply chain and operations for slavery risks and violations.

• What to report:

  There is no template for the report, but it should be concise, written in English, approved by the organization’s board of directors; signed by the director or equivalent, and published on the organization’s public website, linked to from the homepage. UK subsidiaries, UK branches and global organizations with a significant presence in the UK (including offices, assets, clients and trade relationships) are also beholden to this obligation, a Harvard Law School forum on corporate governance and financial regulation suggests.

• How often to report: 

  Annually. Each year’s report should show improvement in corporate transparency – meaning that the organization’s workforce is being educated about modern slavery, policies are being created to prevent slavery or protect those who fall within a risk category (seasonal workers, unskilled laborers and those who work in potentially dangerous environments), and resources such as budget and staff are being allocated to address risks within the organization.

• Failing to report: 

  The consequences include an injunction from courts to comply, and possibly a fine.

• Accountability: 

  The Modern Slavery Registry (modernslaveryregistry.org) keeps track of all published reports across 27 sectors, ranging from capital goods and consumer services to pharmaceuticals. This website also measures organizations’ compliance with the Modern Slavery Act; as of April 2018, only 19 percent met all minimum requirements.

Agility’s fair labor program in the Middle East was a groundbreaking initiative more than 10 years ago and has helped drive worker protections worldwide. 

More than a decade ago, Agility began taking aggressive steps to protect the rights of drivers, warehouse employees and other workers who migrated in order to get jobs.

Agility is the largest logistics company in the Middle East, an area where third-country nationals have historically been vulnerable to exploitation by recruiters and to abuses on the job.

Fair labor in the supply  chain

While international agencies have moved to promote fair labor practices and supply chain transparency, often after prodding by non-governmental watchdog groups, Agility has been at the forefront of efforts to ensure worker protections and call on other businesses in the region to do the same.

Agility’s initiative for fair labor

One of Agility’s first steps was ensuring a basic living wage for migrant workers. Agility also implemented procedures to prevent common labor abuses, like confiscation of passports, withholding of pay and travel restrictions. Agility’s approach to identifying and correcting fair labor practices has been in use since 2009. Since 2011, Agility has been training all levels classes of employees about those standards.

Agility’s commitment to fair labor goes all the way to the top. The company’s fair labor program is sponsored by Agility CEO Tarek Sultan, who receives regular updates on its progress from the Corporate Social Responsibility (CSR) team. “Agility is committed to providing an environment where employees’ human rights are both respected and protected. We have high standards on fair labor; it’s an essential part of the ‘Agility Way’ of doing business,” Sultan said.

The fair labor program

Agility created its fair labor program voluntarily – not in response to government or customer mandates – because the company believes in protecting its employees and contract workers. Agility isn’t winning business because it has a toptier fair labor program, but it could certainly lose business if those standards slipped, says Frank Clary, Agility’s CSR director.

Clary says the program is both a moral and legal imperative, and a company’s success in resolving fair labor issues hinges on its ability to discover them – and speak openly about correcting them.

Agility’s practices are evolving to ensure that all possible violations come to light. Agility rigorously enforces the fair labor policy with comprehensive monitoring and audits conducted by third parties. Geographic areas where the Agility workforce includes the most vulnerable population – migrant workers – get audited most frequently. The audit process includes random employee and vendor interviews, and tours of workspaces and housing. When any issue is identified, Agility prescribes corrective actions and issues timelines for achieving appropriate standards. In the case of critical issues, corrective actions are taken immediately. Customers requesting audits get the results directly.

The first phase of the Agility audit program was conducted in the Middle East, followed by roll-outs in Asia- Pacific. Ten years ago, when these audits began, many violations were discovered. Now, thanks to training programs, they have decreased.

Agility’s goal is to educate 100 percent of its workforce about the fair labor policy. The program has been conducted historically with on-site training sessions. The company is creating an online training program to reach a wider audience. There are two versions of the online program: a version designed to help employees understand their rights and learn how to report concerns, and a separate, more robust program directed at Human Resources professionals who will need to investigate those concerns.

Agility plans to share these training resources with other companies. “We want to engage to help the broader business community succeed in managing these issues,” Clary says.

Fair Labor preservation and safekeeping

There’s no quick solution to manage fair labor issues on a global scale, but every step forward helps. The Council on Foreign Relations (CFR) estimates there are 40.3 million people currently enslaved in the world, and the problem is most prevalent in “impoverished countries and [in] those with vulnerable minority communities.” Modern slavery exists primarily for financial reasons: it’s an economic crime, according to Kevin Bales, a professor of contemporary slavery at University of Nottingham in the UK. The International Labour Organization says that slavery generates $150 billion for traffickers annually. Even if companies have procedures in place to protect their workforce, how can they safeguard against unethical subcontractors who prioritize financial gain about fair labor?

Agility has taken a leadership role on the issue when it works with multinationals and government organizations in the Middle East. Working with Human Rights Watch, Agility learned how to engage engineering and construction companies in ways that prevent labor issues. The approach involves setting expectations upfront, writing contracts more carefully to demand fair labor standards, and insisting that subcontractors to open up for audits. Agility also has worked on fair labor with the World Economic Forum and Business for Social Responsibility, which has given Agility a platform to talk about the importance of the issue with others in the logistics industry.

Expert Tensie Whelan argues that sustainability as an intrinsic part of corporate DNA drives operational efficiency and innovation, and delivers a range of benefits while also mitigating risk.

Q: How do you make the financial case for sustainability?

Sustainability drives operational efficiency, innovation, employee, customer and supplier engagement, as well as mitigates risk, among other benefits. All these tangible and intangible benefits can be monetized, but generally are not, partially because accounting does not deal well with intangibles and partially because this is all so new, the corporate finance department has not yet caught up.

Q: Is the case conclusive, especially in the absence of better ROI tracking by companies?

The case for cost-based saving through operational efficiencies is very clear and has been demonstrated by companies from Walmart to 3M. Sustainability – meaning balancing environmental, social, and economic goals – has led to cost savings through reductions in waste, energy and water for thousands of companies. The social side is also beginning to demonstrate positive financial impact – Walmart’s increased pay and career path for store employees reversed the downward spiral of negative customer experiences in store, increasing sales.

Q: Is there a penalty for being late? For waiting to see how this plays out and allowing your competitors to go through painful trial and error?

There will be a penalty as this is no longer niche – it is mainstream – and the impacts are no longer in the future – climate change is disrupting supply chains now. Laggards will be penalized, if not through negative impact on their reputation, through higher operational risk and worse margins. For example, coffee farmers are experiencing lower productivity and more disease due to climate change. But changes in sustainability practices can reduce the negative impacts considerably. Companies like Nespresso that are actively engaging with their farmers to help them with these issues will ensure they have a short- and long-term supply of quality coffee.

Q: You’ve used the word “embedded” to describe sustainability in some corporate cultures. Why is that important, and what are the differences between companies where it is embedded and those where it is not?

Traditional CSR and some approaches to sustainability treat the issue as peripheral to core corporate activities. In those cases, the business strategy does not include sustainability issues such as climate change as a disrupter, and thus the impact of sustainability initiatives will be limited. Unilever’s business strategy IS their Sustainable Living Plan and it has driven significant sustainability improvements, but also outperformance by their “brands with purpose,” higher margins than their competitors, and an enviable position as one of the most searched prospective employers on LinkedIn.

Q: How does sustainability drive innovation?

Sustainability is about applying a systems and design thinking lens to traditional processes and products. You provide different design inputs (e.g. reduction of water, improved labor practices) to create products and services that reduce negative impacts and provide a better product for customers. Nike has embedded sustainability into innovation, for example, and that has driven changes in how they produce all their products (reducing environmental impact and costs) as well as led to the creation of a $1 billion plus line of product – FlyKnit sneakers.

Q: What about its importance in attracting talent?

Much of the CEO activism we have seen recently is more for the benefit of employees than customers. Companies know that millennials are looking for companies who share their values and are committed to making the world a better place. As with Unilever, they will attract the best and brightest if they embed purpose and sustainability core to their business.

Q: You’ve spoken of the need to figure out ways to “monetize” sustainability efforts within companies. What does that mean, and why is it important?

Most companies are not tracking the financial benefits of their sustainability commitments, other than cost savings such as energy use reduction. Talent recruitment, engagement and retention, for example, should be tracked in line with a company’s focus on purpose and sustainability. It is possible to monetize the contribution of sustainability to human resource metrics – SAP and PwC have tracked it, for example, and have found significant financial returns. Innovation in processes is another area – companies are innovating new processes in response to sustainability commitments. Domtar, a pulp and paper company, developed a fertilizer from the waste of two plants that had been deposited in landfill previously – a nice circular solution that saved them money and also saved the farmers money as the fertilizer cost was lower.

Q: How has thinking about sustainability been changing?

Companies have been on an evolutionary path, starting with a niche approach, e.g let me try making a green product, to a broader risk management approach, e.g. I need to manage for reputational and operational risk in my supply chain, to a mainstream approach, e.g. this needs to be core to my business, to an innovation approach, e.g. this creates new business opportunities.

Q: How does the calculus differ for B2B companies, vs. those selling to consumers?

Brands in industries such as consumer packaged goods have more pressure on them in terms of reputational risk. But they are passing that down through the supply chain, so B2B companies that are leaders will be able to achieve preferred supplier status and create better relationships with their clients. That said, B2B salespeople are not always well-trained in the sustainability attributes of their products and thus don’t feel comfortable talking about them. That will need to change.

Q: What do you see happening in emerging markets and developing economies?

In my former role as president of the Rainforest Alliance, we worked with companies all over the world and found a wide variety of engagement. There were market leaders like Tata in India and Klabin and Fibria in Brazil that were far more innovative than many US and European companies. And then there were companies in complete denial.

Q: What do you make of the recent letter from BlackRock’s Laurence Fink to CEOs? Do you see it as a watershed moment? Will it change anything?

I agree with Larry Fink that the short-term shareholder focus has done a lot of damage to capitalism, people and the planet and we are facing a reckoning. We need more investors to stand up and require that companies manage for all material stakeholders and ESG issues. And we need to delink executive compensation from delivering on high quarterly margins to the detriment of R&D, employees and the environment.

Q: EcoVadis says companies are shifting focus toward social/labor and business ethics, and going into “maintenance mode” or decreasing investment on the environmental side. Do you agree?

No, I don’t agree. I think companies in the US have been more focused on the environment to date, and they are now playing catch up on the social side, as they should. There are new environmental commitments every day – McDonalds just announced recycling goals in restaurants as well as a commitment to 100 percent recyclable packaging, for example. This is a not an either/or proposition. Companies will need to perform well on material social and environmental metrics. Right now they need to figure out their position on compelling issues that have been ignored for too long, such as employee pay and gender equity.

Q: What else is happening on the social and governance side that’s intriguing to you?

First, we had CEOs publicly state their commitment to reducing greenhouse gas emissions with science-based targets when President Trump pulled the US out of the Paris Accord on climate change. Now CEOs are stepping up on gender issues, immigration, firearms, and so on. As we have a vacuum in governmental leadership on social issues, business is taking the lead. My conversations point to personal commitment by those CEOS, and an acute attention to serving their employees who are asking for executive leadership.

Q: What are you looking for in the next five years? Ten years? What’s going to surprise us?

Just as the march by students in the United States about firearms (which took place on March 25 2018) is unexpectedly changing the dialogue on firearms policy overnight, and as with #metoo and #blacklivesmatter (movements), I think we will see a great reckoning on labor (better pay), climate and water issues in the US and globally in the next ten years. And, hopefully, we will stop looking backward, and, in looking forward, unlock ingenuity and optimism to make transformative changes in how we produce, consume and value products and services.