Over the years, consumers, investors and media have begun to realise the true environmental and social cost of the products they use. They are demanding that companies treat each person who supplies their product humanely.
Is it possible for companies in India to make their supply chains transparent, tier by tier? How can they do so without compromising profits?
These and many such questions were discussed during the panel discussion Transparency in Business Supply Chains at IRBF 2018. The session was chaired by Anil Padmanabhan, Executive Editor, Mint. Here are four major insights from this session:
1. Mandatory due diligence vs. self-regulation
“Transparency is a necessary but it is an insufficient condition for change. We need to move towards due diligence and provide incentives to companies who want to change”, said Phil Bloomer, Executive Director, Business and Human Rights Resource Centre.
He mentioned how the UK, USA, Australia, Canada, Germany, France and Netherlands have made or are making due diligence laws.
“If companies do not take their due diligence seriously, they are exposed to legal risk. I think that is fair because the people who suffer due to this are the poorest and vulnerable in the supply chains, particularly women in factories in Cambodia, Bangladesh, India and Turkey.”
Rishi Sher Singh who is an independent Supply Chain Sustainability expert differed from this point of view. He said, “If we want a more liberalised society, we have to self-regulate our businesses. I think if there are more laws, we would go back in time.”
Abhishek Jani, CEO Fairtrade, India spoke about how values that support transparency are are already enshrined in the Indian constitution. He said, “Child rights, gender equality, non- discrimination, abolition of bonded labour – all of it this is in our constitution.”
2. Data availability is a big constraint for investors
While international investors are waking up to the risks of unjust supply chains, it seems like the Indian investor will take some time to demand accountability from companies.
Ajit Dange, Fund Manager & Head of PMS (Domestic), SBI Mutual Fund said, “Suppliers in the automobile industry and labour in the construction industry make a significant contribution to the value created. In such situations, the human and social element becomes paramount.”
However, he admitted that data availability is a very big constraint. He said, “While assessing the sustainability of businesses, the primary hindrance for us is data availability…data is available on governance and environmental factors but the social aspect has the least volume of data in the BRRs.”
“We ask companies pointed questions but we ultimately rely on what the management says because primary data is very expensive in India. Despite being the third largest mutual fund in India, if we were to conduct primary research of all our companies regarding their ESG factors, the cost would be really prohibitive and that restricts us.”
He said, “Assessing business itself is a Herculean task, forget about supply chain which is even more of a detailed and daunting task.”
Ajit hopes that in the future investors and civil society will put more pressure on businesses to provide detailed data.
3. Millennials are putting pressure on businesses to be fair
“Another factor that is contributing to transparency in supply chain is consumer engagement. Consumer action is getting amplified via social media. This is creating reputational risks for companies”, said Abhishek.
He shared the examples of the fashion revolution movement triggered by the Rana Plaza tragedy and the campaign for fair bananas in the UK.
Abhishek said, “People care and people want to know. We have seen that the conscious consumer is growing in India as well.” He also shared the example of Fairtrade India’s partnership with Paperboat to make the first fair trade chikki in India.
Speaking of responsible investment, he said, “Investors and pension funds in the EU and Canada are cherry picking businesses with credible sustainability standards.”
Abhishek also mentioned that “the millennial consumers are the stakeholders who care about the world they will inherit” and are demanding fair products.
He said, “Startups such as Pascati, No Nasties and Devi are recognising fair trade as a business ethic. Big businesses don’t do this because they don’t want the next quarterly report to get affected.”
4. High economic growth to create high pressure on supply chains
It is projected that India’s GDP will surpass UK and Germany by 2022. How will that affect supply chains?
“We are looking at a very high economic growth in a very short span of time – a majority of it will come from the manufacturing and farm sector. There is certainly going to be a lot of pressure on the supply chain”, said Rishi.
He said, “The next chapter of India’s economic development will be written by the efficiency in supply chains. Our supply chain efficiency is very low and so is labour productivity, which leads to a low manufacturing output. There is a lot of room for improvement there.”
Rishi also outlined the risks that companies will face if they ignore transparency. He said:
“Companies have to diagnose their supply chain to prevent brand damage, operational loss and the overall downward spiral of business.”
Speaking about the impact of disruption, he said, “Automation is going to take over in the next 5 to 10 years. This is going to put even more pressure on the supply chains that are dependent on people. Disruption is knocking right at the door.”
Read this article by Rishi Sher Singh on Transforming Indian Businesses With Transparency In Supply Chains.
Note: Unfortunately, one of the panellists dropped out at the last moment, so this became an all-male panel; this was not the intended design.