Take Responsibility Of The Chain And Accelerate Progress Together

Take Responsibility Of The Chain And Accelerate Progress Together
More and more directors are intrinsically motivated to make their company's value chain more sustainable and fairer. Legislation can help to also get their partners in the chain moving and create a level playing field, argue Hilde van der Baan and Gijs Linse of Allen & Overy. 

How do companies see their role in the value chain? Do executives embrace the trend towards chain responsibility, or do they see it as an extra burden? For a series of articles on the ‘company of the future’, an initiative of Management Scope and Allen & Overy, we recently conducted interviews on this topic with executives and experts. What stands out positively: intrinsic motivation increasingly appears to be an important driver in wanting to make the chain more sustainable and fairer.

Many leadership teams are making a real commitment to change. They realize that over the past few decades, in general, there has been too little focus on the (indirect) impact of business operations on people and the environment. Now they want to take the lead to do better. Both with respect to their direct impact, and for their company's scope 2 and 3 footprint.

Competitive advantage
In addition to that intrinsic motivation, they also make a business decision. For example, when Royal BAM Group decided to tender for major projects only if the company could distinguish itself on sustainability, it was not out of charity. The construction group is deliberately accepting less growth in the short term, with the expectation of eventually achieving a competitive advantage and a good profit margin thanks to the new sustainability strategy. Director Strategy & Sustainability Mark van Kruijsbergen: ‘We do it for society and for our shareholders.’
In doing so, BAM also wants to set an example for the entire industry. The same goes for chocolate brand Tony's Chocolonely, founded in 2005 to prove that a responsible cocoa company can indeed be successful. Chairman of the Board Douglas Lamont: ‘To dispel fear of change in the industry, we have to demonstrate that ‘despite’, or precisely because of our mission, we can make 10 percent profit, attract customers and build a positive reputation.’

> Read also the interview with Mark van Kruijsbergen and Douglas Lamont: 'The Challenges in Making the Value Chain More Sustainable'

Changing mindset
Besides intrinsic motivation, our conversation partners see plenty of other incentives to encourage every manager to take responsibility of the chain. Internally, employees are a crucial factor. They see whether what is put on paper is actually implemented in detail, increasingly ask their management to account for it, and also put forward suggestions themselves as to how things can be done differently. Not only at the companies that held idealism in high regard since its inception, but also at the more traditional companies, there is internal discussion about whether the transition is moving fast enough. As more young people move in, the voices calling for culture change and continuous improvement will only grow louder: both in the boardroom and in the rest of the company.
An external incentive to change is the simple fact that companies themselves are now suffering the consequences of their unsustainable policies of recent decades. Cocoa harvests, for example, says Lamont, are more likely to fail due to climate change, costing the industry billions. ‘And so, in numerous industries, the effects of the short-term everything-goes-well bubble we have been living in for the past 40 years are now becoming apparent. As a result, the mindset is changing.’
Social pressure on companies is also increasing. Yet consumers are not sufficiently motivated to make a significant shift, Professor Kitty Koelemeijer knows. ‘Consumers may want companies to have their ESG in order, but their buying behavior, both physical and online, is in the here and now. They do not want to have to think on the spot about how responsible a product is.’ In the corporate market, on the other hand, the customer does matter. ‘To be successful, our customers must want those sustainable solutions,’ BAM's Van Kruijsbergen knows. At present those customers are still in the minority, but the hope and expectation are that this will tilt in the coming years.

> Read also the interview with Kitty Koelemeijer: ‘Becoming Future-Proof? Address The Supply Chain’

Level playing field
We conducted our interviews even before EU states reached agreement on March 15 on the Corporate Sustainability Due Diligence Directive (CSDDD), which requires companies to identify, prevent and mitigate supply chain risks. Remarkably, none of our discussion partners saw this and/or other regulations as the main motivator to change. Even without it, the mindset in many organizations has already changed. In their view, however, that certainly does not mean that legislation does not matter. The CSDDD directive will undoubtedly make more people aware of scope 2 and 3. That could help to finally get the laggards in differing sectors moving. 
Another important function of legislation has to do with dependence in the supply chain. Legislation can force change on partners in the supply chain who are less intrinsically motivated, but with whom companies need to cooperate from time to time. Certainly, as the supply chain becomes more complex and polluting, legislation is also necessary from the perspective of distortion of competition. A common European law ensures a level(er) playing field. Even better and more effective would be (global) international legislation.

Cooperation at the sector level
Cooperation at the sector level is currently insufficiently recognized as one of the ways to make the value chain fairer and more sustainable faster. The problems - from climate change to geopolitical challenges, from resource scarcity to inflation - are too big for individual companies to solve. Horizontal cooperation specifically is still in its infancy, observes Kitty Koelemeijer. Partly ‘because parties are afraid of sharing data with their competitors.’
Tony's Chocolonely deliberately chooses to make its methods and knowledge available to other chocolate producers through an open chain model. ‘This allows us all to move faster,’ says Douglas Lamont.
The construction industry also needs increased cooperation, argues Mark van Kruijsbergen. ‘You can have a procurement policy with preferred suppliers that you check yourself or that are certified by others, but you can never rely completely on that. The industry as a whole will have to make agreements on eliminating excesses.’
Moreover, more cooperation in the chain is not a necessary evil. In fact, according to Kitty Koelemeijer, there is an enormous amount to be gained in terms of efficiency and service. ‘The supply chain plays a significant role in making companies future-proof.’

The decisive factor
In this series on doing business in the future, we examine what companies must, can and want to do well now in order to still be doing ‘the right thing’ five to ten years from now. When it comes to the value chain, leading by example seems to be the decisive factor. Companies like Tony's Chocolonely and BAM show that capitalism with a better balance between profit, planet and people is possible. It is better as a company and as a chain to take the first brave steps based on intrinsic motivation than to have change imposed by legislation.

This essay was published in Management Scope 04 2024.