If a large multi-national business requires its tier 1 supplier to improve sustainability and human rights standards, should they be paying a higher price for the products supplied?
Supplier Perspective
The costs of increased sustainability due diligence standards and requirements are pushing up operational costs and reducing profit margins. In turn, this is pushing small and medium-sized businesses out of the supply chain, because they cannot compete against the larger businesses who can potentially absorb such costs.
And if the standards go beyond national laws requirements governing supplier conduct, why should they incur the cost of compliance requirements of the buyer’s jurisdiction?
Buyer Perspective
If buyers pay their suppliers more for the product, there is no guarantee that the funds will be used on the standards they want to see improved.
In any case, shouldn’t supply chain businesses be incorporating sustainability costs into their own operations?
In general, buyers are also spending increased budgets on sustainability by recruiting larger teams, commisioning technical consultants and investing in supply chain interventions.
How to better integrate social costs (previously externalised) into the supply chain?
One market response to increasing requirements has been to monetise increased sustainability standards through the payment of premiums. Premiums are like top ups on prices that are charged for improved standards.
What are further perspectives from each side?
If you represent a supply chain business, particularly in Asia please email me – I would be interested in hearing from you privately to understand your perspectives and experiences of increasing human rights due diligence standards.
– Aarti Kapoor, Executive Director of Embode (aarti@embode.co).
