Responsible sourcing as part of corporate governance
January 20, 2018
Hello, my name is Alex, I’m the CEO of SupplyShift. Although we typically focus on supply-chain specific items of interest, I wanted to start this year with a broader look at the business landscape of 2018 and beyond. In the last five years there has been a substantial increase in consumer preferences focused on ethics-based brands (HSBC) as well as rapidly growing shareholder actions based on social and environmental metrics (HBR.com) that result in a change in the way that global companies assess performance.
Three days ago Larry Fink (CEO of BlackRock, one of the biggest asset management companies in the world, $6.3 Trillion under management) sent a letter to the CEOs of the world’s largest corporations. In that letter, Larry Fink’s message was clear – global corporations now have an obligation to focus on not only financial returns, but also on serving a broader social purpose. Such arguments have been made by many over the years, most recognizably by the B Corp movement, but until recently those voices were largely on the periphery of mainstream corporate governance issues. Recently, we have seen a fundamental shift in how corporations view their role within both the financial world and in the broader fabric of society.
Mr. Fink’s anchor statement sets out the purpose of BlackRock – “As a fiduciary, BlackRock engages with companies to drive the sustainable, long-term growth that our clients need to meet their goals.” While this mission hasn’t changed, the definition of what constitutes “sustainable growth” has rapidly evolved over the last decade. It has shifted from a strict focus on sustainable financial growth to their current view of corporate governance: “a company’s ability to manage environmental, social, and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth, which is why we are increasingly integrating these issues into our investment process.” BlackRock is now echoing the same message that consumers and activist shareholders have been sending brands.
Although described by some as a “warning shot”, Mr. Fink’s letter does not come in a vacuum. If we take only one sector – Paper and Packaging, corporate commitments to deforestation-free paper sourcing have soared in the last five years. Now, the majority of companies in North America and Europe have committed to responsible sourcing targets. Major global corporate players, from McDonalds with their commitment to responsible beef production, to Unilever’s company-wide commitment to environmental and social responsibility driving major financial returns, are recognizing a simple truth – to be able to operate in 2018 and beyond, a singular focus on financial results is no longer sufficient.
One of the most critical aspects of such responsibility is the supply chain. For large companies, their biggest environmental, social, and governance impacts on the world are through the management of their many-tiered supply chains. I am proud that the amazing team at SupplyShift is helping our customers understand and improve supplier performance across these categories around the world. We are excited for the opportunities to help more companies achieve their goals in 2018 and will be discussing these developments at the GreenBiz Supply Chain Sustainability Summit in Phoenix.
Looking forward to working with you in 2018,
January 20, 2018
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