Multinational Corporations and Supply Chain Responsibility: Who Is Stepping Up on Pollution from Manufacturing, and Who Hopes You Will Pay No Attention?

I'm in Tianjin, China today for the second annual Corporate Information Transparency Index (CITI) grades, which the Institute of Public & Environmental Affairs (IPE) released today. The CITI ranks companies on how well they track and respond to pollution coming from factories in their supply chains. NRDC collaborated on the criteria that make up the grading system, and we co-authored the report (warning: the loading speed is a little slow at the moment).

In a nutshell, IPE found tremendous room for improvement... to put it nicely! Were these companies high school students, nearly all of them would be grounded indefinitely for sure.

So, first, the juiciest bits: who's on top, and who are the bottom dwellers? Later I'll turn back to the details of how they got these grades.

The fashion/apparel industry is of course of greatest interest to me, given NRDC's Clean by Design program that cleans up their mess. We've wondered before why it is so hard to enlist mills into our program, and now we know! CITI scores reveal clearly that too many companies are not in the supply chain game, and so of course they cannot make any use of Clean by Design, which is a program to help reduce supply chain impacts. These laggards are still looking the other way and hoping no one will track any big bad pollution belching from their factories back to them at headquarters.

Winners and Losers in the Fashion Industry

Top Winner? Adidas! Second place? Fast fashion bad boy H&M! Good for H&M for at least stepping up to the plate on the pollution footprint from their massive manufacturing. Otherwise the world would be an even bigger mess.

Bottom dwellers? A lot of brands with big names to protect: Ralph Lauren, Guess, DKNY....

Victoria has a new Secret divulged in CITI today, hehe, its pollution! The company scores a big fat zero. Apparently too busy doing other things.

What is up with this? This is such poor practice given the rapidly increasing visibility and deep public concern about industrial pollution around the world. Check for your favorite fashion/apparel brand in the table below, and for scores from companies in seven other industrial sectors covered in the full report here:

Spoiler alert:

The company with the highest score overall is Apple. Every company wants to be like Apple in so many ways, SO HEY, MULTINATIONALS ON THE SIDELINES: follow Apple's example here too, and get with the program.

Background on the CITI

The CITI fills a critical gap in corporate responsibility measurement. Other prominent CSR scoring systems -- the Global Reporting Initiative (GRI), Dow Jones Sustainability Index (DJSI), the Sustainability Accounting Standards Bureau (SASB), etc. -- incorporate supply chain environmental impacts as only a very small component of their scoring systems. Even failing grades on this metric leads to a miniscule decrease in a company's overall CSR score. As a result, too many multinationals focus their environmental efforts where it is easiest to start (at home, such as by reducing the carbon footprint of their corporate offices and retail shops) rather than where it is the most important to fix (in their manufacturing around the world). This, despite the indisputable fact that supply chain emissions are where most companies' real environmental footprint lies.

But IPE is on to this trick; the CITI is all about analyzing supply chains, which are so crucial. The organization gathers government data on factories not-compliant with their permitting and has compiled an awesome pollution violation database for all to use. It tracks down the multinationals that source from these factories and initiates contact. Companies responsive enough to public concern to engage are presented with the evidence of problems they are causing, along with a well-considered stepwise improvement program, the CITI. CITI focuses supply chain efforts in five key areas: public engagement and responsiveness, compliance and corrective action, priority to hot spots of environmental impact, data disclosure and transparency, and responsible recycling. Each of these areas then contains a step-wise process for initiating and improving performance, from basic point of entry to best practice. CITI scores reflect the level of effort in each area.

Honestly! Is this 2015?

Not one single part of the CITI framework should be the least bit surprising to any environmental professional; the report card sets forth exactly what companies were doing more than two decades ago when they still manufactured in the United States! Sadly for China and the rest of the world suffering the polluting consequences of corporate irresponsibility, however, these basic requirements for environmental protection are not in place in the developing world. Until companies step forward on the basics, we will all continue to suffer from the high levels of pollution that result.

The NRDC Bare Minimum

What does NRDC consider to be a minimally responsible score in the CITI? And how many companies meet our minimal requirements for responsible supply chain programs this year?

Here's the NRDC minimum: Companies should 1) know which of its factories have the largest potential to pollute; 2) screen those factories for compliance and pollution problems; and 3) require corrective action as needed. They should also have a program in place to respond to members of the public when contacted about pollution compliance problems at one of the factories making their stuff.

This is reflected in the following CITI sub-scores:

• Section 1. Public Engagement and Responsiveness.

The company conducts in depth follow-up when notified that its suppliers have been found to be in violation and provides stakeholders with details of their subsequent investigation and response. (Nine points or more in Section 1)

• Section 2. Compliance and Corrective Action.

The company screens its direct suppliers, screens them for compliance, and requires corrective action where it finds problems (Nine points or more in Section 2.1 and seven points or more in Section 2.2)

• Section 3. Extend Green Supply Chain Practices.

The company has identified its high impact suppliers, screened them for compliance, and required corrective action where it finds problems (Seven points or more in Section 3.1)

Only 28 of the 167 companies scored in the CITI 2015 are operating these minimally acceptable programs described above.

Table 2: Brands Complying With NRDC's Minimum Requirements For Responsible Supply Chain Programs

Rampant Violation of The Willie Sutton Rule!

The weakest area for brands otherwise meeting NRDC's minimum supply chain requirements is their failure to focus attention where it matters the most: on the likely hot spots of pollution in their supply chain. Too many companies are pouring all or nearly all of their environmental compliance resources on suppliers that have the least potential to pollute - paying too much attention to the Tier One factories (aka their "direct suppliers") that assemble their final goods, rather than their Tier Two factories (aka their "material suppliers") that, for example, manufacture the circuit boards, dye and finish the fabric, and synthesize plastic from crude oil. These are the factories that pack an environmental punch.

In operating this way, these companies are violating the Willie Sutton Rule.

Willie Sutton was a prominent and prolific bank robber who stole more than $2 million dollars over forty years of crime. When finally apprehended and asked why he robbed banks, his answer was: "because that is where the money is!"

The "Sutton Rule" directs corporate management focus to the areas most likely to have problems rather than wasting time and money checking everywhere.

When companies spend their time screening factories that do not discharge industrial wastewater for compliance with industrial discharge standards (!!), these companies are in clear violation of the Sutton management principle. Yet this practice is rampant, as reflected in the very low scores for Sections 3.1 and 3.2 in the CITI report card.

The CITI fills a crucial gap in monitoring supply chain responsibility of multinational corporations manufacturing their goods in China. Congratulations to those companies high on the CITI 2015 list! And I hope today's conference in Tianjin inspires other companies to put their shoulders to the wheel and better reduce their impacts for next year's scores.