We have written extensively in other EdenTree Insights on a range of topics intrinsically linked to the question of supply chains – shipping, ‘sustainability’, inequality, waste, transport, food and water, ‘natural capital’, to name a few. This Insight therefore seeks to synthesize some of this previous work, adding detail where necessary.
We highlight risks and impacts in supply chains, and their fundamental drivers, and consider some examples of best practice in supply chain management. From the perspective of responsible investment, we reflect on how EdenTree evaluates and engages with investee companies on their supply chain impacts, and touch on how unacceptably high risks or poor supply chain management may act as a brake on investment or prompt divestment in certain instances. Throughout the Insight, we note pockets of particularly strong practice that we have seen over our many years of responsible investing. Later on, we will look at the prospects of fundamentally redrawing and reconceptualising supply chains.
Today, supply chains are typically thought of in linear and material terms: ‘moving and transforming raw materials into finished products, transporting those products, and distributing them to the end-user’.
Particularly since the 1970s, ‘globalisation’ – an evolving phenomenon whose roots can be traced back to early European capitalism – has created sprawling supply chain networks across the globe. As supply chains have grown in time and space, so too have they become – in many cases – increasingly intricate and complicated, with dozens of intermediaries and actors within a single product supply chain. As noted in a Financial Times article of May 2020, “Most supply chains [now] resemble an entangled web of manufacturers, sub-manufacturers, distributors and logistics-handling agents that are all responsible in part for making the final transaction a reality."
The chain for something as seemingly simple as a glass of orange juice (assuming you haven’t picked the oranges from your own grove outside your house, and pressed them yourself) can have multiple layers, relying on transport networks to move the product from one end of the supply chain (the orange grove) to the other (the customer). Even the diagram below is a little simplified, with the additional supply chains of all the ‘inputs’ (e.g. fertilizer, fuel, electricity) ignored.
Many accept that the period of globalisation has also been characterised by a swift ‘race to the bottom’ on environmental and labour standards.
“Companies, large and small, have tended to seek out and establish supply networks in countries where, for instance, legal minimum wage levels are low or non-existent, or where environmental protections are slack, in the pursuit of lower costs and higher profits.”
This is the basic context within which this Insight rests.