Companies Rush to Trace Sprawling Supply Chains as Sustainability Rules Loom

   2023-01-24 10:01



H&M last year began rolling out a traceability platform for its recycled polyester and man-made cellulosic fibers.



Photo:

Nina Westervelt/Bloomberg News

Companies are rushing to more closely track materials across their sprawling supply chains ahead of expected new human rights and environmental laws

Businesses, including consumer-goods company Unilever PLC, clothing retailer

H&M Hennes & Mauritz

AB and

Polo Ralph Lauren

supplier of socks Renfro LLC, say they are turning to technologies to help gather data on their supply chains and track materials. 

Last year, H&M began rolling out a traceability platform from startup TextileGenesis for its recycled polyester and man-made cellulosic fibers, such as viscose, that can contribute to deforestation. It uses blockchain technology to track and verify the use of sustainable fibers in garments. H&M Group has more than 600 commercial product suppliers who make their products in over 1,500 factories in Europe, Asia and Africa. 

“[It] is showing us great potential to obtain improved traceability and has become a key initiative in our work in this area,” said Pierre Börjesson, head of transparency and traceability at H&M Group. “The closer we get to our 2030 goal for all our materials to be either recycled or sourced in a more sustainable way, the more traceability we gain,” he said.

A host of supply-chain regulations went into effect in recent years and more are on the way, exposing companies to potential penalties and public criticism if found to be negligent, lawyers said. The rules come as businesses, especially small and midsize companies, have a limited view of their supply chains and are struggling to broaden their oversight, sustainability analysts say.

One of the biggest pieces of legislation on the horizon is the European Union’s Corporate Sustainability Due Diligence Directive. The proposal published last February would require larger companies operating in the EU to identify, prevent and remedy risks to human rights and the environment in their supply chains, such as minimum age requirements, worker safety, pollution and biodiversity loss.

“You’ve probably heard of the European General Data Protection Regulation. Imagine that in the landscape of supply chain,” said Tim Constable, partner at law firm Dentons advising companies on supply chains. “That’s how big it’s going to be.”

Depending on the outcome of deliberations now under way in the European Parliament, and its eventual negotiations with the European Council, businesses could be fined, corporate directors may be held accountable and private individuals can also report breaches of the law.

There are a host of other regulatory developments threatening to affect companies’ supply chains. These include modern slavery laws in the U.S., such as the 2021 Uyghur Forced Labor Prevention Act, while existing laws are likely to get more teeth in places such as the United Kingdom. Rules creating obligations covering potential deforestation are also being considered in both the EU and U.S.

Previously, supply-chain regulations were “a light touch and definitely in the course of the next two years it’s going to be far more enforced and there will be big regulatory fines,” Mr. Constable said. 

Unilever has a sprawling global supply chain, with around 54,000 suppliers in 150 countries.



Photo:

Chris Ratcliffe/Bloomberg News

Unilever has a sprawling global supply chain, with around 54,000 suppliers in 150 countries. The company tracks commodities such as palm oil and soy, using Premise, Descartes Labs and Orbital Insight to monitor farms and supply links with satellites, other geographical data and photos, among other sources. It also uses the Forest Data Partnership, which provides geospatial data to keep an eye on deforestation in South America, Asia and Africa.

This month, Polo Ralph Lauren supplier Renfro followed German sportswear seller

Adidas AG

in enlisting startup TrusTrace to aggregate data for clothing materials and their sustainability certifications on a single platform. Still, TrusTrace Co-Founder and Chief Executive Shameek Ghosh acknowledged that the platform is limited by what information suppliers share, which remains a challenge despite companies coaxing it out of them.

Mr. Constable of Dentons said platforms that simply manage supply-chain data aren’t a silver bullet and it is going to be difficult for companies to self-police the information they get from their suppliers.

“All they can do is to get the existing data into a manageable and useful format,” he said. “But data is also very human and if you put rubbish in, you will get rubbish out. It doesn’t matter how sophisticated the program is.”

Internet-of-things startups can go beyond aggregating data and instead track actual items. An example is Wiliot Ltd., which provides tiny tracking tags the size of postage stamps that can follow goods as they move, helping companies ensure materials aren’t coming from areas at risk of deforestation. 

Amazon.com Inc.,

PepsiCo Inc.

and

Samsung Electronics Co.

Ltd. have invested in Wiliot, which says its clients are in consumer packaged goods, pharmaceuticals and agriculture as it expands into other industries, but declined to provide names. 

Write to Dieter Holger at [email protected]

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