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Ending forced labor and worst forms of child labor in cotton production

11/8/2017

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I am assisting the Responsible Sourcing Network (RSN) to conduct research for the YESS: Yarn Ethically & Sustainably Sourced initiative. The goal of YESS is to drive forced labor and the worst forms of child labor (WFCL) out of cotton production in “higher-risk” countries.[1]

YESS will concentrate its efforts at the point in the supply chain where the ability to trace cotton lint back to its place of origin ends: the yarn spinning mills, where mixing of various sources of cotton or other fibers occurs. YESS will focus on two steps: helping cotton spinners to implement an effective due diligence program to keep cotton that may have been produced with forced labor or WFCL out of their supply chain; and confirming that such programs are in place.

The YESS program will include a protocol that will establish policies, material management systems, and transaction-level documentation expectations that participating spinning mills must meet to demonstrate that they are implementing an effective due diligence program.

YESS will align with the Organization for Economic Co-Operation and Development’s Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector (OECD’s Due Diligence Guidance), which has been proven to be effective and scalable in minerals and other commodity supply chains.

The OECD’s Due Diligence Guidance includes the following process and supporting measures:

  1. Embed responsible business conduct in enterprise policy and management systems
  2. Identify potential and actual harm in the enterprise’s own operations and in its supply chain
  3. Cease, prevent or mitigate harm in the enterprise’s own operations and in its supply chain
  4. Track, verify, monitor and validate progress on due diligence and its effectiveness in the enterprise’s own operations and in its supply chain
  5. Communicate on the enterprise’s due diligence processes publicly and to affected stakeholders
  6. Provide for, or cooperate in, remediation—when appropriate

You can read more about the OECD Due Diligence Guideline in my
August 2, 2017 blog.

With this goal in mind, Patricia Jurewicz of RSN and I traveled to India, Turkey and Bangladesh to conduct research for YESS. The objective of our trips—that was funded by Humanity United and The Walt Disney Company’s Supply Chain Investment Program and facilitated by H&M—was to assess if spinners can implement due diligence programs that reach back to cotton farms and, if so, to allow us to design such a system.

Before I share insight from our research, I would like to provide an overview of the actors in the segment of the supply chain on which YESS will focus—from farm to yarn spinner. 

Farmers
Cotton farmers can range from families in developing countries that grow cotton on a few hectares of land using hand labor to large estates using highly mechanized equipment. Small-scale farming poses a higher risk of forced labor or WFCL. It is most predominant in developing countries in areas such as sub-Saharan Africa, China, India, Pakistan and Uzbekistan or Turkmenistan, or other countries in the Commonwealth of Independent States (CIS). Mechanized farming requires less labor and poses a lower risk of involving forced labor or WFCL. It is more common in emerging and developed countries such as Brazil, Turkey, the US and Australia.


Buying agents
Farmers may sell their seed cotton to a buying agent who weighs, inspects and/or sorts the cotton. Buying agents will then transport the seed cotton to gins. Some farmers will not use buying agents, instead selling directly to ginners.

Ginners
A ginner’s core business is to separate the cotton lint from the hulls, seed, stems and leaves, and to create bales of lint. Gins are located in or near cotton production regions, and ginners purchase cotton locally. While in some regions, merchants, governments, or farmers may own gins, it is more common for gins to be independently owned.


Merchants
Merchants (also referred to as traders) buy bales of cotton lint and sell them to spinners on the global market. They tend to be more involved when cotton is exported from one country to another, but they can operate in domestic markets as well. Merchants buy cotton lint from gins, governments or other merchants.

Yarn spinners
Yarn spinners receive bales of cotton lint from a variety of suppliers and regions, depending on the quality characteristics the spinner requests. The price of cotton will be linked to these quality characteristics and market forces. The yarn spinners will mix the bales of cotton according to their proprietary “recipe” in order to produce the correct yarn quality in the most cost effective way.

There are two types of spinning techniques: ring spun and open-end.
  1. Ring spun uses longer fibers (e.g. yarn counts of more than 30). It is commonly used for knits or finer fabrics. Sources of longer fiber lint include Australia, US, CIS and Turkey. The ring spun process will produce shorter fiber byproduct, which is often used in the open-end spinning process.
  2. Open-end uses shorter fibers (e.g. yarn counts under 30). It is sufficient for most denim or other lower quality fabrics. Lint for open-end spinning can come from ring spun byproduct. It can also come from regions like Africa or India.
From the spinner, the yarn will be sold to fabric mills (sometimes through traders) and then to garment manufacturers. It is worth noting that brands often have direct relationships with manufacturers (Tier 1 supplier), non-contractual relationships with select fabric mills (Tier 2 supplier), and no direct relationship with spinners (Tier 3 supplier). Some of the spinners are “vertically integrated,” which means that the mill is spinning and knitting fabric (such as jersey for tee shirts) or spinning and weaving fabric (such as denim for jeans).
During our research trip we visited a handful of gins in one region of India only and several spinners in India, Turkey and Bangladesh. Here are some of the key questions we explored:
  • Are documents that can provide corroborating evidence of certain cottons’ origin used routinely during commercial or governmental transactions?
  • How do spinners account for all of the cotton they receive, process and sell, including production losses, waste and byproducts?
  • Can YESS leverage, contribute to or align with the Better Cotton Initiative (BCI)’s forced labor and WFCL requirement for participating farmers and the Better Cotton Tracer system?
Our findings for each of these issues were encouraging.

We were able to confirm that each bale of cotton lint purchased and processed by spinners easily can be traced to the country—and in most instances, the region within a country—where the cotton was produced. Information in documents that are routinely used for commercial transactions can be used to validate the cotton’s origin. Here is a list of documents that can help with that validation, including the information they can provide:

  • Pro forma invoice or purchase order: port of shipment, destination, shipped month, weight, cotton characteristics
  • Bill of lading: sender, recipient, port of shipment, destination, ship date, weight, number of bales/containers, material description (e.g. cotton lint), packing list (optional)
  • Certificate of origin: weight, country of origin, date, port of shipment, destination
  • Commercial invoice: cotton characteristics, weight, date, number of bales, ports of shipment and landing
  • Packing list: number of bales, weight, number of containers
Some countries have additional government import or export documents that can provide further assurances, if warranted.

One challenge we discovered is that merchants do not usually identify the gins that provided the cotton lint they sell to spinners (nor do the spinners need to know), and they may remove the gin identifier from the bales being sold.

We were delighted to learn that all of the spinners we visited follow the same basic process to account for all of the cotton they purchase, process and sell, along with the waste or byproduct they produce. All spinners we visited weigh lint upon receipt and then again when it is put into the spinning process. They then weigh processing wastage, byproduct and final yarn (which combined should account for all lint that entered the spinning process). This will allow YESS to evaluate the spinners’ material mass balance and ability to account for all material they receive. We were pleased to find that all spinners experience the same range of loss from wastage: 10–15 percent for ring spun (carding process) and 20–30 percent for open-end spinning (including carding and combing (10-15 percent)). This industry standard will help YESS’s ability to identify outliers or potential mass balance-related concerns.

We were able to gather a lot more detail related to the BCI tracing system (Better Cotton Tracer). It manages all of the Better Cotton produced and sold in the world and operates under a mass balance system[2] using physical Better Cotton and Better Cotton Claim Units (BCCUs represent the sustainable and ethical attributes associated with producing the cotton under the BCI production practices). Under the Better Cotton Tracer system ginners are required to produce Better Cotton bales that contain only 100 percent Better Cotton lint with no conventional, or non-Better Cotton mixed with it. Merchants, on the other hand, can substitute conventional cotton for the actual Better Cotton and sell the associated BCCUs separately, as long as the country of origin for the BCCUs and the substituted conventional cotton is the same. This can be problematic when the conventional cotton and BCCUs come from a country that poses a high risk for forced labor or WFCL—such as India, China and some African countries. Spinners can buy actual Better Cotton, BCCUs with substituted conventional cotton, conventional cotton, or other certified cotton (e.g. organic or Fair Trade). They often mix different sources of cotton when creating yarn.
We believe that YESS can strengthen the BCI system by introducing a due diligence process with spinners, which will help brands confirm they are not receiving cotton that was produced with forced labor or WFCL, including when conventional cotton is substituted for Better Cotton from high-risk origins.  

We came away from our trips with a strong foundation of knowledge that we will use to develop a due diligence protocol, audit tools, training materials and supporting guidance documents. More importantly, we believe that YESS is essential to motivate spinners, merchants and brands to drive cotton that has been produced with forced labor and WFCL out of their supply chains—and to hold them accountable to doing so.

[1] Per the US Department of Labor (DOL) List of Goods Produced with Forced and Child Labor, the nine countries with forced labor identified in their cotton or cotton seed production are: Benin, Burkina Faso, China, India, Kazakhstan, Pakistan, Tajikistan, Turkmenistan, and Uzbekistan.
[2] In a mass balance system, the amount of certified product sourced and sold by each supply chain actor is tracked administratively. However, the certified product and sustainable certificates (e.g., documentation that represents the sustainable attributes embedded in the certified product) do not need to be sold together. Certified product does not need to be segregated from non-certified product.

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The Importance of Improving Efficiencies in Indian Cotton Production

8/2/2017

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Picture
As I mentioned in my greeting, I recently traveled to India with Patricia Jurewicz of Responsible Sourcing Network (RSN) to conduct research for the YESS (Yarn Ethically and Sustainably Sourced) initiative. The goal of YESS is to drive slavery out of cotton production. One way they are hoping to accomplish this is by supporting cotton spinners in efforts to implement a due diligence program aligned with the Organization for Economic Co-Operation and Development’s (OECD’s) Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector, and rolling it out in a manner similar to the Conflict-free Smelter Initiative.  The objective of our trip was to assess if these models would work in the farm–gin and gin–spinner segments of the cotton supply chain, and to begin to design such a system.

We learned a lot during this short trip—and not all of it was directly related to YESS (for more on YESS, you will have to wait until my next newsletter to read about our YESS research, which is still ongoing). I would like to focus on one thing I learned that has stuck with me: In our visits to farms, gins and spinners, I saw real potential to improve productivity and efficiencies, and to preserve the quality of cotton lint in the farm and ginner portions of the supply chain.

Last year, India produced more raw cotton than any other country. This is quite a feat when you consider that India grows cotton under the least efficient conditions—by individual farmers on small plots of land, many without irrigation, and, presumably, with sub-optimal production practices.

The operations at the gin did not appear to be optimized either. We saw firsthand the amount of cotton that was lost to the environment during the ginning process (see photo below). In addition, heavy equipment is often running over lint that is spread across floors, and no personal protective equipment is used to prevent hair from contaminating the cotton lint. Hair is one of the two most common and detrimental contaminants—plastic is the other—when lint is spun into yarn and dyed.

The conditions at the gin are a real contrast to the spinners we visited, who are very good at preserving cotton quality, capturing all cotton, and reselling what doesn’t qualify for use in first-quality yarn to furniture manufacturers or open-end spinners who produce lower quality yarn, for example. Workers at the spinning mills we visited wore hair caps to prevent hair from contaminating the yarn and had vacuum systems to remove shorter length (or otherwise inferior) cotton from the final yarn.

The spinners’ ability and desire to optimize their methods to preserve the quality of cotton lint and capture all byproducts throughout their processes may be in part due to their higher value part of the chain (and higher value material and byproducts). In India, the spinners also benefit from recent investments by the Indian government, through its Technology Mission on Cotton, to upgrade spinning facilities. Similar investments and advancements at gins have been slower.

Increases in productivity and lint quality at the gin appear to be low hanging fruit, based on my limited observations. I saw several areas where ginners could protect the lint from damage, contamination, and exposure to dirt and moisture, which harms the fiber. Easily implemented changes include simple facility enhancements, such as more protective enclosures / semi-enclosures to lessen damage due to heavy equipment, and operational improvements, including requiring protective gear for workers to help prevent contamination by hair and plastic. These changes could also lessen loss of fibers to the environment, thus increasing process yields.
 
Making improvements at the farm will be more difficult, but they will yield important benefits to individuals, communities and the entire apparel supply chain. Agriculture plays an important role in providing income for small-scale farmers and alleviates extreme poverty in rural areas of developing countries. Approximately 75 percent of the world’s poorest people live in rural communities, many of whom depend on agriculture for their livelihoods[1].  Cotton is grown in more than 100 countries, 50 of which depend on cotton for a significant portion of their export earnings[2]. In fact, more than 100 million family units are engaged directly in cotton production, and ancillary involvement is estimated to reach one billion people worldwide.[3]

Fortunately, the Better Cotton Initiative (BCI) is succeeding in their efforts to help farmers adopt better production practices, and the BCI is gaining support among the apparel industry.
 
Another way to help cotton farmers to improve the efficiency of agricultural land and increase their income is to provide efficient irrigation. On average, irrigated crops produce two to three times more than those raised in rain fed areas. Irrigation improves the efficiency of productive land and provides farmers with greater yields. Additionally, family income can increase by as much as 44 percent when farmers add irrigation (compared to crops that only receive rainwater), and by up to 66 percent when farmers also use higher quality seeds.
 
The benefits of providing efficient irrigation across all crops can be significant. For example, the International Water Management Institute estimates that 75 percent of the additional food that will be needed in the future can be supplied by improving water productivity on existing irrigated land.  This jump in yield would prevent the need to convert natural ecosystems for agriculture production.
 
Consider the environmental impacts from the material loss at the gin and on the farm, and changes in land use (including conversion of natural ecosystems to agriculture). When we account for those impacts, I believe that apparel brands could reduce their supply chains’ overall footprint and improve their final products by helping the cotton industry reduce production losses during the ginning process. They could further reduce their footprints by supporting farmers’ efforts to adopt better production practices and increase yields, including the use of efficient irrigation. Apparel makers can also help alleviate poverty in farming communities by promoting improved yields and quality preservation. I know it is a lot to ask that brands in particular, and the cotton industry as a whole, address opportunities at gins and the need for irrigation on a large scale. But I hope these issues get the attention they deserve in the not-so-distant future. If the industry gets behind these improvements, they will help many people who are the most in need.


[1] Ayres W., McCalla, A., No date. Rural Development, Agriculture, and Food Security.
[2] International Cotton Advisory Committee. June 2008. Commodity Profile: Cotton.
[3] ibid

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The Importance of Applying a Risk-Based Due Diligence Framework to Develop a Global Solution to Combat Illegal Fishing and Human Rights Abuses in the Seafood Industry

8/2/2017

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The threats posed by human trafficking, child labor, forced labor and Illegal, Unreported, and Unregulated (IUU) fishing that contribute to overfishing our oceans are gaining attention from law enforcement and human rights organizations. While the seafood industry has sustainable fishing programs in place (e.g. Marine Stewardship Council, Aquaculture Stewardship Council), they do not adequately address IUU fishing or human rights abuses on a global scale. The time to develop a global solution is now.

Organization for Economic Co-Operation and Development’s (OECD’s) Five-Step Risk-Based Due Diligence Framework (Five-Step Framework), which is quickly becoming the norm for due diligence best practices. The framework includes the following steps:

1.     Establish management systems
2.     Identify and assess risk
3.     Respond to identified risks
4.     Audit of supply chain due diligence
5.     Report on supply chain due diligence

These requirements place the onus on the supply chain actors—particularly initial processors—who have more direct relationships with raw material suppliers and are often the last point where the origin of material can be validated. This proximity forces them to be accountable for all material that they purchase or process and to have robust policies, procedures, material management systems, and evidence for each transaction.

As I shared in my October 2016 blog, the Conflict Free Smelter Initiative (CFSI) has been very successful among several industries using the new model of empowering, enabling and implementing risk-based due diligence.

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Applying OECD's Due Diligence Framework in Responsible Supply Chains

5/10/2017

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Establishing an effective global solution to combat illegal or unethical production of raw materials throughout an entire industry is an enormous challenge. Learn how we can flip the traditional "certification and product-level traceability" model on its head to motivate and help suppliers keep all illegal or unwanted material from entering the supply chain.

During a recent webinar, Liz introduced how this is being accomplished through programs aligned with the Organization for Economic Co-Operation and Development's Risk-Based Due Diligence Framework (The Framework). Liz explained how the Conflict Free Smelter Initiative (CFSI) application of The Framework has been very successful to empower and enable suppliers to implement effective risk-based due diligence programs - preventing unwanted material from entering entire supply chains - across the entire industry. She then shared ideas on how it could strengthen efforts to combat human trafficking, forced labor, and Illegal, Unreported, and Unregulated (IUU) fishing across the seafood industry.

Please download the webinar here, if you would like to learn more.

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Taking action to combat climate change

5/10/2017

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Of all of the issues that raise concerns under the Trump administration, I am most concerned about what may happen (or not!) to address climate change and protect our environment. Governments play a critical role in ensuring the safety of consumer products by establishing policies and enforcing regulations to limit pollution. The government also wields influence by creating incentives that encourage or require companies to take precautions and invest in innovative technology. [See my Mission Innovation & Breakthrough Energy Coalition: A Clean Energy Public-Private Partnership blog for more on technology investments.]

Unfortunately, I have limited faith in our government to provide adequate resources and strong leadership in the consistent, long-term and effective manner that we need desperately to curtail climate change and other detrimental impacts (such as biodiversity, habitat and natural resource depletion). As we have seen from the fraud that VW and other automobile manufacturers committed to cheat on meeting emission requirements for their diesel vehicles, the government is not always effective at enforcing regulations.

That is the current background against which the U.S. now faces possible reversals of important policies that address the threat of climate change-the Climate Action Plan and Paris Accords, for example - under President-elect Trump's administration.

The government has not always led the way on important issues. More often than not, people, communities, and organizations lead the charge on important issues while the politicians follow suit when the groundswell of change becomes inevitable.

When it comes to protecting our planet, while I encourage each of us to demand leadership from our government, we must take actions individually, which can have a meaningful impact on our own. What can we do? Demand action from companies that contribute to climate change, excess waste or pollution, and negatively impact the environment in other ways. And we don't need to go through the government!

Companies care about their customers' opinions (as well as their critics). If enough of us insist that they operate more responsibly - ethically or environmentally - the companies are likely to listen. If we call them out on specific areas of waste, inefficiency or pollution, they may change their behavior. We have seen such trends with voluntary environmental, climate change and ethical reporting through such programs as the Global Reporting Initiatives and Carbon Disclosure Project. As with any movement to foment change, participants need to speak with a strong voice. A few individual complaints aren't likely to elicit more than a weak excuse as to why they can't do more. If enough of us encourage companies to act more responsibly, they may begin to do so.

With this in mind, I am going to dedicate more space in my newsletters - including my second article this quarter - to empowering and encouraging you to take direct action on matters close to your heart and home. I call it my "Take it Personally" campaign. Make these issues personal by taking responsibility to act on behalf of all of us to demand more from the companies you support and the organizations in your communities. I hope you will join me!
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Auditors: the Unsung Heroes of Responsible Sourcing Initiatives

11/15/2016

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It’s official! After a 10-month transition Liz Muller & Partners is no longer conducting audits under the Conflict-free Smelter Program. Serving as part of this multi-industry effort from its onset has been a tremendous opportunity for me and my team. We have always felt valued by the Conflict-free Smelter Initiative and the auditees. Despite our positive experience, I do see some trends in the ethical or responsible sourcing auditing industry that I would like to share with you.

Independent third-party audits are essential for safeguarding the authenticity of, and credible claims made by, processing facilities, consumer brands and global initiatives. Still, an audit—and the overarching audit program—are only as reputable and effective as the individuals who conduct the actual audits. While auditor training and accrediting programs help to ensure a basic level of competence, these efforts are not sufficient on their own.  If we want auditors that provide true worth, we need to value the auditors themselves. In addition, multiple accreditation requirements, which are meant to improve the quality of the audits, can sometimes increase the burden on auditors, some of whom do not reap any value besides “ticking the accreditation box.”

At a time when supply chain initiatives that rely heavily on audits to effect and measure change are proliferating, I feel that auditors may soon become the weakest link in our efforts to meet our goals of improving conditions down complex supply chains. Every program that relies on audits will need to be aware of the threats it faces if steps aren’t taken to proactively support the auditors themselves. Here are a few conditions I have seen, which have contributed to my perspective (note that these are not solely or directly attributed to my work under CFSP).

Auditing can be dangerous
As an auditor, I have traveled up to 30 hours (one way) to far-flung industrial cities where my team and I were exposed to physical, chemical and, at times, radioactive hazards at the facility. In addition to experiencing long journeys and exposure to risky conditions, auditors are often in the difficult position of informing facility management that they do not comply with the subject standard. This task can escalate to uncomfortable or disrespectful accusations, refusals to participate in the audit, or attempts at bribery. In extreme—but not unheard of—situations, the auditors’ safety can be threatened by the auditee (for example, the people being audited might keep the auditors locked up in the facility).

Commoditization by large consultancies
Over the past several years, large consultancy firms have expanded their services to include ethical or environmental auditing. In my opinion, they are not always placing value on the quality or—most importantly—the outcome of the audit. That is to say, they are turning audits and auditors into indistinguishable commodities, with an increasing focus on price point and volume as their most important performance indicator. 

Some firms have openly shared that while they are not seeking to profit (and may even take a loss) by performing these audits, they instead view the audits as entry points into processing facilities or global brands, which can lead to opportunities to provide more profitable consultancy services. In addition, some large firms have full-time employees who must be billable, even at a loss, which leads them to conduct audits unprofitably. When larger firms charge less than their actual cost, the service itself is devalued, and clients expect lower prices for all audits. As a result, large firms are pushing out boutique firms that cannot afford to operate at a loss.

In addition, large firms often rely on untrained and inexperienced employees to conduct several audits a year—at times with insufficient direction or support from the home office. These auditors often know very little about the industry, processes and, to some extent, the audit protocols. Their lack of knowledge and experience will affect the quality of the audit.

Demanding more for less
As large firms drive audit costs down, I hear that brands and NGOs alike are expecting further reductions in audit costs. Many consultancy / audit firms and clients now assume that auditors do not get paid for travel time (even at a reduced daily rate). At the same time, these firms are driving down daily rates, increasing reporting complexity, and requiring additional accreditations (such as ISO), which do little to guarantee the quality of an auditor.

To expect auditors to meet increased demands and travel without appropriate compensation contradicts the very mission our industry efforts aim to achieve—to treat all workers with dignity!

Losing quality auditors
Many of the large and boutique audit firms draw from the same international pool of independent auditors. As a result, one auditor may conduct audits under one initiative for multiple audit firms (if allowed by conflicting interests). I have been speaking with several career auditors with decades of experience who are seeking alternative careers because of the direction in which auditing is heading. They no longer feel that making the sacrifices required by their roles as auditors makes sense or, even more importantly to most of them, creates enough value or impact to justify the personal costs (e.g. exhausting travel, time away from families). They feel that the audits—with the sterilization and standardization of protocols and checklist reports—are becoming an “exercise to tick the box” without leading to change.

Building an effective army of auditors
As I expressed in my last newsletter, I hope to see a shift away from initiatives that rely on “policing” audits, which focus on results or specific conditions in a facility, towards “enabling and empowering” models that include efforts to help facilities develop effective policies and supporting programs. We should take the opportunity to learn from experienced auditors who have years of experience interfacing directly with facility management and workers as we develop more improved, effective and empowering audit programs.

We must make every effort to maintain the effectiveness of audit programs as we increasingly rely on audits to encourage supply chain actors to implement more responsible sourcing practices. We should start with respecting, motivating and fairly compensating quality auditors.

Many auditors love—and believe in—what they do. We need to show them that we value their dedication and hard work, and willingness to take risks associated with their jobs.
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 A historic and unprecedented attempt to limit greenhouse gas emissions

11/15/2016

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On October 6, 2016, the first climate-change pact to set global limits on a specific industry—the aviation industry—was signed in Montreal. This pact was initiated to control future global greenhouse gas (GHG) emissions from international flights to those levels that will be reached in the period from 2019–2020. The International Civil Aviation Organization (ICAO) facilitated the historic agreement, called Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), to implement a market-based measure to stabilize emissions with carbon neutral growth. According to the ICAO’s website, 66 countries had signed on as of October 13th.

CORSIA will start with a voluntary period (from 2021-2026). Beginning in 2027, adopting the policy will become mandatory for all ICAO member countries whose airlines fly international flights. The mandatory policy will exclude some less developed countries, small island states and any country with a small amount of international air traffic (currently proposed at less than 0.5 percent of global traffic). 
 
This pact is an important development that complements the recent Paris Accord. The Paris Accord did not include international flights, which account for about 60 percent of aviation, in part due to complexities related to allocating and accounting for emissions from flights that are “shared” between different countries.

CORSIA will be implemented by countries (States) through the development of States Action Plans that include planned actions as well as progress monitoring and reporting to address carbon dioxide (CO2) emissions from international civil aviation to ICAO. CORSIA addresses the need to allocate the total amount of CO2 emissions to be offset in a given year among individual aircraft operators participating in the scheme. If the total emissions of flights rise, airlines that fail to meet GHG reduction goals will have to “offset” the emissions above their goal by purchasing carbon-reduction credits (also referred to as carbon offsets), such as those from renewable energy projects, to offset their emissions.

While the aviation industry considers the agreement “historic,” others criticize the aviation industry for a lack of efforts to date and for the delayed mandatory phase of CORSIA. Critics also raise concerns that CORSIA would allow the sector to increase its emissions by allowing airlines to purchase carbon offsets if they fail to achieve the required reductions in emissions in their operations.

Carbon offsets have been criticized for a variety of issues, including a lack of additionality--the amount of carbon dioxide captured, stored or prevented from reaching the atmosphere compared to what would have happened without the project.
 
In addition, analysis done by the International Council for Clean Transportation shows that the terms of CORSIA will offset only about three-quarters of the growth in emissions from international aviation above 2020 levels.[1] However, no practical, zero-carbon alternatives to conventional airplanes that can be produced at scale exist. Airlines may require carbon offsets to help them achieve overall reduction in GHG emissions.
 
A little background on my experiences in the industry
I have been a sustainability advisor to Virgin America since their inception. My work for Virgin has included reporting on GHG emissions via The Climate Registry, researching opportunities related to biofuels and producing their most recent Sustainability Report.  My experience with the airline industry has given me some insights that I’d like to share to balance out some of the criticism that this agreement is receiving.

Airlines have it tough. The industry is a poster child for climate change woes, even though they account for just two percent of all GHG emissions. Airlines will need to rely on liquid fuel for the foreseeable future, as next generation (GHG beneficial) biofuels struggle to become commercially viable  (see my February 2, 2016 blog). Efficiencies are difficult to obtain without replacing entire fleets with new (and highly capital intensive) airplanes. Use of navigational technology requires overhauls of national navigation infrastructure systems to operate. In addition, safety is paramount and cannot be compromised when pursuing new technologies and materials.

The aviation industry is primed for an industry-level approach to controlling emissions because the players rely largely on the same equipment providers (such as airplane and engine manufactures), infrastructure (air traffic control and navigation systems, for example), and service providers (including airports and catering). They also face a common challenge of bringing low carbon, next generation biofuels to commercial viability.

I believe that the industry can address these challenges to reduce their GHG emissions and contribute to additional reductions in some of the following ways:

More efficient planes—Since airplanes will continue to require liquid fuel, airlines must reduce fuel consumption to decrease GHG emissions. Any solution to greater efficiency in aircraft will likely include lighter materials, more efficient engines or even innovative design (super-thin wings held up by trusses, for example).

More efficient flight paths—Airlines can equip their flight teams with GPS and Wi-Fi technologies that will allow them to adjust flight paths more efficiently in real time to avoid undesirable weather conditions (such as turbulence and headwinds) and take advantage of tailwinds or other beneficial conditions. While Virgin America has already adopted this new technology, improvements to air traffic management systems must be done on a national basis to optimize flight paths.

More carbon efficient biofuels—While next generation biofuels hold real promise for air travel, they are not yet commercially available today. New technologies, or in this case biofuels, often require upfront capital investments such as equipment or R&D, and may be too expensive to compete with existing forms of energy (such as jet fuel) until they reach a scale that optimizes cost efficiencies. This state is often referred to as the “valley of death.” Biofuels will become commercially viable alternatives to jet fuel once demand increases enough that the fledgling biofuels companies can appeal to investors or otherwise obtain financing necessary to produce them on a large scale. 

I think it’s worth noting that incentives that helped other industries to scale up and reach price parity may also be effective here. For example, a 30 percent U.S. federal tax credit is available for residential solar systems and businesses and has contributed to the recent growth in solar energy by making production costs more affordable. This cost savings contributed to solar prices dropping by more than 80 percent since 2008.

Less weight onboard—Airlines have an obligation to provide food, beverages and entertainment to their passengers. The weight of all of these supplies (along with baggage and passengers) has an impact on fuel consumption. Airlines can optimize catering selections to more precisely meet demands, while also making efforts to reduce any excess weight from operational manuals and customer magazines.

Given that commercial airlines will continue to produce GHG emissions, those of us who travel by air should do our part to support airlines that are proactively reducing their emissions. I am pleased to see the industry take a forward-thinking, industry-led and global approach to lessening their impact on climate change. I hope that the airlines will continue to address industry-wide challenges, and that other major industries will step up and follow their lead.

[1] http://www.usnews.com/news/business/articles/2016-10-06/un-agreement-reached-on-aircraft-climate-change-emissions
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October 27th, 2016

10/27/2016

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The Organization for Economic Co-Operation and Development (OECD) has developed a Five-Step Risk-Based Due Diligence Framework (Five-Step Framework), which is increasingly becoming central to all initiatives aimed at keeping conflict minerals out of supply chains, and could become the basis of many other initiatives aimed at promoting responsible sourcing practices. The framework includes the following steps:
  1. Establish strong company management systems.
  2. Identify and assess risk in the supply chain.
  3. Design and implement a strategy to respond to identified risks.
  4. Carry out an independent third-party audit of supply chain due diligence at identified points in the supply chain.
  5. Report on supply chain due diligence.

The Five-Step Framework should be viewed in the context of a process to better understand your supply chain and the source of raw materials, and better identify and address risks, rather than as an end result. Demonstrating a due diligence process and compliance with applicable standards is equally as important as stating the elements of the process.

With these basic steps and overall principles serving as a foundation for a generic risk-based due diligence program, the OECD establishes supplemental guidance for individual sectors, such as minerals, and apparel and footwear.

A risk-based approach focuses resources more efficiently on the areas needing more attention. In the case of conflict minerals, the Conflict Free Smelter Initiative (CFSI) has identified areas of high risk and due diligence expectations, including which documents should be obtained for each transaction (purchase orders, transportation documents), along with additional requirements for transactions originating in high risk regions (mine license, export license, chain-of-custody, etc.). These requirements place the onus on the processor to be accountable for all material that they purchase and/or process.

Under both the Five-Step Framework and the CFSI, all processors - regardless of whether or not they source from high-risk regions - would have to meet minimum standards for all policies and supporting procedures, including management systems, due diligence (risk assessment, supplier engagement, document requirements), and public reporting.

Establishing a common set of due diligence standards, such as the Five-Step Framework, across an industry or multiple industries would minimize confusion among various stakeholders and increase efficiencies. It could eventually become a global standard for due diligence programs and evidence disclosures in various supply chains - even with the need to address unique conditions for particular industries (agriculture versus apparel manufacturing, for example). Additional benefits could likely include improved supplier-buyer relationships and increased pressure on governments in high-risk regions to address illegal activities within their borders, leading to easier access to markets.

What excites me the most about the Five-Step Framework is that it provides clear and consistent guidance on what is expected of supply chain actors. The initial processors and upstream manufacturers are often in the best position to drive positive change further up the supply chain through their relationships-and direct influence-with suppliers. They can truly become our engine of change if directed and supported to do so. If buyers clearly communicate what is required of processors to sell their products, most processors will do their best to meet these expectations.

With this said, establishing expectations and providing guidance is only the first step. We will need to help these actors establish and implement effective due diligence programs through trainings, outreach and assessment (audits may serve this purpose). Here are some of the areas where supply chain actors could use support in gaining a better understanding:
  • Developing protocols and sourcing policies
  • Conducting sufficient due diligence of their suppliers
  • Communicating expectations to suppliers, including encouraging participation in an industry initiative (the CFSI, for example) when appropriate
  • Ensuring that management systems are optimized
  • Collecting, reviewing and retaining appropriate evidence to validate origins

The actors with truly effective due diligence programs - programs that include supporting sourcing policies, communicating expectations to suppliers and conducting due diligence of these suppliers - can, in turn, help their suppliers to improve their own due diligence programs and practices, thereby spreading the positive change up and across entire supply chains.

I hope all industries, initiatives, multinational enterprises, and individual supply chain actors will embrace the OECD's Five-Step Framework and begin implementing appropriate due diligence of material they purchase. Go here to learn more about OECD's Five-Step Framework and other guidance for multinational enterprises.
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Understanding Three Basic Segments of Commodity Supply Chains

10/27/2016

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I have spent some time researching and analyzing the global fisheries industry as well as working with other commodities with the aim of improving the conditions under which raw material are produced. Understanding how commodity supply chains are structured will be helpful when designing a system that stretches from raw materials to end product. I believe the fisheries supply chain (with a focus on wild fisheries) is a good example to illustrate this point and to provide a model to apply to this or other industries.

There are three distinct segments that exist in the wild fisheries supply chain:
  1. Production, including fishing vessels, traders and consolidators
  2. Initial processing (and mixing), where the strongest control points exist and traceability to origin can still be validated, warranting specific attention
  3. Manufacturing-to-retail, integrating existing initiatives or sourcing models

The fisheries supply chain is complex and vast, and currently includes fish caught through illegal, unreported, and unregulated fishing (IUU) - fishing conducted in violation of national laws or internationally agreed upon conservation efforts - or other illegal activities (forced labor, human trafficking) that take place at the point of production (at sea). Developing and implementing an effective global initiative to combat IUU and other human rights violations will be a massive undertaking. Such an initiative can be kept manageable and effective if it aligns separate, yet synergistic, efforts across these three separate segments of the supply chain.

I propose the following general outline of elements of a global initiative to address such illegal activities for each segment of the supply chain:

1) Production segment
We need establish standards and criteria that assure raw material was produced legally. We also need to focus on educating producers about what illegal activities they should avoid, why avoiding those practices is important (including possible market access to responsible brands), and how they can implement processes to avoid such illegal activities. 
 
The initiative should identify a means of assessing and validating materials produced under legal conditions (government permits and licenses, export documentation, etc.).

Other external stakeholders, such as non-government organizations (NGOs) and specialized businesses, may be required to take some of the following actions: develop and implement chain of custody systems; conduct audits to validate legal facilities or fishing vessels at production; or provide a program to educate and train producers on responsible solutions, for example.
 
2) Initial processors
Initial processors should be a focal point of any initiative because they have more direct relationships with raw material suppliers and are the main actors at the point where raw material origin is often lost as material is mixed and transformed into a manufacture-grade product.

Processing facilities should establish policies, procedures and supporting management systems as well as conduct proper and higher quality due diligence - and drive these efforts up their supply chains. Most likely, processors will take policy changes more seriously if they are not allowed to receive any suspect or illegal material into their facilities - as opposed to allowing them to segregate validated legal material from "other material" that is not inspected - and if non-compliance status puts their sales at risk (if the majority of their buyers require compliance status, for example).

Supply chain actors will likely require training and support as they develop and conduct the initial implementation of new policies, protocols and management system processes. Criteria and expectations should be clearly articulated, easy to understand, and achievable.

An initiative should assess initial processors' policies, management systems and due diligence programs, and make results publicly available.

3) Manufacturing-to-retail segment
Brands are in the best position to encourage their suppliers to participate and to ensure that they follow through on participating in a given initiative, including providing disclosures for their supply base and material origin (with some protections for proprietary data) through their existing relationships with these suppliers.

Brands should work with their suppliers to conduct their own due diligence along the manufacturing-to-retail segment of the supply chain, linking with the global initiative on the production and processing stages of the supply chain. Ideally, the fisheries industry - or other commodities - can come together to develop one consistent system (or questionnaire) to address this segment of the supply chain to minimize the impact to supply chain actors and avoid "survey fatigue." Periodic audits of each segment system from the initial processor to retailer should be conducted.

If industry players succeed in developing and implementing efforts for each of these three distinct segments, the various stakeholders will then be able to focus on what is within their realm of influence and align with the function they play in the overall industry. Bringing the separate, yet synergistic, efforts of each segment together under one overarching initiative can then help to spread these efforts - and a common set of expectations - across the entire industry. Once this occurs, real, scaleable and sustainable change is possible.
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Mission Innovation & Breakthrough Energy Coalition: A Clean Energy Public-Private Partnership

2/1/2016

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As I mentioned in the above article, I am encouraged by the recognition of climate change and the need for governments to take action to address it through the Paris Climate Accord reached at the end of 2015. Government actions, such as establishing energy efficiency standards or related mandates, and providing temporary incentives and funding of research and development (R&D), are essential to bringing new, low-carbon technologies to scale.
Renewable energy and efficient technologies often require upfront capital investments such as equipment or R&D, and may be too expensive to compete with existing forms of energy until they reach a scale that optimizes cost efficiencies. This state is often referred to as the “valley of death.” Well-designed incentives or regulations have helped these industries overcome this valley of death and achieve price parity (or better in some cases) with conventional, carbon-intensive sources of energy such as coal and fossil fuels.  

With scale and technology advances, solar prices have dropped by more than 80 percent, wind turbines by 20–40 percent, and LED bulbs (that are 80–85 percent more energy efficient than traditional incandescent bulbs) by 85 percent since 2008. These drops have been made possible by targeted, short-term incentives. For example, a U.S. federal tax credit of 30 percent that’s available for residential solar systems and businesses until it expires on December 31, 2016 has contributed to the recent growth in solar energy by making production costs more affordable.

Unfortunately, these advances, and the limited government incentives available thus far, have not been enough to accelerate the transition to a low-carbon economy at the pace we require. We are at a point where we need new technologies that can be brought to scale in a relatively short time period.

To address the immediate need for new technologies, 20 countries representing 80 percent of global clean energy R&D budgets have committed to doubling their R&D investments over the next five years through Mission Innovation, a global initiative that was launched in Paris last month.

The independent Breakthrough Energy Coalition (the Coalition) is even more innovative and tremendously helpful. The Coalition is a group of 28 influential investors (including Bill Gates, George Soros, Sir Richard Branson, and Ratan Tata) who are committed to providing early stage capital for promising energy solutions to enable them to reach a sustainable scale.

The Coalition will help innovators working on new technologies in the countries that sign up for Mission Innovation to overcome the valley of death. The success of these investments should be high, given the Coalition’s expertise in long-term investments and innovation. The priorities set by the Coalition for their investment strategies look promising:
  • Invest early when risks and returns prevent traditional commercial capital investments
  • Invest broadly across the following five sectors:
    1. Electricity generation and storage
    2. Transportation
    3. Industrial use
    4. Agriculture
    5. Energy system efficiency
  • Invest boldly in outliers both in developing new technologies and enabling current technologies to be significantly more efficient, scalable, or cheaper
  • Invest wisely with input from experts from leading public and private institutions
  • Invest together with countries that have committed to increased R&D investments through Mission Innovation
I applaud this pragmatic and bold approach to a new form of public-private partnership. Increased governmental funding in R&D through Mission Innovation will allow new technologies to be identified. The complementary early stage investments by private investors will help the most promising technologies come to market and upscale. Neither of these initiatives could hold the potential for significant change without the support of the other.  I look forward to seeing the results of this powerful partnership.
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