Dealing with uncooperative suppliers on sustainability. Can you find common ground and reach a compromise?

Companies need a supplier code of conduct to mitigate risk of third-party suppliers who go against company values or worse, regulations and societial values in which that company operates in. With the supplier code of conduct, all suppliers must sign it in order to continue doing business with you. This might seem like a challenge but the business risk and potential for reputational loss is paramount. Take a lesson from Nike in the 90s who was ousted for having suppliers using child labour as young as 4 and 5 years old.

Dealing with uncooperative suppliers on sustainability requires finding common ground and reaching a compromise. Start by understanding their concerns and constraints. Communicate the long-term benefits of sustainable practices, such as cost savings and improved market reputation. Highlight any regulatory pressures or customer demands for sustainability that could affect their business. Offer incentives or support, like shared cost initiatives or training, to ease their transition. Propose phased implementation to allow gradual adaptation. Focus on building a partnership rather than imposing demands. By addressing their needs and demonstrating mutual benefits, you can work towards a compromise that advances sustainability goals.

As a proponent of sustainable supply chains, here's my 10-cent view. When it comes to handling suppliers who don't cooperate on sustainability, it's important to take a strategic and collaborative approach. Starting by understanding their concerns and the obstacles they face when it comes to sustainability. Emphasize the long-term benefits of cost savings, regulatory compliance, and improved reputation. Provide training or financial incentives to aid the transition. Sustainability can strengthen partnerships and market advantages, so emphasize mutual benefits. Keep communication open, and set incremental goals to align their practices with your sustainability goals. This approach promotes compromise and sustainability progress.

Finding common ground with uncooperative suppliers on sustainability can be challenging, but it’s possible with the right approach. Start by understanding their concerns and educating them on the benefits of sustainable practices. Their might be some handholding required from time to time. Highlight mutual benefits, offer support, and set realistic goals. Regular communication and flexibility in negotiations can help reach a compromise. Working together, we can achieve our sustainability goals.

As a customer, you can take a firm stance towards your principles and goals as a business. In case a supplier is resisting, it is always recommended to have an open conversation and educational session on why corporate sustainability is important. Definitely include possible ways on how to mitigate an adverse impact for a supplier. But after such exercise, if a supplier remains resistant, conversations would also be clear on alternative options for you as a company (if any) and you could indicate the legal framework on how that would work (be prepared from a legal perspective). The latter is of course depending on the type of business, relationship with a supplier and mitigation to reduce adverse impact. Collaboration is key.

Focus on education is not only useful as a negotiation tactic but also essential as a form of let's call it "corporate just transition." In my opinion, it is critical for corporations to invest in the education of their suppliers if they suppliers are small and medium-sized enterprises (SMEs). For example, if a large company needs to comply and measure Scope 3 while works with many smaller suppliers (often found in smaller markets in retail/ agriculture/ hospitality groups), it is actually demonstration of sustainable practice in both Governance and Social pillars to educate and assist its suppliers as they are not subject to mandatory ESG reporting, may lack the knowledge or capacity to meet the required standards.

Education should be combined with a competitive analysis. It will be of important to you as their customer also succeed, i.e. in order to keep doing business with them. A form of education and explanation on why ESG and sustainability measures would need to include (1) an overview of specific legal industry relevant requirements, (2) the requirements for you as a company, (3) requirements for suppliers and (4) commercial effect of non-compliance. Furthermore, beside education, I would definitely recommend looking into the legal requirements of the agreement signed with the supplier and if necessary set a hard deadline to comply or potentially terminate the agreement (if commercially possible - also see Google Renewable Energy Addendum).

In practice, aligning sustainability goals with suppliers' capabilities involves highlighting long-term benefits like cost savings and improved brand reputation. Creating a collaborative environment through joint workshops and regular check-ins fosters a sense of ownership and commitment. Offering resources, such as access to sustainability experts and financial incentives, eases the transition. Demonstrating partnership and maintaining open communication builds trust, making even reluctant suppliers more open to gradual sustainable changes.

In any agreement to be signed with suppliers a company should include specific language related to ESG and sustainability and a possible addendum. A phased plan in negotiations should also be considered in the light of upcoming regulation and legal requirements. It furthermore, will be important to include specific milestones and incentives for all parties in the supply chain.

Using your influence effectively involves demonstrating the mutual benefits of sustainable practices. Emphasise potential cost savings, enhanced brand reputation, and future regulatory compliance. Foster a partnership mindset through joint initiatives and regular discussions. Providing resources and support makes adopting sustainable practices more feasible and appealing to suppliers, increasing their receptiveness to change!

Studies show that 70% of suppliers are open to sustainability initiatives if requested by key clients. Use this influence judiciously to encourage change, emphasizing the long-term benefits of sustainability for both parties. Companies that collaborate with their suppliers on sustainability report a 30% improvement in efficiency and a 20% reduction in costs. Remember that collaboration and partnership are more effective than ultimatums, fostering a cooperative approach to sustainability.

Your ability to influence suppliers on sustainability is not just about the individual relationship between you and the supplier. For example, you may work in an industry where you and your competitors draw upon the same suppliers. In such a situation, it would make sense to consider forming an initiative where you work together to encourage your suppliers to engage in more sustainable practices. Or you may be a large business where your supply chain is so vast and fragmented that it is very hard to engage individual suppliers. In such a situation, it would make sense to consider an initiative that seeks to move the whole market rather than specific suppliers.