Brand Rankings On China Supply Chain Action

By Kate Logan, Shan Shan Helen Ding 17 November, 2017

IPE's Logan & Ding share the 4th CITI evaluation results

Since 2014, the Institute of Public & Environmental Affairs (IPE), a Beijing-based environmental NGO, has conducted an annual assessment of brands’ environmental management of their supply chains in China using the Corporate Information Transparency Index (CITI), a quantitative evaluation tool jointly developed by IPE and the Natural Resources Defense Council (NRDC). The CITI bases its dynamic assessment on public data, including government compliance data, online monitoring data, confirmed public complaint records, self-reporting and third-party environmental audits.¹ Brands are added to the rankings after having been contacted about environmental violation issues at suspected suppliers.

The 2017 CITI evaluation examines the practices of 267 brands that source from suppliers in mainland China

The 2017 CITI evaluation examines the practices of 267 brands that source from suppliers in mainland China. It also extends to five new industries – pharmaceuticals, industrial chemicals, shared bicycles, real estate and dairy products – increasing the total number of assessed industries to 14. The evaluation criteria apply a progressive step-by-step structure across five main evaluation areas, thus not only serving as a tool to benchmark brands’ supply chain environmental performance, but also providing a road map that guides brands on how to green their supply chains.

Apple continues to lead the way for green supply chains

The top-ten ranking brands in this round of the evaluation are Apple, Dell, Levi’s, Esquel, Adidas, Marks & Spencer, Foxconn, Gap, Samsung and Puma, demonstrating that the environmental management of IT and textile industry brands’ supply chains in China has reached a level of leadership. Apple stands at the top with 82.5 points (on a 100-point scale), with Dell close behind as the only other brand to surpass 80 points in this year’s annual evaluation. Levi’s ranks third with a score of 76.5 points.

 The environmental management of IT & textile industry brands’ supply chains in China has reached a level of leadership…

… only two brands – Apple & Dell surpassed 80 points in this year’s annual evaluation

59 brands from the textiles, IT & other industries motivated suppliers to engage with environ groups about their violations

During this year’s evaluation period, 59 brands from the textiles, leather, IT, diversified, paper, food & beverage, household & personal care, shared bicycles and automobile industries motivated suppliers to communicate with environmental groups about their environmental violation issues. A total of 4,270 suppliers communicated with environmental groups from 2006 through the end of September 2017.

Among these companies, 37 brands motivated a total of 1,297 suppliers to undergo Green Choice Alliance (GCA) audits to verify the effectiveness of corrective actions and publicly disclose their audit reports in order to accept societal supervision toward their rectifications.

Huawei continues to lead Chinese brands, with its performance comparable to top international brands

Huawei continues to be the forerunner among brands from mainland China, with its performance comparable to that of leading international brands. With the real estate industry incorporated into the evaluation for the first time this year, Landsea Green Real Estate also enters into the ranks of the “Top 30” brands as a result of its upstream extension of supply chain environmental management to the iron and steel, cement, and glass industries.

Central environmental inspections set tone for more stringent supply chain management

In 2016, the Chinese government launched a series of central environmental inspections in order to tackle China’s severe air, water and soil pollution. Up through September 2017, these inspections had already extended to 31 provinces and equivalent administrative zones across China. They have not only investigated and accordingly issued tens of thousands of environmental violations, but have also put pressure on local officials, finally beginning to tackle issues of local protectionism toward polluting enterprises.
Compared to limited fines typically levied in the past, punishments issued to violating enterprises over the course of inspections – such as the frequent ceasing of production for improvements and shut down orders – are also solving long-term issues with the low cost of violations.

Schaeffler CEO’s claim that a local cease production order would lead to losses of RMB300bn sparked concern

The Schaeffler supply shortage incident of September 2017, in which an order for a German-owned automobile parts factory to cease production prompted the CEO to appeal via letter to the local government, embodied the impact of strengthened enforcement on global supply chains. The CEO’s claim that the order would lead to total losses of RMB300 billion sparked concern from a wide range of stakeholders, including many international companies that have long turned a blind eye to supply chain pollution issues.

Brands extend management to wastewater treatment & high impact supply chain segments

In response to the new norm of strengthened supervision, more brands have begun to extend supply chain management upstream as means of controlling potential business risks. Taking the IT industry as an example, during the recent round of central environmental inspections, 18 centralized wastewater treatment plants in the Shanghai area were found to have issues with heavy metals in wastewater exceeding legal standards. Facing severe consequences, the wastewater treatment facilities declared that the “culprit” is actually enterprises that discharge effluent into pipes without permits or whose effluent exceeds pre-treatment standards. As a result, two large-scale electronics plants will be forced to shut down.
Supply chain operational risks resulting from similar initiatives have prompted more brands to pay attention to CITI Index indicator 2.3, which focuses on issues with centralized wastewater treatment. A total of 18 brands have mapped their suppliers’ path of wastewater discharge using questionnaires, pollutant release and transfer (PRTR) data and other means. Among them, seven brands – Apple, Dell, Foxconn, Levi’s, Adidas, H&M and Ericsson – incorporated their suppliers’ centralized wastewater treatment facilities into the scope of environmental compliance screenings. These brands use e-mails, letters and other methods to inform violating wastewater treatment facilities of their issues. Ericsson and Levi’s were the first in their respective industries to each push a centralized wastewater treatment facility with violation records to accept a GCA third-party audit.

IT brands have extended supply chain supervision to treatment of hazardous waste…

… textile brands have likewise begun to pay attention to the production & processing of chemical dyestuffs & auxiliaries

Similarly, in the wake of increased supervision toward hazardous chemicals, IT industry brands including Apple, Dell, Samsung, Panasonic, and Huawei have extended supply chain environmental risk management to treatment of hazardous waste. First-ranking Apple has taken the lead the lead by incorporating metals raw materials production enterprises into its supplier environmental management scope, prompting an aluminum supplier to issue a public explanation about its violation issues and related corrective measures.
Textile brands have likewise begun to pay attention to the environmental burden posed by the production and processing of chemical dyestuffs and auxiliaries. Companies such as Esquel have motivated suppliers with violations to issue public explanations about their supervision records and undergo GCA audits. Levi’s pushed its key suppliers to establish mechanisms for upstream supply chain environmental risk screening, including such supply chain segments as cloth production, washing and centralized wastewater treatment.

Big Data holds potential for confronting capacity bottlenecks

Apart from a lack of awareness, capacity shortages also severely impede brands and suppliers from going green. Massive numbers of suppliers, high environmental impact segments located upstream, complicated local and industry standards, and large amounts of scattered supervision data all force large multinational corporations to confront challenges. For mainland Chinese brands and suppliers that lack the experience of multinationals, the capacity bottleneck is even more prominent across areas from management systems to resources and personnel investments.
For instance, looking at the shared bicycles industry, the two current leaders – Mobike and Ofo – have each only pushed one supplier to communicate with environmental groups about violation record issues, despite repeated outreach efforts by NGOs. But with the industry’s massive production output and subsequent anticipated scrap volume, surface-level efforts will be far from able to address the industry’s supply chain environmental impacts.

In 2017, the cumulative number of records in IPE’s Blue Map Database has already exceeded 800,00

The good news is that environmental information disclosure provides a basis for large-scale expansion toward big data as a solution. The central government environmental inspections, as well as other government initiatives such as the extensive review of construction project legal compliance, have exposed the violation issues of large number of enterprises for the first time. The number of government violation records collected by IPE’s Blue Map Database has grown from not even 2,000 records in 2006 to adding around 70,000 new records in 2016; in 2017, the cumulative number of records in the database has already exceeded 800,000.

To help brands confront capacity shortages, IPE is launching a new internet-based supply chain environmental management tool

China’s historical progress in environmental information disclosure will create strong support for building a data-based green supply chain management system. To help brands confront capacity shortages, IPE is launching a new internet-based supply chain environmental management tool built on IPE’s consolidation of environmental data resources – providing internet and mobile users with a supply chain management platform based on the Blue Map Database. The tool will capitalize on instantaneous supervision record notifications, a supply chain management platform for brands, and synchronized three-party alerts for brands, suppliers and NGOs to streamline management and provide impetus for suppliers to take full responsibility for their environmental impacts.

¹ NRDC does not participate in the scoring process

Further Reading

• Creating Water Abundance From Scarcity – Water stewardship strategies are no longer enough to address water scarcity & quality issues so what can corporates do? Water Foundry’s CEO William Sarni shares his thoughts from innovative approaches to new business models to competitions
• Can China Clean Up Its Act? – China faces unprecedented air, water & soil pollution after decades of growth. With its contaminated land area bigger than the United Kingdom, Asit K Biswas & Cecilia Tortajada look at what China’s policymakers are doing to change this
• What ‘Xi’s Thought’ Means For Water – One key message from Xi Jinping at the 19th National Congress was harmony between environment & economic growth, surely this bodes well for water? China Water Risk’s Feng Hu reviews
• Green Development For A Beautiful China – The Minister of Environmental Protection Ganjie Li outlined the MEP’s achievements and future plans at the 19th People’s Congress. What are the key takeaways? China Water Risk’s Yuanchao Xu reviews

• Brand Rankings Through A Chinese Lens – See how global and local brands rank across 8 sectors in terms of their supply chain’s environmental impact in this review of the new Corporate Information Transparency Index (CITI) report by IPE & NRDC
• Brands To Buy Over Christmas? – CWR’s McGregor reviews the top and laggard brands for green supply chains in China according to round two of the Corporate Information Transparency Index report. See which brands made which list
• Risks Shifting Beyond the Wall – In China’s printing & dyeing sector centralised wastewater treatment brings centralised pollution, Ma Yingying of the Institute of Environment & Public Affairs tells China Water Risk. Lax supervision & vague responsibilities between factories & treatment facilities leave brands exposed
• Electronic Brands: Sustainable Or Not? – The new CLSA U® report cautions that current brand strategies only focus on short-term profits despite looming risks. Is this sustainable? China Water Risk’s Woody Chan looks at what leaders like Apple & Samsung are doing across greening supply chains, recycling and more