I’m delighted to have been a guest on the ‘Five Lifes to Fifty’ podcast with Jim Fava, Neil D’Souza, and Shelley Metcalfe. We had a great conversation around the importance of leverage in international supply chains, the GEC’s role in driving both product and corporate level ESG evolution, the future of voluntary standards, and more.

Listen at the links below.

Five Lifes to Fifty: https://five-lifes-to-fifty.castos.com/episodes/episode-11-global-electronic-council-ceo-bob-mitchell-on-understanding-supply-chain-leverage-and-market-credible-ecolabels

iTunes: https://podcasts.apple.com/gb/podcast/episode-11-global-electronics-council-ceo-bob-mitchell/id1687638970?i=1000662766099

Spotify: https://open.spotify.com/episode/1Qm04mBfmCGsjTwI6AxKIA?si=24cceaed062e4a6d

Transcript:

Shelley – With your deep experience with supply chain, I thought we could start with how product sustainability changes in a company that has a fully outsourced supply chain compared to one that might have a more vertically integrated supply chain.

• Bob – That’s a great question. The supply chains of multinational companies has evolved quite dramatically over the last few decades. Ones that were more vertically integrated and the manufacturing owned by, especially in the electronics field, by companies and brands that we know quite well in the late nineties into the early aughts [2000-2010], was outsourced both from an efficiency perspective, cost perspective, and that really led to a complete shift in terms of the leverage that companies have. [00:54]

• That’s been, I think, further changed by the supplier community beginning to evolve their capabilities as well, going from pure contract manufacturers where they were provided designs by the brands, into moving up that ladder from contract manufacturers into original design manufacturers. So, they actually own the designs in many cases and engage with the brands after the fact. And so that began to change both that leverage within the supply chain, but also very key components of business relationships, like who owns the intellectual property. It’s completely changed how companies engage when it comes to specific standards, but in this case, social environmental responsibility standards specifically. [01:29]

• And that really begins to affect this space in a couple of ways. One is when it comes to integrating social and environmental standards into product design and manufacturing, as well as the complete value chain. So, these specific standards are very complex and, in some cases, not only begin to affect the price of materials and logistics and shipping, things like that, but also the behavior and policies that a company might have in the supply chain. So that’s one. And I think we’ll talk a bit more about that as we get into the impact of regulations and voluntary standards as well. But the second area is really around when something runs afoul of social environmental responsibility standards, whether it be environmental specifically, or we get into, for instance, human rights within international supply chains. [02:18]

• And how do you remediate those adverse impacts? The UN Guiding Principles on Business and Human Rights actually has a ladder in terms of how you begin to address that, which now with some of the corporate due diligence requirements that are coming out of the EU, is really beginning to move its way over to the environmental space as well. Where you take a look at, ‘Did you cause that adverse impact? Did you contribute to it or are you directly linked to it?’, and you have different responsibilities. This concept of leverage comes in when you’re directly linked to one of those adverse impacts. So again, whether it’s environmental or human rights, you have the responsibility to apply what leverage you have to be able to remediate that adverse impact, and if you can’t, if your leverage is not strong enough, then it says that you should consider exiting that business relationship. [03:17]

• That is important when it comes again to running complex international supply chains, especially when you’re applying voluntary standards, whether it be specific to that social space or when you get into dictating environmental requirements as well. Or if you have a vertically integrated supply chain or a very close relationship where your company has a large amount of the spend with a specific supplier, then you have a lot of leverage and you can change things. If you don’t, for instance with a commodity supplier or where that supplier might have more control because they, for instance, created the design, have the intellectual property, something to that nature, then you have less leverage. And that’s really changed the landscape, I’ll say. And the power structure within international supply chains to be able to address these two types of these two points of leverage. [04:10]

Jim – From your experience, has the differences and the frequency of your first leverage versus the second leverage changed over time? I’m curious about it I’m a procurement officer, which ones do I have to pay more attention to? [05:08]

• Bob – Well, they’ve gone at different paces. So, integrating social environmental standards into product design specifically had a head start. And a lot of that gets into regulation and the demand from the purchasing community specifically. So, there was a greater awareness of the environmental impacts related to the materials in a product, its energy efficiency, its end-of-life treatment as an example, versus some of the specifics around the environmental impacts of Scope 3 emissions, of human rights and supply chains, and other factors. But that’s beginning to change as well. And I think part of that was that we saw earlier regulation which set that level playing field related to product level requirements in the early 2000s. [05:26]

• When it comes to the value chain aspects, those are just coming to light now from a regulatory perspective, especially as it relates to different requirements, for instance, related to traffic enforced labour. So, we saw regulations in California and the UK and Australia, but that’s been followed up now in the European Union related to corporate sustainable due diligence – and that’s across both human rights and environment. Now those behaviors, as it relates to how products are manufactured and those potential negative consequences from a social environmental perspective, has really changed. So, to some degree, it’s trailed a bit, that second piece. But the awareness when it comes to the purchasing or the demand community, which can include others like policymakers and investors, they’re really waking up to it. It’s beginning to drive different behaviors and as we get into voluntary standards, it’s really evolved voluntary standards as well, from just focusing on the product to focusing on the entire basket of ESG practices. [06:19]

Neil – I think if you look at what’s happening in the automotive sector right now, the chemical sector, fashion sector, I think this is where that voluntary aspect comes into play, where you have tier one suppliers in the automotive supply chain running for their money, trying to adapt to or respond to the requests from the OEMs. I’m particularly interested in regulation. In the former category where regulations are a driver – because I think it has taken a very long time – if you look at what happened with REACH and RoHS, and I would even say EP dread in the early days, it took regulation to make the industry move. Do you still see this being a requirement going forward? [07:32]

• Bob – Well, I think it’s important to sort of examine the path that it took. The years prior to the mid 2000s, environmental features and products were really aspirational, and they were very unstructured. We knew that we wanted sustainable products after this realization that we’re putting so much into the world and not thinking or considering these types of aspects of the product. I remember picking up in the early 2000s, William McDonough’s book Cradle to Cradle, and a lot of it popularized the fact that we’re thinking cradle to grave and we need to rethink the way we build products. And that’s easier for some types of products that are more simple, very difficult for complex products like electronics. But then we saw regulations come into play, both RoHS and REACH, but also, we when it came to end of life and that began to level the playing field and created centres of expertise in deep corporate functions. So, think supply chain engineering, sourcing and procurement teams, etcetera. Not just these overarching corporate social responsibility teams that were really focused on reputation, where there wasn’t a good demand signal to be able to put out that buyers could really point to. They were trying to create a halo effect for their companies. [08:16]

• So that was one benefit of regulation. Another, which I think is really important, is it took away that excuse from your partners, your suppliers, that you’re the only one asking for this. It’s too expensive, it’s technically infeasible, etcetera. It took a very complex engineering problem, or set of problems, like, ‘How do you get lead out of solder in circuit boards? How do you make that cost neutral versus the traditional solder that’s used in circuit boards?” And that became an engineering problem that got embedded deep in these companies and proved that you could do it. If you continue to produce products, complex products, at the same price point, or even less over time and it was good for the environment and human beings as well, that began to normalize those costing environmental features into product planning and placing it alongside those other common cost variables like quality and labour costs. [09:35]

• The nice thing then, is because you proved it was possible, that really paved the way for voluntary standards to rise and be recognized as achievable without sacrificing profits and now being viewed as a competitive advantage. One of the interesting things we’re seeing now is suppliers are beginning to market back to their customers, the brands that they are ready. They understand the voluntary standards on top of the regulatory standards, and they’re the supplier to come to, to be able to help the brand live into those. That is a full reversal in the early 2000s where there was just a massive amount of resistance. [10:36]

Neil – This is a very interesting point. I want to split this – If you think about it, it never makes economic sense to abolish slavery. Cheapest way to make stuff. There are certain things that don’t make business sense, and that’s what regulations are for. Where they say, we agree this is not a way to do business anymore. We can’t pollute rivers anymore. It used to make economic sense in the past. Whether you do this on a carrot or a stick is irrelevant. But you need a regulation, as you say, to move an entire industry away from something that is inherently harmful, versus voluntary standards, where there is always a business value that you need to create and justify to your customer as a consequence of it. As we move further along, I think we’re bridging this gap of all of the bad things that don’t make any sense to change, but we need to change. But as you see with energy in the past, energy used to be more expensive. Green energy used to be more expensive and now we’re making it cheaper. In fact, right now it’s cheaper than common fossil fuels in many cases. Do you see this trend accelerating as we move forward? [11:17]

• Bob – I certainly see it as a catalyst. I see something else beginning to evolve and change in this ESG space or social environmental responsibility space, which may reduce the need for regulation over time, which is the evolution of the awareness within the buying community, especially institutional purchasers. It’s not just to have optional set of points in their scorecards, but they’re beginning to become more sophisticated in terms of understanding the impact of the goods that they’re purchasing and beginning to set more requirements in market economies. [12:26]

• The most important thing is having that the matching of the supply and demand. And if the demand side is not sophisticated enough or doesn’t care enough to be able to set those requirements and grab onto the voluntary standards in the middle, that market signal, the supply side is not going to react. That’s what was happening for a long time and regulation helps accelerate that to the point where it is today, which is a much more sophisticated buying community, a much more sophisticated investment community if you include impact investing. That’s beginning to seep its way all the way down into the banks as well, that are investing in manufacturing overseas. To say there are certain standards that we want to see in the factory or standing up in Malaysia as an example, around environmental stewardship, around human rights management. Forced labour is a great example that it does not make economic sense for us to invest in your business and your manufacturing capability and the related capital investments unless these social and environmental impacts are addressed. So, regulation helped get that going. It’s going to be required to some degree in the future. But I see the voluntary standards really beginning to take over because of that maturity we’re seeing on the demand side. [13:03]

Jim – When I go back in my history in the environmental field, the regulations initially were key. But once they got in there, my senior managers just said, you take care of it, it’s not relevant to me anymore. But I think that’s changed. What we’re finding is that now, because of the movement that you’ve been talking about, it’s not only the regulatory that provides a foundation, but there’s more than that. The senior managers and the businesspeople are really on top of it, all the way through the supply chain and the government. So, I think it’s a major transformation that’s occurring and it’s exciting. I really see what you guys are doing at GEC is laying the foundation for not only the regulatory piece but making the regulatory piece a part of day-to-day business. So my question is, where do you see this moving over the next 5-10 years? [14:20]

• Bob – I think one of the fascinating things I’ve seen most recently is I’ve had the opportunity to work with many of the major brands in the electronics space. It used to be regulatory requirements were and still are paramount. No company is going to act afoul of the law. And at first those were resisted, I’ll say. Traditionally, companies don’t like being told what to do and want to operate in the best interest of their shareholders without a heavy regulatory regime sitting over them. In this space, it began to rotate when, past the RoHS and REACH days, especially as we’re getting into the evolution of these regulatory requirements to be embraced – as long as there was a level playing field that was created, if they could raise all boats to one level, especially where progressive companies, were already ahead of where that level was going to be, then they could springboard off of it to a competitive advantage. [15:26]

• Now, what were beginning to see with Global Electronics Council and the ecolabel is companies are looking at these voluntary standards like ecolabels, as in the same space internally as the same level of priority or just below that level of priority of regulatory standards. It’s a must do. The competitive landscape is demanding it and back to my thoughts here on supply and demand, they’re looking for something that is still voluntary, in high demand, is understandable. They can take a standard that’s been developed in a multi-stakeholder, consensus-based process that includes the manufacturing and the brand community, but also their buyers, nonprofits, government and policy advocates or policymakers and they can all agree to that standard, and they can drive towards it, so they know what to do. They know it’s going to be accepted, and they know if they invest in it, it’s going to be a competitive advantage for them. [16:25]

• So that’s really changed things altogether. In the wild west days before this, before regulation occurred, it was everybody making up what they thought was the right environmental features of their products or corporate behavior and hoping that it was going to land well with the demand side, to now getting through that regulatory space where they had to kind of set that it was actually feasible and possible to all work towards a common standard. To now getting into a space where there are legitimate voluntary standards that everybody’s participated in; defines what a sustainable product is, and everybody can then go compete on meeting those standards based on their business models. It’s really an exciting time right now. [17:23]

• Neil – I strongly agree with that because what we found with people we talk to, with customers we talk to, is whenever you talk of compliance regulation, this is, oh my God, we need to do this, but let’s get it done as cheap and dirty as possible. Minimum requirement. All of the customers that are most enthusiastic about sustainability and adopting it have almost always been super excited about things that will allow them to sell more to their customers. And that’s what these voluntary standards do. They’re setting a playing field for suppliers to be able to compete for business with their customers. [18:10]

• And how can you do that best? How can you do that fastest? How can you do that in the most elegant way? And I was looking at similarities with nutrition labels. I had a fixation for labeling. And 1960, just think about it, no label at all. Nobody understood what food labeling was. Ten years later, it was mandated for a small percentage of products. Right after that, ten years later, there were huge lawsuits around nutrition washing just to steal that, misappropriate that word back in time. Ten years later, there was standards that were put in place. Ten years later, everybody started doing nutrition labeling. Twenty years later, now we have things like coke zero, right, where we’re competing against, hey, ours is more nutritious, ours is healthier. And I think this is, we’re already here from an environmental perspective. I see with a lot of the standards that already exist. [18:46]

• I think one of the things that we’ve had in the past has been when we created all these voluntary programs. I don’t think we thought through some of these standards, and I think there was a study that was made something like 400 labels available in Europe and then they had to, I mean, you know, it’s more or less the same history, right? It repeats itself with these kinds of cycles. But what it says, if you just look back in time, we’re about five years away from this becoming one of those things like nutrition today, where it is strongly one of those things that you compete on as opposed to the past. [19:41]

• Bob – Yeah, and back to the regulatory aspect of this. If you look at the EU Green Claims Directive as an example, you can have 100 different ecolabels, 1000 different ecolabels, and that doesn’t mean they’re all the same and that they’re all credible. And regulators of policymakers are beginning to notice that, saying we’re going to define what a credible green claim is and that’s going to begin to take those thousands and begin to narrow them into the credible ones – the type one ecolabels, an example that EPEAT is, where government has to then help the buyer, whether it’s a consumer or it’s an institutional purchaser, be able to understand all those different kaleidoscopes, that outgrowth of voluntary standards, which ones are the most credible and therefore which ones you can trust going forward. So that’s an interesting one as well. When it comes to your analogy around the food space where everybody can say, I have the most nutritious soda, the most nutritious cereal. When you get to a point where there’s some level of oversight to what types of claims you can make, that’s part of the next evolution, I think, of this whole space on voluntary standards is helping create that credibility among those signals so that the market can trust them. [20:19]

• Neil – Yeah, and it’s already there. The greenwashing regulation was passed last year, and you already see a lot of the standards, there’s tons of them that just disappeared because it’s now not about which ones you can trust. The ones that don’t qualify, that don’t meet the requirement of the European Union of this greenwashing regulation, they are not legal anymore. You cannot make a claim based on that label anymore. And that’s what’s fantastic, we’ve gotten to that point. If we were to follow nutrition, it’s five years from now that this gets to that next step of competitive utopia. [21:40]

Jim – Bob, could you describe a little bit about GEC’s role in developing type one ecolabeling? And how does that relate to or different than ISO? In my earlier background, when we sort of put a stake in the ground of what LCA is, we did it through the International Organization for Standardization. How does ISO compare to what GEC is doing? [22:14]

• Bob – The Global Electronics Council, or GEC, we have a broader mandate than just the EPEAT ecolabel. It happens to be one of our most powerful vehicles. But overall, we’re looking towards a vision where only sustainable products or sustainable electronics are bought and sold in the world, no matter how that happens. And that has to do with both education and advocacy of both sides, that supply and demand side I mentioned before. So purchasers know what to ask for and how to ask for it, and suppliers know how to get there and how to build sustainable products. EPEAT, as I mentioned before, has really grown from being very narrow in terms of only product environmental aspects of the materials that are used in the products, the energy efficiency, the design for end of life, the availability of end of life treatment, things like that into a complete lifecycle eco label that considered not only the product itself, but the corporate policies and behavior as these products are manufactured, distributed and brought back into, as we’re getting closer to, a circular economy. So that is a whole different ballgame. [22:38]

• The analogy, “this isn’t your fathers Oldsmobile”, this is not your father’s or mother’s ecolabel any longer. It really is the complete signal for anybody looking not only to buy a product that is good for the environment, but one that’s built by a responsible company and a responsible supply chain. Now as that relates to ISO, and specifically ISO built standard in specific areas, and quite a few of them, EPEAT references ISO standards and other standards which are applicable and tries not to duplicate them. So, it takes where a standard exists, it references it and amplifies it through acceptance of the ecolabel. And where standards don’t exist, it builds them within the ecolabel to cover all the major material areas in the space, circularity, climate, chemicals, responsible supply chain, as good examples. And again, creates universal standards or ties together existing standards like ISO might develop or others into a single, what we call the easy button for the market to be able to select, to know that they are getting the best of the best. [23:54]

Neil – Wouldn’t you define the ISO standard as the rules versus EPEAT as defining what the finish line looks like? [25:11]

• Bob – Yeah, I think the ISO standards help with the rule set. I will say again, there are gaps in those rule sets sometimes, and that’s where we need to fill it in. But EPEAT, you’re right, EPEAT is a system. It’s a system of not only the standards that underpin each product category, but the integrity that’s built into verifying that the product meets, and the companies meet those standards themselves, and the registry shows the world where in the standard set, because it’s not static, it’s not just a binary. There’s a bronze level, which is a sustainable product, and then there’s silver and gold, which show products and companies that go to that next level of sustainability criteria where many are not already. So EPEAT is an entire system. ISO are some of the standards that underpin it, along with other standards. [25:20]

Jim – To follow up on that, when we did the work with GEC a couple years ago on the ultra low carbon solar, we had an elaborate multi-stakeholder group very much engaged in the process, which created many hours of conversation and a lot of work behind the scenes. Could you articulate the process and what you’re doing to establish the credibility of the GEC EPEAT label? I think that would be helpful to our listeners. [26:13]

• Bob – That’s a great question, specifically, because, again, getting back to that market signal I keep mentioning. You have to have something that pushes the envelope enough to be credible to the demand side, the progressive side of things, but that is achievable by those that are producing the products to begin with. There’s a tension in there. It’s usually a healthy tension, it does sometimes get a little spicy in these voluntary processes. But the product category standards for EPEAT are built with a variety of stakeholders at the table. And there’s those that are cozied up to the central table, which are on these technical committees that are managed by, not by GEC, but by outside parties that are standards-based organizations, and that allows the criteria to be developed in a way that will be accepted by the market and will be achievable by industry. And they aren’t static, so they evolve as well. They’re criteria revision processes and in fact, the process that we’re using now for, for the latest set of criteria will give us the ability to revise those criteria more often as the capabilities of industry evolve, as the expectations of buyers evolve, and as new material topics come to bear in the world. So that’s the other tension, I’ll say, when it comes to a voluntary consensus process – those can also be viewed as slow because you have to get agreement across a wide range of stakeholder community. But we’re learning ways to evolve those faster, to be able to allow the EPEAT ecolabel or any other ecolabel that chooses to use this type of process to react to what’s happening in the world. [26:48]

Neil – That’s very helpful, because out here in Germany, this can take five years to get to a certification body. I want to switch back into the company, because at the end of the day, this is about what can companies do? And if you were to ask, how does a company implement the pursuit of such a standard? There are typically two paradigms for this. Either you have an expert function that sits at corporate and drives this, or you embed this into the individual functions of procurement and product engineering. Do you have any experience from your past, what works better and why? [28:39]

• Bob – I’ve lived both models, in my corporate experience. I’ve lived the model where there’s a central corporate function either reporting into marketing or legal. There’s a couple of examples where requirements come from on high down to the product teams and they resist and say, but we’ve got all these other considerations. The nice thing about that is with a very large company, you centralize the requirements, and they are spread out evenly and consistently across the organization. I’ve seen the other model where the sustainability teams are embedded in the profit loss centres and different product groups, and that creates efficiencies as it relates to sponsorship and working within the organizations that are actually producing the products, designing and working with the supply base to manufacture the products and distribute them. But you lose some level of consistency and in often cases, direct line of sight to the C suite. [29:12]

• The most successful I’ve seen tend to be hybrid organizations where there’s direct level C suite engagement and sponsorship, but they have champions at the executive level within the product groups and then embedded product stewards or sustainability professionals within supply chain operations, within supply chain engineering, other end-product design teams, etcetera. So, you end up getting a coordination from the top level all the way into the teams. And there’s an increasing level of trust, I think, since we went through those difficult cycles of the early days of RoHS and REACH, evolving into where it was a ‘have to do it’ and now it’s a ‘get to do it’. So, you see more and more professionals that didn’t start as sustainability professionals and move into the deeper levels of organization, but those that are trained as engineers or supply chain procurement professionals or other traditional corporate roles wanting to get into the sustainability field because they’re excited about it. Long story short, it tends to be these more, I’d say, sophisticated hybrid organization models that tend to work the best in my view. [30:15]

Shelley – It’s similar to Neil’s question, but a little bit different in that whoever’s deciding to pursue a voluntary standard or a label, what might you tell them to look for? Considering the evolution in voluntary standards we’ve been talking about, and that it’s, I would say, almost compulsory now in the marketplace to consider voluntary standards, not just from regulations. If you were to break it down for someone to look for a quality voluntary standard or something that’s going to meet the future needs of expectations, what might you suggest someone look for? [31:32]

• Bob – Number one is credibility in the marketplace. It has to be accepted, it has to be scalable, and it has to be built on a system that has a level of trust. Back to Jim’s question on voluntary consensus process, the standard gets credibility and trust within a marketplace when it’s built with everybody at the table. It has to live into internationally accepted standards on what makes a credible claim. So, in this case it’s are you a type one ecolabel? That is the highest level of credibility and authenticity and integrity for an ecolabel. Does it have independence built within the system, not only for how the standards are developed, but for how the products are verified and then put on the market? So that’s separation at church and state to understand that the owner of the ecolabel and the standard is not controlling the process to develop the standard, is not controlling the verification of the product, and that the company or the buyer doesn’t have an unbalanced level of influence within that process or within the system as well. So those are some of the specifics around what makes a credible ecolabel. [32:19]

• I’ll go back to the scalability aspect as well. It has to be structured and supported with an organization that has the ability to make that ecolabel available in the places where there’s the demand for it. So, in some cases you see niche ecolabels that are maybe country specific as an example, and they’re very specific to that context. That might be great for the buyers within that context, but if an international company or an international buyer is  looking for a voluntary standard where they can leverage it for the long term, and it’ll be able to keep up with the growth patterns of either they’re buying or their products they put on the market, then they really need to look for something that’s scalable as well. [33:20]

• Neil – I’d add one more thing, which is ask your customer. They’re usually the ones that will tell you this is the standard I want you to follow. [34:03]

• Bob – That’s true as well. Back to acceptance in the marketplace. Which ones asked for the most? [34:09]

• Neil – Yeah, that’s it. [34:16]

Shelley – Bob, we can end with a final thought or comment to leave our listeners with, given your experience with global supply chain responsibility and voluntary standards. [34:31]

• Bob: One of the things that I find exciting now is, especially operating the electronic spaces, I think we’re over the tipping point and the acceptance of voluntary standards. That’s step one: building in voluntary standards into traditional products. But now, as we see what’s put on the marketplace evolving so rapidly, the pervasiveness of electronics and the changing way in which we are consuming what electronics can provide us and technology can provide us is altogether different than when we started on this journey as GEC. [34:29]

• Every product I touch, from the automobile I drive, to the toys I give my kids, to the furniture I sit in everyday has electronics built into it. So, the successes that we’ve had within our initial foray into voluntary standards, being able to get over that tipping point in scale, is only going to grow exponentially as we’re able to move that into different industries and the universe of pervasive electronics and other products. And those are lessons to be learned, I think, for other areas of industry in the buying community as well. So, I’m excited about. It’s a brave new world that we all get the chance to participate in, and it’s a brighter future. [35:04]