Understanding Sustainability in the Supply Chain

Recently, I had an enlightening discussion with one of our suppliers based in China. While sharing our strategic objectives for the upcoming year, I highlighted the innovative materials I discovered at the Lineapelle material show in Milan. These new resources promise to enhance our offerings for existing clients and potentially attract new business, provided we achieve the right balance of quality and cost. I expressed my optimism about the abundance and quality of sustainable materials available, which far surpassed my expectations. However, his response was quite revealing, encapsulating the challenges we face in transitioning from traditional petrochemical-based materials to fully sustainable alternatives. He remarked, "I've noticed a trend for this type of material; it seems quite popular right now."

At first glance, one might interpret this as a positive sign that the sustainability movement is gaining traction, which it undoubtedly is. However, with over 25 years of experience in China, my immediate reaction was one of frustration. "A trend? This isn’t just a trend! It should be at the core of every conversation with our suppliers and customers, and it needs to guide every decision we make across our business." In a more measured tone, I expressed my belief that sustainability is not a fleeting trend but rather an essential aspect of our future operations. I insisted that in a few years, sustainability would need to be a fundamental characteristic of all materials.

His response, a wry grin, suggested that he viewed my enthusiasm as somewhat naive. This reaction is emblematic of what I anticipate encountering in the future, and I can’t entirely fault him. Countless footwear factories in China are facing bankruptcy, and the ongoing US-China trade tensions have pushed many American exporters to relocate to Vietnam and India. These countries offer larger volumes and less bureaucratic obstacles compared to European markets, which tend to be encumbered by stringent regulations. Historically, American retailers were favored by Chinese factories for their higher payment rates, minimal oversight, and larger orders. In contrast, European clients often bring a host of requirements—social and technical audits, detailed tracking of every component's origin, and exhaustive chemical testing—leading to a less favorable business environment for Chinese manufacturers.

The financial strain on Chinese factories is exacerbated by the growing demand for sustainable materials, including bio-based polyurethanes and recycled textiles, alongside the rigorous auditing processes imposed by both suppliers and manufacturers. This new requirement for comprehensive documentation of transactions complicates the already challenging business landscape, and to add insult to injury, there is no additional financial support for these new demands. His reference to sustainability as a trend is perhaps a reflection of the increasingly complex nature of European business dealings.

The impetus for these stringent regulations is crucial. The fashion industry grapples with numerous issues—child labor, inadequate wages, hazardous working conditions, and environmental contamination from harmful chemicals. As we strive to keep production costs low, the result is often a decline in the ethical standards of factories. Legislation is implemented to assure the public and various NGOs that due diligence has been exercised, and that the supply chain can withstand scrutiny. This has positively impacted many mid-tier factories in China, but it has also introduced new challenges.

When the retail price expectations fall short of the actual production costs in an audited factory, management has no choice but to either decline orders or outsource production to non-compliant facilities. In the case of large, price-sensitive retailers, this subcontracting issue has become rampant, undermining ethical trading efforts.

The challenge of sustainability is profound. Retailers must navigate the pitfalls of greenwashing carefully. What begins as a genuine effort to improve environmental impacts can quickly be scrutinized if not backed by solid evidence. Legislation is tightened to prevent companies from making unfounded claims about sustainability, necessitating validation through comprehensive audits and documentation.

As factories already manage a plethora of compliance requirements, the addition of new sustainability measures—including zero hazardous chemicals audits and cleaner factory standards—creates a significant administrative burden. This overwhelming obligation can lead to profitability issues for factories that are already stretched thin.

Consequently, progress in this area is slow. The initial opportunities for easy gains have been exhausted, and factories struggle to see the benefits of sustainability initiatives when their primary focus is survival. Engaging these factories in the fight against climate change necessitates a clear vision of profitability and growth. Perhaps the most startling revelation is that achieving true sustainability might require a willingness to invest more money upfront. After all, the fight to save our planet cannot be fulfilled by sacrificing ethical practices in pursuit of lower prices.