August 20, 2014

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Looking Beyond Apparel: Creating Sustainable Value Chains in Other Industries

Digging deeper into their report, the Impact Economy authors give recommendations for transforming value chains in other industries, including electronics and consumer goods.

Impact-economy-series-authors

By Maximilian Martin & William Burckart

Part four of this Talkback series on creating sustainable apparel value chains explores the implications of the framework in other industries (beyond apparel).

Alunorte is the world largest alumina refinery. Strategically located near high-grade bauxite deposits in Brazil, it accounts for 7 percent of global alumina refining capacity, producing roughly 6Mt of alumina per year following a $2.2 billion renovation in 2008. After heavy rains in April 2009 exceeded Alunorte’s capacity to retain the red mud, bauxite residue spilled into a neighboring river. Alunorte was subsequently fined $10 million.

The extractive industry, which is comprised of companies like Alunorte, is just one example of the many industries that make heavy use of finite natural resources, energy, and low-skilled labor. While Creating Sustainable Apparel Value Chains focuses on the global textile and garments industry, its systems approach that utilizes different levers of intervention to collectively achieve industry transformation can also be applied to other industries.

Common to all of these industries is the need for increased resourceImpact-Economy-series-cover productivity and a shift to a circular economy model. Society is sandwiched between the unfolding effects of climate change and resource depletion, even as resource needs continue to grow. Estimates indicate that food caloric consumption could increase by 24 percent, food spending by 57 percent, packaging by 47 percent, and end-of-life materials by 41 percent from 2010 to 2025. The implications of this trajectory under the current population growth scenario are staggering, and will require a redesign of value creation and resource use processes to meet the demands of our future, reconciling finite resources with unlimited wants.

From a One Way Street to a Circular Economy

The framework presented in Creating Sustainable Apparel Value Chains shows how pulling a number of key levers—including fostering total resource productivity and transparency across the entire supply chain, (impact) investing to upgrade industry infrastructure, improving working conditions, and replicating best practices—could help to hasten the ascent to industry transformation in the global apparel industry.

But in response to growing resource constraints, production in a variety of industries (beyond just apparel) is now gradually shifting to a circular model (i.e., from cradle to cradle instead of cradle to grave). This means that attention is increasingly focused on the total resource productivity of the factors of production, including materials, product and process innovation, and the avoidance of unnecessary waste (e.g., in packaging, as well as the reuse of waste and extension of the product lifespan).

Included here are a number one-way-street-signof industries.

1. Fast Moving Consumer Goods

Fashion and other fast moving consumer goods (FMCG) industries are expected to move in the near term from the current model where 80 percent of consumer goods are not recovered (and 18 percent recovered for decomposition, and 2 percent for reuse), to a model where non-recovery drops to 50 percent. With this development, the shift to a circular economy will result in a $595-705 billion cost savings opportunity, of which 10 percent will be in clothing. Some countries have already made progress in this regard and have high collection rates of used clothing (i.e., the UK with 65 percent).

Two circular models show particular promise in apparel: optimizing end-of-use by raising collection rates and recycling, and identifying ways to have clothes circulate longer via collaborative consumption models; radically greater resource efficiency in the production process could serve as a third circularity model. This logic can be applied to any fast moving consumer good.

2. The Electronics Industry

The electronics industry covers everything from computers, mobile phones, and televisions to name just a few products, and is set to reach $1.4 trillion in turnover by 2015. Next to poor working conditions in many producer countries, electronic waste is a growing issue because of the use of toxic chemicals and low current rates of recycling. Global consumption of electronics results in 50 million tons of electronic waste annually. Instead of being recycled in main consumer markets, two-thirds are exported to developing countries, including to places where informal workers separate out valuable metals such as copper and aluminum under unsafe working conditions. Enhancing resource productivity is a logical next step.

3. The Commodities Industry

The situation in the commodities industry is even more acute. Valued at nearly $900 billion in 2010, the extractive industry provides the foundation for the products that shape our lives. But the environmental impact of the extractives industry cannot be underestimated. Working conditions are often unsound, particularly as mining has migrated in many instances from high-cost locations (with high-labor standards) in advanced economies to emerging markets. Operations are often located within close proximity to environmentally sensitive areas. Geostrategic tensions resulting from the attempts of the world’s main powers to guarantee preferential long-term access to vital commodities further complicate the picture.

Nevertheless, a social and environmental agenda is possible for commodity businesses, as outlined incommodities-industry a corresponding study by a co-author of this blog post. The work of the International Council on Mining and Metals (ICMM) and the set of 10 Sustainable Development Principles it adopted in 2003 to provide a strategic framework for industry upgrading offers one route for improved practice.

Adjustment and industry upgrading will require up-front investment, but can also drive resource efficiency and social performance dividends. As we covered in a previous series for CSRwire, impact investing—the practice of investing with the intention to generate measurable social and environmental impact alongside a financial return—has the potential to be one of the mechanisms to finance innovation in the production of goods and services with the longer-term perspective required to transition to sustainable economic growth.

Sheikh Zaki Yamani, Saudi Arabia’s former oil minister and the face of the Organization of the Petroleum Exporting Countries’ (OPEC) oil embargo in 1973, famously argued that the “Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.” As the report shows, a systems perspective that strategically pulls key levers for industry transformation is our best shot at a sustainable future.

While this post represents the close of this series on CSRwire, the discussion will continue over at Impact Economy. Stay tuned!

More about the Creating Sustainable Apparel Value Chains series:

  • Part I: Transforming the Industry. We need a new model for creating sustainable value chains if we are going to transform the apparel industry. Impact Economy's Dr. Maximilian Martin and William Burckart introduce a new series on Talkback.
  • Part II: Fostering Total Resource Productivity and (Impact) Investing. Part II is on creating sustainable apparel value chains introduces the need to foster total resource productivity and increase transparency across the entire supply chain, as well as upgrade industry infrastructure by (impact) investing.
  • Part III: Creating Sustainable Apparel Value Chains: Improving Working Conditions with a New Level of Ambition and Replicating Best Practices. Here we examine how improving working conditions with a new level of ambition and replicating best practices of leading players can enable a leap forward in sustainability.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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