Renewable feedstocks are a better choice for the environment, but their use raises important questions about how companies source their raw materials. To support the transition toward a net-zero society, companies across all industries need to work together to develop robust and transparent sourcing principles that eliminate unsustainable and unethical practices from the value chain.
In supply chain management, a gray area refers to a supplier who fails to disclose key elements of their environmental impact or labor practices fully and accurately. In doing so, they are indirectly implicating the company that buys their goods or services (the “reporting company”) in the social or environmental harm they may be causing. 77% of emissions in the chemical industry come from Scope 3 (upstream) emissions – and much of this is down to raw material sourcing. So, it’s vital to ensure that your suppliers are not contributing to the problem.
This is a common issue across industries, from e-commerce to coatings. Meanwhile, research shows that buyers are increasingly aware of the importance of supply chain transparency, and it can be key to securing their loyalty. So, companies can no longer claim to be ethically or environmentally responsible without having 100% oversight of each link in their value chains.
But it’s not just consumers who are taking a greater interest in sourcing ethics.
Governments around the world are introducing increasingly strict supply chain regulations to address supply chain gray areas. In 2022, the German Parliament passed the Supply Chain Due Diligence Act. This legislation makes companies with 3,000 or more employees liable for social and environmental issues in their supply chains. It follows (2022), and California’s Transparency in Supply Chains Act (2012). And more legislation is on the horizon.
For example, take the EU's Proposal for a Directive on Corporate Sustainability Due Diligence. This legislation aims to address unethical and unsustainable business practices hidden in the supply chains of European companies and corporations from third-party countries operating in the EU. This will be enforced by punitive fines and supervisory authorities, ensuring that high ethical and environmental standards are adhered to at each stage of global value chains – from raw materials to the end product.
For instance, if a hypothetical clothing company sourced its cotton from Producer A, who was later discovered to be using child labor, the clothing company would be held responsible. It’s a far cry from the “see-no-evil” approach that has been the norm until now. And it changes everything for companies.
This movement toward greater supply chain transparency is part of a wider shift to recognize “upstream” impacts across industries. This means companies are not just held responsible for the emissions and waste caused by their own facilities. They are now responsible for the actions of all the suppliers, processes, and raw materials that go into their products.
So how does this affect a global coatings company like Stahl?
At Stahl, we’re working to reduce our dependence on fossil-based feedstocks by adopting more feedstocks from renewable sources. As we make this transition, ensuring effective supply chain oversight has never been more important.
This is because renewable feedstocks expose the company to different kinds of risks. Take the sugar and oil crops used in Stahl’s renewable carbon polyurethanes, for instance. It’s essential these crops come from responsibly farmed sources that don’t contribute to biodiversity loss, deforestation, or other land-use challenges.
To address these issues, Stahl has been proactive in adapting our risk matrix to increase the visibility of potential impacts. We are applying greater scrutiny to our global supply chains to identify — and address — any potential risks that may be present. The goal is to work toward full supply chain transparency, so we can ensure that the positive impact of transitioning to renewable feedstocks is not lost due to unintended negative consequences.
That’s why, at Stahl, we’ve set up a dedicated Supply Chain Transparency function within our ESG department. Starting with high-priority renewable feedstocks such as biomass, we’re working with internal and external stakeholders to map out the entire life cycle of our products, from farmer’s field to end-of-life. Our target is to constantly improve data accuracy at every step of the value chain so we can target our actions effectively.
To do this, we use techniques like in-depth life cycle assessments and supply chain mapping – allowing us to provide customers with clear information about each stage of the supply chain. But we can’t achieve this alone: it takes collaboration between the reporting company and its value chain partners to enable full transparency.
To ensure that no unethical production practices slip through the net, Stahl operates what’s known as a “chain of custody” model. A chain of custody is a verification process for any substance, item, or material whose point of origin must be verified. This can range from crime-scene evidence to paintings by well-known artists. In both cases, the value of the items comes from the reliable verification of their origins. And the same is true for Stahl’s renewable feedstocks.
For instance, Stahl would use a chain of custody model to show customers that the biomass in our bio-based polymers comes from sustainably managed sources that pose no risks to biodiversity. But this requires suppliers and intermediaries at each stage of the value chain to be verified by independent certification bodies.
That’s where supply chain certification comes in.
At Stahl, we know that the supply chain information we collect must be both accurate and complete. But most supply chains are complex, involving many stages from raw material to finished product. And they typically contain a range of different stakeholders, each with their own business practices and ways of working.
To ensure that all suppliers adhere to the highest standards, Stahl relies on globally recognized certification bodies. The best-known are ISCC and REDcert, and it’s our ambition to ensure that all participants in our value chain adhere to their standards. In this way, our suppliers can demonstrate their shared commitment to a zero-harm value chain.
Becoming certified can be costly for smaller suppliers, so an intermediary solution is sometimes required. This is where advanced technology can come to the rescue. Indeed, Stahl is currently investigating a blockchain-based solution, together with our technology partners.
The concept is to create a blockchain-verified “passport” for raw materials and products at every stage of the supply chain, so their origins are always visible. This will allow effective oversight of the materials that go into Stahl’s products, greatly reducing the likelihood of supply chain risks and eliminating any gray areas.
Our Supply Chain Transparency function is taking the lead on this important issue, but the task of monitoring our supply chains isn’t limited to a specific team or department. That’s because it affects all areas of the business, from Product Development to Procurement to Compliance. It’s therefore crucial to ensure all internal stakeholders are aligned on these key sourcing issues.
But we believe it’s also essential to go beyond just holding ourselves to higher transparency standards. It’s our responsibility to use our strategic position in the value chain to engage our suppliers and partners around these issues, initiating a positive feedback loop and becoming a true catalyst for supply chain transparency.
Looking to learn more about supply chain transparency? Below you can download our Ultimate guide to supply chain transparency and discover what it takes to build an ethical value chain.