Environmental Social Governance (ESG)

Supply chain and sustainable development goals

By Rebekah Swan
Chartered Member of Institute of Directors (CMInstD) Managing Director / Head of Clients New Zealand

In a post last year I introduced the topic of the United Nations 17 Sustainable Development Goals (SDGs). These goals are a call for action by all countries to promote prosperity while protecting the planet. They recognise that ending poverty must go hand-in-hand with strategies that build economic growth and address a range of social needs, including education, health, social protection, and job opportunities.

At AMP Capital we’re thinking about the SDGs and how the investment that we are doing is impacting on SDG outcomes. While we don’t have specific SDG targets, one of AMP Capital’s key ESG engagement themes is human rights and the supply chain. In this follow-up to my previous post on energy and climate action, I look at the supply chain, and how some of the initiatives we are taking impact on the SDGs.

Supply chain

Did you know China has 7% of water reserves and 20% of the world’s population? It is also the world’s largest textile manufacturer, and uses significant quantities of water to make these garments. For instance, 1 kg of cotton requires 10,000 litres of water to produce.

How much water do you think it takes to produce one T-shirt? According to IHE Delft Institute for Water Education, a T-shirt’s water footprint is 2,720 litres. The waste water that is produced from the process is also extensive, coming from chemicals, dyes and pollutants, which has a big impact on China’s under-pressure water resources.

So what are we doing?

We are asking some of the world’s largest companies to close the loop on water efficiency and pollution. At AMP Capital key engagement activities include:

  • Mapping the supply chain, even if it is outsourced, including waste.
  • Ensuring that companies publish what factories they use, and encouraging the consolidation of supply chains where possible. The fewer companies a manufacturer uses, the better the voice they will have regarding conditions for factory workers.
  • Encouraging companies to work with their peers to find solutions for wages and poor conditions, and to pay a living wage to their workers (ie an amount which covers food and rent).
  • Asking for ethical sourcing policy to be aligned across all brands of a listed company.
  • Recommending they do spot checks and increase their presence on the ground with their manufacturers.

As a result of our engagement, what action do we take?

We take an ethical stance against companies that exploit their work force so they can make profits. It will not be possible to eradicate poverty unless fair and just conditions of work, including remuneration are established. This supports SDG 1 Target 1.1 – By 2030 eradicate extreme poverty for all people everywhere, currently measured as people living on less than $1.25 a day.

SDG 1 - No poverty - End poverty in all its forms everywhere.

Any form of child labour and forced labour must be prohibited, and workers should expect to be paid a living wage. Poor working conditions are not only unethical, they also carry significant investment risks over the longer term to brands and business operations. We believe that a business model that relies on underpaid workers to deliver on its good and services does not account for its true environmental or social cost, and will not be sustainable in the long-term. Therefore our ongoing engagement has focused on encouraging companies to sign up to and implement credible and robust ethical sourcing frameworks. This supports SDG No. 8:

SDG 8 - Decent work and economic growth - Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.

The way a company deals with its suppliers or factory workers can provide valuable insights as to how the company operates generally and whether it will flourish longer term. Companies with better governance and practices have a high correlation with stronger financial results.
We engage with companies with a specific focus on a sustainable supply chain, packaging, waste recycling, and provision of e-commerce services, especially in developing countries. This supports SDG No. 12:

SDG 12 - Responsible consumption - Ensure sustainable consumption and production patterns.

Achieving economic growth and sustainable development requires that we urgently reduce our ecological footprint by changing the way we produce and consume goods and resources. The efficient management of our shared natural resources, and the way we dispose of toxic waste and pollutants, are important targets to achieve this goal. Encouraging industries, businesses and consumers to recycle and reduce waste and move towards more sustainable patterns of consumption is also important.

The role of business

Global companies like AMP Capital believe there is a role for business to play and that we have an opportunity to make a real difference. Large corporates can wield an enormous amount of influence over their suppliers, even those much further down the supply chain, to implement systemic reforms that will ensure worker safety and welfare, and to adopt zero tolerance policies on global supply chain abuses.

It’s not just about doing the right thing. There’s an economic reason for it as well. Business cannot succeed in a world of increasing inequality, poverty and climate change. Investor engagement with companies on supply chain management will ultimately help businesses secure resilient supply chains and sustainable markets for future growth.

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Important notes

This article has been prepared to provide general information and does not constitute 'financial advice' for the purposes of the Financial Advisors Act 2008 (Act). An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.

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