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Supply Chain Sustainability is a Matter of Persistence

Large scale events like the pandemic and the war in Ukraine have exposed the vulnerability of global supply chains. Even small incidents like the Suez canal blockage can have many ripple effects. Professor Julia HartmannThis goes to show how complex supply chains really are. At the same time, pressure is mounting to mitigate their sustainability impact. We have all heard about the problem: from the large scale transport of animal feed between South America and Europe to the consequences of fast fashion. The big question is: how can business leaders make conscious choices to embrace sustainability in such a complex landscape?

We spoke with Professor Julia Hartmann to address this question. Prof. Hartmann teaches Sustainability Management at EBS Universität für Wirtschaft und Recht (EBS) in Germany. She is also a well-known Environmental and Social Governance (ESG) researcher.

Can you tell us about yourself and how you came to work as Professor of Sustainability Management? 

Having lecturers dedicated to sustainability in management sciences is rare. EBS was a front-runner in this area. The university created the position in 2009, recognising it would be an important topic. It’s become somewhat of a statement to the outside world. 

I’m currently teaching sustainability management at different course levels, undergraduate through to the executive MBA. The courses I offer focus on corporate social responsibility, sustainable management practices, corporate governance and research methods. 

Besides working as a professor, I am advisor to several manufacturing companies, helping them integrate sustainability into their business models. I am also a researcher. Most of my work in this area focuses on the intersection of ESG and global supply chains. 

What do you want to achieve in your current role and how did your interest in this topic emerge?

We are at a critical turning point as a species and need to take action. I want to drive social awareness about this topic. If I can make that awareness fruitful in practice, that would be even better. If I can infuse sustainability ideas into business leaders’ minds, I’ve achieved my goal.

My interest in this topic started shortly after the Enron scandal in 2001. I heard about whistleblowers at the time and how a lady that worked there lost her job when she made the problem known. This showed that we had a serious issue in business management. I began thinking about how values and ethics could be incorporated into corporate governance. Then the topic of climate change became more top of mind, making this matter more urgent.

I was very happy when this position opened up at EBS because it created a great venue to make a difference.

Join Professor Julia Hartmann on April 22nd for an Earth Day breakfast session at Visma Connect.

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Sustainability is a very broad topic. Can you tell us more about your focus areas?

In teaching, I focus on delivering a standard approach to sustainability. The questions I try to answer with my students are: 

  • How can you integrate sustainability into business strategies?
  • What are the best practices?
  • How can you measure progress and which KPIs should you use? 
  • What are companies currently doing?
  • How much transparency is there?
  • How are business models changing to incorporate sustainability?
  • What will this look like in 2035?

We also look at reporting very closely, and integrating sustainability into corporate oversight. We look at both theory and practical examples. It’s very hands-on. 

What we find is that we don’t have a fully sustainable company as of yet. But we are all learning. By looking at what companies are doing and understanding their shortcomings, we can discover novel approaches. 

In my research, I have a more specific focus. I focus on the energy transition and sustainability in global supply chains. 

Based on your studies, would you say we can make sustainability profitable or is it more about risk aversion and preventing loss?

I have a story from 2009 that I’d like to share. At the time, I was an Assistant Professor. I was invited to a management board meeting at a pharmaceutical company to speak about CSR. 

Naïve as I was, I developed some ideas upfront and presented them to the board. At some point, they started getting nervous. They interrupted me and asked: “what’s in it for us?” 

For me, that was completely the wrong question but it did spark something in me. Back then there was a relatively new stream of literature that said “it pays to be green.” And that is true, to a certain degree. But at some point, you could start tearing this research apart.

Efficiency increases can only be done up to a certain stage. It starts to become more difficult afterwards. Let’s take energy, for example. If there is no infrastructure in place, the cost factor is huge. 

It’s the same in manufacturing. If you use toxic materials in your processes, you need to find alternatives which could be more expensive, or could not work at all. So, what I’m trying to say is that profound efforts to make a company more sustainable can quickly become expensive. But the fact is, companies don’t have a choice anymore. 

If you don’t keep up with the times, you might risk your reputation or even lose your licence to operate. Some firms are actually choosing their partners based on sustainability. Practices from the 80s and 90s are simply no longer acceptable. And this pressure will only increase. So the short answer is, companies need to prepare for this change but it will take time. You have to accept that you will go through some rough times if you want to be better off than the competition in the future. 

That’s a good point and if you start doing difficult things as a company now, you will become a better company in the future. Much like a person who works out at the gym will be healthier and stronger in the long run.

That’s true and it’s important to realise that things have changed a lot in the last couple of years. Investments in sustainability are becoming worthwhile. Companies that invested in this more than 10 years ago are in a better position today. 

I want to turn to your research in the supply chain area. Can you tell me about that and how you have seen sustainability perspectives evolve in this regard? 

When I started working in sustainability, I realised that the companies that pollute most are typically in manufacturing or agribusiness. But for the most part, the impact happens outside of their own firm. It happens in their supply chains. In the 90s, we started focusing on core competencies and outsourced the rest. After the cold war, multinationals started doing business with suppliers everywhere. What this resulted in was that 80% of the natural and social impact of these companies was basically outsourced. 

How can they ensure these suppliers also operate more sustainably? The immediate answer was ticking boxes; asking for minimum requirements. Then Rana Plaza happened. This was a real eye-opener. There are so many layers of complexity here. Some retail organisations started creating consortiums to address this. But the reality is that not much has changed. 

Changing that 80% of the impact by reshoring a lot of the outsourced activities would mean huge costs and efforts. They would never do this voluntarily. So you have to put more pressure on companies to make their supply chains more sustainable. That’s why regulation is so important. The good news is, they now have more tools at their disposal than ever before: analytics, blockchain, digitization, automation…the list goes on. 

This brings us to The German Supply Chain Act (Lieferkettengesetz) and the Corporate Sustainability Reporting Directive (CSRD). Both regulations require companies to take responsibility for what happens in their supply chain. You can be held accountable for what happens in China or other countries. The topic is gaining traction. But you don’t hear much about the fact that you need auditable and actionable insights across your supply chain. Can you share your thoughts on this? How can we make this happen?

The German Supply Chain Due Diligence Act (Lieferkettengesetz) applies to companies headquartered in Germany or with a business unit of 1,000 employees in Germany. What it means is that companies need to:

  • adopt a human rights policy,
  • control the risk,
  • make due diligence mandatory with tier 1 suppliers,
  • and think about measures to transmit these ideas to the entire supply chain. 

Companies will have to be compliant from 2023 onwards. It will impact suppliers, so in the end, every company will have to be transparent. The problem is that the internal processes are not optimised for this. At least in companies I have studied, the buyer typically sends a request to procurement. Then, the procurement person speaks to the supplier’s salesperson. The sales person talks to operations and the communication ends there. This communication excludes the supplier’s procurement function, but for sustainability to permeate the entire supply chain, we need to involve procurement in the entire process. Companies need to make sure that procurement is involved in the process together with sales personnel when they speak to suppliers. Procurement is always the link to the next entity in the supply chain, for example the tier 2 or tier 3 suppliers.

Man in a park looking at a cityDare to Make Sustainable Business Choices: Lessons from Jack van der Veen

We are living in a time of great uncertainty and change. As citizens, more of us are demanding sustainable transformation from businesses and governments. Regulations like CSRD are also making this a priority in corporate agendas. But to achieve this transformation, we need to make difficult choices. We spoke with Jack van der Veen, who is a distinguished Professor of Supply Chain Management, to understand how leadership teams can drive the change. Read the full conversation here

There are also industry initiatives and new tools emerging that can help companies with these challenges. 

Yes, platforms are starting to emerge. For example, I’ve heard about a type of “LinkedIn” where you can invite suppliers to join and start inviting their network to generate more transparency about who their business partners are. But there are still no requirements in terms of certification. That would be the next step. 

Then, there’s the matter of data and complexity. Imagine you are a supplier with 1,000 customers. You might have to fill thousands of questionnaires to disclose your sustainability information. Some with overlap and some without. We have to streamline this. For example, if a supplier is approved by VW, it should also be approved by BMW and so on. 

So, there’s regulations, we’ve identified the challenges and there’s tools to address them. But we still see a lot of pushback. What would you say to companies that are not making the change? 

Companies that offer complex products are very difficult to manage. That’s what’s generating the pushback. In Germany, before this due diligence act was ratified, many lobbied against it. One of the threats they put forward was that it would become so uneconomical that they would move away from some regions, causing economic hardship abroad. I find these statements very bold and frankly, unrealistic.

For example, in electronics, you simply cannot move out. It’s not possible to source electronic parts in Europe. It also doesn’t hold for oil and gas supply chains. 

The questions these firms need to ask are: “Do we really want to risk violating human rights? Are we ready to end business with suppliers who were found to heavily pollute the natural environment?” Most companies understand the problem. They just shy away from asking these difficult questions. They don’t look carefully enough at their supply chains. They need to start by training their awareness of environmental, social and hard business risks. 

As bad as the war in Ukraine is, it might be an eye-opener in this regard. Do you think the structure of the globalised world will change?

Yes, I am very convinced the world will look different in the next couple of years. Our supply chains will change because of the huge shifts we are seeing in the macroeconomic environment, but we will not become fully independent from the global network. We lack the raw materials and the workforce to do that. 

We are facing the consequences of concentrating on core competencies and outsourcing. The knowhow, the infrastructure and the people are no longer here. It’s costly to rebuild this. We will have to engage at a European level about what we need to become more autonomous. And we need to use global resources differently. 

Anything you can share about the research you’re working on now?

Well, I’ve been looking at oil and gas companies for 2 decades. I’ve been studying how they approach climate change. Even those who are leading are only doing a fraction of what they should be doing. At the moment, I am working with some colleagues on a research project that is trying to determine if investing in renewable energy has a positive impact on their business. We need more time to look at the data and results, but I hope to share more details soon. 

Why is sustainability such an important topic for you personally?

I like humans and would like them to persist. I am a mother now and I see it as my responsibility to think about the world I will leave behind for my child. I want to change something for the better. 

I do a lot of self-experiments, like deplastifying my life. But I fail every day. We all need to learn from our failures. If I were to end with something, I’d say: never give up trying. 

Follow Prof. Julia Hartmann on Twitter or visit her website to learn more. 

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