Around 70%1 of international trade takes place through global value chains. Concerns about human rights abuses and environmental degradation have led stakeholders, including consumers, investors and employees, to increasingly demand compliance with sustainability regulations. However, ensuring sustainable practices throughout complex supply chains poses significant challenges.
Some lead firms – the largest and most influential companies in a value chain – have responded with risk-management strategies, including measures such as auditing, imposing fines and publicly naming and shaming suppliers. However, this strategy prioritizes short-term shareholder gain and is insufficient for establishing long-term sustainability. Academic and policy research on this issue has highlighted that the shortage of skilled workers, and the systemic barriers to skills development often hinder upstream suppliers from complying with sustainability regulations. Auditing and fining suppliers who lack the expertise and skills to comply with regulations will not yield productive results.
There needs to be a paradigm shift among leading companies. Short-term shareholder gain and risk-management strategies must give way to collaborative approaches that can enhance business legitimacy and ensure skills development for long-term sustainability.
The importance of skills development
Understanding and implementing sustainability regulations requires skilled business leaders and a skilled workforce. Upstream suppliers already grapple with distribution, sales and sustainable public procurement processes. To successfully decarbonize their business models, however, suppliers need to acquire additional skills and expertise in advanced energy-efficient technologies, critical mineral sourcing and efficient manufacturing practices.
The global economy stands to gain significantly from initiatives focused on identifying and fostering these essential skills. The immediate impact of investing in upskilling will generate a minimum of US$6.5 trillion by 2030.2 Additionally, the International Labor Organization (ILO) projects that alignment with the objectives of the Paris Agreement could generate over 100 million jobs by 2030.3 Consequently, the transition to sustainability will require not only a skilled workforce today but a continual supply of skilled workers to fulfil the roles created by this change in the future.
Systemic barriers hindering skills development
Complex supply chains extend across multiple countries, time zones and cultures, posing significant challenges for coordination and communication among actors. Lead companies often prioritize avoiding scandals and securing short-term shareholder gains. At times, this has meant auditing and fining their upstream suppliers, perversely eroding trust and transparency. These are key barriers hindering companies from evaluating their suppliers’ sustainability performance and investing in sustainability skills development initiatives.
Recent strategies of lead companies – such as requesting that direct suppliers comply with sustainability regulations and expecting these changes to “trickle down” to sub-suppliers – are unproductive in complex supply chains. Figure 1 provides a breakdown of four key environmental impacts of the food sector, using data from eight different German value chains. It highlights that the greatest environmental impacts, in all four categories, occur at the resource extraction level. This shows that pressure from retail companies on their direct suppliers is not tackling the bulk of the impacts further upstream and underscores the need of investing in solutions that include actors beyond direct suppliers.
Overcoming systemic barriers
To identify and foster the sustainability skills required by suppliers, it is essential to consider their unique viewpoints, operational circumstances and current expertise. Communication, collaboration, and trust between all actors in the supply chain are key to bridging the skills gap and accelerating progress towards sustainable supply chains.
A promising strategic approach involves the utilization of Public-Private Development Partnerships (PPDPs). By combining public and private-sector resources through a development partner, PPDPs can offer scalable and sustainable industry-relevant training, achieving results beyond what either sector could accomplish alone. These collaborations also help meet industry needs by providing a platform for knowledge-sharing and tailoring solutions to the relevant context. Figure 2 illustrates the roles of each party within the PPDP and emphasizes the importance of workforce development for all partners.
Final remarks
Short-term shareholder gain and risk-management strategies, including auditing and levying fines on suppliers, fall short in achieving compliance and establishing long-term sustainability within global supply chains. The complexity of supply chains makes it imperative that lead companies communicate all the way up to ensure compliance with sustainability regulations; this will also allow them to identify and invest in sustainability skills development. PPDPs are a promising model for enabling industry-relevant training at the scale required to achieve the United Nations Sustainable Development Goals (SDGs) and meet the terms of the Paris Agreement.
Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).
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