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NEW WEAPON OF CHOICE FOR COMPLEX SUPPLY CHAINS

By RL Expert Leesa Soulodre

In the pledge for net zero deforestation, sustainable Palm Oil supply and water security, there is now a new weapon of choice - big data.

It may come as no surprise that Google, ESRI, UNEP, iAmazon et al and the World Resources Institute (WRI) have teamed up to deliver to the world, the first ever Global Forest App! Now passionate consumers, media, NGO's, Governments and Corporate supply chain and sourcing directors can have complete access toyears of historical and real-time forestry data at their fingertips for absolutely NO COST! No doubt, this is a business model that is sure to get a fewbusiness intelligence providers, looking for that lucrative exit, in a twist!

Another of their tools is WRI Aqueduct an exciting tool that can provide details on flood and drought risk - now and for the next few decades - anywhere in world...just type the address, or use coordinates and the data is delivered. It too is FREE to use.

(Word at the BEI Forum Asia is that Jack Ma's Ali Baba has also just released aPollution App in Beijing that not only measures pollution levels but also what pollutants are in the air. It apparently links the specific pollutants back to those factories in the region that are contributors to the issue for local stakeholder action!)

Imagine if the world's largest Consumer companies with the portfolio of billion dollar brands - e.g. multinational companies like Walmart, P&G, Nestle and Unilever - had access to view their suppliers palm oil plantations via geospatial satellite imagery. Add in crowd sourced data from "on the ground "netizens" inreal time. Pinpoint with real-time accuracy who, when, where, and what is going on. The Brand manager could transform the company's position from monitoring only lagging indicators and start to focus on leading indicators.

Empowering a Brand Owner to take proactive action with their supplier can have a big impact. Trade flows and risk management strategies can be adapted to drive outcomes that are increasingly sustainable to ensure continuous supply. Brand owners can then engage proactively to protect the trust that they have earned from their consumers.

Complexities of Global Supply Chains

For the effective management of complex global supply chains, we must solve the challenges of:

1. Opacity of global complex supply chains2. Identifying theft, fraud and corruption3 Identifying at risk suppliers4 Loss of reputation or brand value5. Identify changes in regulation and legislation The Allianz Risk Barometer (2014) reports that in the top 10 business risks for any company in 2014, 5 are risks dominant across sectors.

These include supply chain risk (1), fire and explosion (3) loss of reputation or brand value, theft fraud and corruption (9) and quality deficiencies (10).

Consumer Goods companies have substantial reputation risk exposure, when their brand's value chain has ties to the palm oil industry. Land grabbing, deforestation, local pollution, community displacement, loss of biodiversity and contributions to climate change often take out headlines. Not to mention that Activist NGO social media campaigns (eg KitKat) have been marginally effective through encouraging consumer boycotts and education.

What is Palm Oil?

There's a good chance you use Palm Oil every day without even knowing about it. It's often disguised as vegetable fats and oils on the label and is an ingredient that is used inside chocolate, detergent, cosmetics, candles, shampoo and soap. In some countries, it's also used as biofuel for our cars. Palm oil is everywhere.

Why focus on Palm Oil?

Palm Oil is a great crop. It's the most widely produced vegetable oil on the planet and it grows even in the harshest of conditions. It has the highest yield of any oil crop, is the cheapest vegetable oil to produce and refine and more than 90% of the world's bounty is grown in Malaysia and Indonesia.

What's the Issue?

  1. Biodiversity at risk. Malaysia and Indonesia boast a region of rich biodiversity. It is also home to 15% of the world's known species of plants, animals and birds. Sadly, with illegal logging and land grabs, there are as few as 400 Sumatran tigers in the wild and experts say that in less than 10 years if there is no change, Orangutans will become extinct.
  2. Contribution to Climate Change - NGO's argue that burning of peat forests have a significant impact on climate change and air pollution. Slash and burn techniques and fire are often used during the long fallow rotation of the "jungle rubber" in Sumatra and Kalimantan. The purpose is to remove most of the biomass, including the woody parts before new plantations are re-established.Fire is also often deliberately used as a weapon to land grab in provinces where land ownership is not clear. This action is taken by both smallholders and large operators. After burning out its previous owner, the smallholder or large operator plants their own crops there, gaining de facto control over the disputed land. All burning releases CO2 contributing to climate change.
  3. Impact on Communities - Over 45 million people live in these forests and despite years of efforts by local communities to defend their homes and livelihoods, they are often forcibly displaced. The concentration of land is in the hands of a few large entities so often the power imbalance exacerbate land grabs. Today more than 5,000 land conflicts have been recorded in the region. In addition, Children and the elderly, as well as those with pre-existing respiratory and cardiac diseases are typically the most susceptible to adverse health outcomes from any haze exposure.
  4. Costs of the Haze - Since 1991, Southeast Asia has had an acute problem with the haze. The main source of the haze has been fires occurring in Sumatra and Borneo. However, numerous times the haze has also spread to neighbouring countries including Singapore. This has paralysed cities and disrupted air travel and business activities. 

Innovation

While Singapore's Clean Air Act legislation provides a strong deterrent to Malaysia and Indonesia to encourage them to clean up their act, it seems legislation and its enforcement does not have to be the only way.

Big data put into the hands of a broad stakeholder group now enhances decision making and provide effective real-time insights and transparency for active engagement.

In their pledge for "net deforestation by 2020" the world's largest Consumer Goods Forum have also teamed up with the Banking Environment Initiative to deliver the world's first "Sustainable letter of credit" (LOC). This letter of credit verifies the "quality" of the asset it's underwriting.

Alert services from real-time data sources like GFW can also serve to alarm"risk and portfolio managers" on real-time exposures related to their "underlying assets".

If used effectively Global Forest Watch (GFW) can have a significant impact on reducing non-compliance to International Standards on issues includingdeforestation, water scarcity, monocultures, land grabbing, local pollution and violation of international standards and legislation.

Wrap Up

How do you solve the problem of deforestation and its contributions to climate change? Global Forest Watch offers one option - empowering stakeholders through real-time information available and delivering transparency.

The short term operational benefits of this approach are that in it's basic format, it supports a lifecycle risk management approach when integrated into existing early warning systems. This in turn provides the incident alerts for theproactive mitigation of reputation risks, enabling brands to focus oncapitalizing on new market opportunities.

Rather than putting out crisis and "fires", brand owners could be developing new products in partnership with their "low risk" suppliers, taking a leadership position in the market for market access and/or competitive advantage, confidently issuing green bonds/products and/or demonstrating compliance to international standards to attract direct foreign investment.

Decision tools such as GFW, put into the hands of Palm Oil stakeholders and thebillion dollar Consumer brand owners or asset owners/managers for active engagement, can support alignment to environmental commitments and policies (that adequately reflect Board risk appetite) and ultimately serve to"assure" a Consumer Goods' company brands "social" and"legal" license to operate.

Sun Tzu once said, "If you know the enemy and you know yourself, your victory will not stand in doubt".

But solving these challenges can never be done alone. To support Consumer Goods companies to protect and build billion dollar brands,"we must collaborate and move forward together: with our customers, our employees, our regulators, our communities and our partners." BEI Forum Asia

.....

*NB - It goes without saying that not all Palm Oil companies are offenders. In fact one company, New Britain Palm Oil, the largest oil palm producer in Papua New Guinea and the Solomon Islands,is paving the way for the sector by demonstrating the business case through sustainability best practice. They funded Orangutan Land Trust, an organisation that leases land to preserve the regions forests and provide safe habitat for orangutans and protect biodiversity. Dr Simon Lord, the Group Director of Sustainability even went to great lengths to establish a CSR consulting division, a practice that now shares it's expertise and lessons learned with others in the sector.)

Definition: What is reputation? Reputation is how stakeholders perceive an organization (Davies, Chun, da Silva and Roper 2003, Dowling 2002, Fombrun and Van Riel 2004).

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About RL EXPERT Leesa Soulodre:

Managing Partner and Founder of RL Expert Group. A Member of the Global Advisory Council of NY Investment Advisory Firm, Cornerstone Capital; an Innovation Advisor to the University of Illinois Urbana Champaign Advanced Digital Science Centre, Singapore and Board Advisor to Belgian PR Software firm, Prezly and US Sports Analytics firm, Autoscout.

An Adjunct in Corporate Communications at Singapore Management University, lecturing part time on "Risk Issues and Crisis Management "and "Content Strategy" at the Lee Kong Chian School of Business. Prior to moving to Asia, she spent 7 years part time in European Academia, lecturing on the Luxury MBA programs in Marketing, Communications and Reputation Management at two french business schools, Ecole Superieur de Gestion and Mod'Art International.

Connect: Leesa Soulodre, Managing Partner, RL Expert Group - ls@rlexpert.com

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