Shaping sustainable supply chains

Integration into global supply chains is a promising strategy for developing countries to benefit from globalisation. Yet, supply chains also entail challenges for sustainable development, both socially and environmentally. By investigating and hosting the Research Network “Sustainable Global Supply Chains”, the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) contributes to research and policy advice on the promises and pitfalls of supply chains.

With increasingly fragmented production processes across multiple countries, an immense share of global value creation takes place in supply chains. In the context of such supply chains, large retailers or companies, such as supermarkets or garment companies, determine the economic opportunities of suppliers, for example farmers, worldwide. To become integrated into supply chains, companies have to meet increasingly higher requirements. Both mandatory public regulations and voluntary sustainability standards (VSS) can make supply chains more sustainable. For many product groups such as coffee or clothes, firms and civil society partners have agreed on voluntary standards and codes of conduct (e.g. Fairtrade, Fair Wear Foundation). Governments can also influence the performance of supply chains. For example, they can mandate basic standards, e.g. to protect consumer health and safety or the environment. In 2019, for instance, the German Federal Minis-try for Economic Cooperation and Development (BMZ) launched a voluntary standard for textiles and garments (“Grüner Knopf”). In some countries (France, Netherlands, UK) supply chain laws force at least the big lead firms to due diligence regarding the supply chains they dominate. The German government has been working towards a German version of it.

It is important, however, to keep an eye on unintended consequences: Due to the complexity of many value chains, it can be difficult to comply with all pertinent legal or voluntary requirements, especially for smaller players. Higher standards can create market entry barriers and can exclude the weakest market participants, like smallholders or Micro, Small & Medium Enterprises (MSME).

To better understand how to leverage the potential and tackle the pitfalls of supply chains, researchers at DIE investigate the opportunities and challenges they generate for developing countries from the perspective of sustainable development. Research at DIE, often conducted jointly with partners, offers insights into the distribution of income across different stages of the value chain. It also provides information about dependency relationships, knowledge transfer, or environmental impacts in the context of supply chains. Moreover, researchers at DIE analyse, inter alia, the impact of glob-al frameworks, such as trade agreements, on the opportunities of developing countries in global value chains, how supply chains in agriculture and industry can be shaped to have positive social effects and minimise burdens to local and global ecosystems, how sustainable public procurement practices can be mainstreamed, how COVID-19 and automation affect supply chains and how we can move towards a circular economy. DIE research thereby provides the basis for policy approaches that seek to contribute to better results for society as a whole from the viewpoint of the global common good.

Since 2020, DIE has been hosting the newly founded ‘Research Network Sustainable Global Supply Chains’ (funded by BMZ) in collaboration with the German Institute for Global and Area Studies (GIGA), the Kiel Institute for the World Economy (IfW) and the Stiftung Wissenschaft und Politik (SWP). This new network brings together leading international research institutes in the field of supply chain research. It generates innovative research and provides evidence-based policy advice to decision-makers in development cooperation. It contributes to scientific knowledge diffusion and stimulates public discussion through its research reports, regular blogs, a podcasts series and online seminars.

In a joint book on sustainability standards and global governance, researchers from DIE and the Institute’s dialogue and advanced training programme Managing Global Governance (MGG), for the first time, bring together insights on VSS in rising powers. The book underlines the importance of promoting sustainability standards in emerging economies. In fact, through MGG, DIE has supported a number of national platforms for VSS during their creation and has a dedicated workstrand on VSS experience exchanges.

Another example of DIE’s international research cooperation concerning sustainable supply chains is an ongoing EU-funded project on bamboo-based value chains. Together with India’s Foundation for MSME Clusters, DIE is exploring the income-generating potential of new bamboo uses and how these can generate employment for the rural poor in this emerging green industry. In 2020, researchers at DIE co-authored an International Trade Centre (ITC) report on how to leverage the role of VSS to make value chains more sustainable and promote the achievement of the SDGs. By identifying which SDG targets are covered by which VSS, the report shows how the private sector but also consumers can make use of synergies between VSS and SDGs and which gaps remain to be addressed by decision-makers in the public sector as well as by standard bodies.

Overall, because of the substantial potentials and limitations of globally fragmented production processes and building on the research insights generated by DIE and its partners, it is important for international and German development cooperation to keep working towards more sustainable supply chains, including via legal approaches. At the same time, it is key to identify and respond to unintended consequences.