Lily Cuthbertson, Eurofins BLC Leather Technology Centre

Due to the complexity of footwear supply chains often operating globally and across varying concerns relating to environmental, social and governmental (ESG) issues, the risks posed to a brand or retailer are often unknown. This is frequently due to lack of traceability or limited knowledge. However, a significant uplift in both new and upcoming legislation is driving larger companies to achieve greater traceability upstream of their supply chains to include raw material sourcing. Moreover, legislation is pushing companies to build sustainability commitments and share such information with stakeholders and consumers  for a more holistic consideration of ESG responsibilities.

As legislation requirements grow, traceability exercises are likely to become core elements of risk management systems. Outputs from such projects can be utilised in ESG reporting, allowing consumers the opportunity to become active participants in the effort to support and produce more socially responsible and environmentally sustainable industries, including leather.

In order to commit to sustainability improvements and identify opportunities to reduce risk, the footwear industry has a need to identify and establish which parts of the supply chain pose the highest risk. Traceability solutions have been developed over many years to provide greater visibility of the operators within each layer of the value chain. Supply chain mapping is a key and advanced traceability tool which can be used to not only identify the economic actors within a supply chain but to conduct risk assessments and provide prioritised due diligence actions based on findings.

Understanding supply chains

Although various laws and regulations governing supply chains are being implemented globally, a similar pattern can be found regarding increased responsibility of economic operators. The movement obliges brands and retailers to better assess their supply chains to identify the interdependencies likely to be exposing them to risk, undertake measures to remediate them and publicly report on their due diligence systems annually. Examples of such legislation include the European Corporate Sustainability Reporting Directive (CSRD), the German Supply Chain Due Diligence Law and the European Union’s Regulation on Deforestation-free products (EUDR).

The process of understanding and tracing a supply chain has numerous benefits to a business that go beyond providing visibility and meeting legal requirements. From a brand protection perspective, understanding risk exposure allows a company to respond to potential issues before they arise and, from a commercial perspective, knowing where goods originate can provide a stronger position to drive increased quality and potentially rationalise a supply chain. This can also help when leveraging sourcing contracts, allowing for more favourable terms due to the potential of greater buying power and influence in negotiations. 

In the past, sustainability may have been considered by consumers as more of an additional feature when making purchasing decisions. However, it has been reported that  a significant shift in consumer purchasing behaviour is fast approaching, favouring brands committed to sustainability. Today, consumers are more aware and concerned about the social and environmental impacts of the goods they purchase and have become more conscious of transgressions, worker exploitation and environmental concerns. As a result, brand accountability is progressively expanding in scope, highlighting the need for due diligence as businesses are held accountable for issues regardless of whether they are aware of them or not. 

As consumer attitudes change, traceability exercises undertaken by brands will help consumers to make more informed purchasing decisions. It has been reported that sustainability will be considered more a baseline requirement for purchase, highlighting the need for brands to invest adequately in sustainability and traceability in order to demonstrate sustainability commitments.

Sustainability

The greatest sustainability impacts of a product, and for a company, is upstream of the supply chain at the manufacture and sourcing level, as well as downstream in terms of consumer disposal. Although a brand or retailer may not be able to influence the downstream impacts effectively at present, through achieving upstream traceability to raw material origin and identifying the actors involved in the value chain, a company is in a position of greater power to influence all upstream impacts. 

Various ESG risks can be attributed to the footwear industry due to common operation in developing economies of which environmental and social standards or legislation may be less stringent. Although there are groups that work to standardise laws protecting workers and the environment protection, laws are often applied in varying degrees within jurisdictions where some can be rarely enforced and/or monitored. As such, the sustainability impacts have the potential to be significant.

One concern is that the manufacturing stages of the footwear industry can be polluting due to the many different materials and components produced. Traceability upstream of material supply chains can uncover various environmental challenges often relating to concerns surrounding deforestation, chemical use, water pollution and environmental pollution. Social responsibility in this sector can also be challenging as the industry can be labour-intensive, posing risks of labour exploitation, human rights abuses and poor working conditions. 

One example of a key risk is deforestation linked to the lifestock and animal feed industry. It is reported that livestock grazing could be responsible for around 40% of global deforestation. As a by-product of the meat industry, some of this can be attributed to leather. This growing global concern emphasises the need for increased traceability to farm level to become the norm for a company to be able to establish whether it is sourcing responsibly. It is likely that legislation such as the EUDR will act as a driver for this change and it is likely that suppliers will become more accustomed to providing higher levels of traceability than has previously been required by businesses. 

Supply chain mapping

Supply chain mapping is the process of gathering supplier information at all levels within a value chain to create a global map of a supply chain network, visually demonstrating all connections in a supply chain, so the origin and flow of goods can be visualised from beginning to end.  For the footwear industry this would include all companies, suppliers, traders and subcontractors involved in a supply chain for each material and component used within a shoe. The goal is to provide complete visibility and the information generated used as a basis for due diligence to enable targeted action against any challenges that may have been identified. 

Eurofins BLC Risk-Mapped Supply Chain service has been designed to provide visibility over a supply chain by working directly with a brand or retailer and its suppliers through the release of cascading questionnaires to identify where raw materials originate and which actors are involved in the complete supply chain. All data captured is validated by material experts to ensure the flow of supply is accurate and directly work with the supply chain, brand or retailer to solve any discrepancies, ensuring a high level of data accuracy.

The tool is designed for brands and retailers who may have limited knowledge of their value chains, and for those with greater knowledge who may wish to investigate specific concerns using more advanced technology and data assessments. Using software containing Geographic Information Systems (GIS), Eurofins BLC can highlight issues by geolocations, perform analysis and use satellite imagery where relevant to risk-assess relevant sustainability concerns. Moreover, such risks can be layered onto an identified supply chain, often in the form of heat maps where specific suppliers may be flagged as potential risk or confirmed as low risk. The maps are navigable allowing pan and zoom functions, which allows businesses to also conduct their own in-depth assessments. 

Typically, the further upstream of a supply chain the less engagement and information is provided by suppliers.

However, risk level can still be estimated based on various factors including location using satellite imagery and environmental performance by country based on local laws and legislation. An example of this would be cases within the leather supply chain where traceability has provided visibility upstream to slaughterhouse but not to farming locations of which there can often be many. Likely sourcing regions can then be assessed in order to establish level of risk.  

In South America, for example, studies have shown that animals are not typically transported for periods longer than three to five hours from farm to slaughterhouse. This allows a ‘drive-time’ surrounding a slaughterhouse to be calculated and risk-assessed against various environmental issues including deforestation where it is possible to spatially analyse rates of deforestation in local municipalities to establish whether suppliers may be contributing to such issues. In a similar manner, traceability and associated sustainability risks can be mapped for many materials, components and a wide variety of ESG concerns such as greenhouse gas emmissions (GHG).

Traceability challenges

It is important to note that although the aim of supply chain mapping is to achieve complete visibility of a supply chain, the information gained is dependent on the transparency and engagement of supply chain actors. There is no simple answer to traceability, but supply chain mapping is a promising starting point of due diligence for brands and retailers which allows for further investigation and action based on findings once the supply chain and its risks are better understood. Where suppliers have not engaged with the mapping project but have been identified within a supply chain, their identification enables direct contact to be made which can enable greater traceability.

Some suppliers can be more transparent than others which is where a supply chain demonstrates a varied spread of risk. In instances where suppliers choose not engage or omit information, the challenges to the brand or retailer will remain unknown, becoming more challenging to manage and presenting a higher risk. In these cases, non-engaged suppliers are flagged as priority for follow-up as a result of the traceability exercise to understand the reasons behind lack of engagement and to request further information regarding sourcing and business operations.

How is the output used?

The output of a supply chain mapping exercise is not intended to be static. It enables companies to conduct further investigation of their supply chain where risks may have been identified and allows for sustainability commitments to be made. It is always recommended that a business becomes familiar with its supply chain, understanding which actors have provided good traceability and which have not. It is also important that a balanced view of volumes supplied by each supplier, the scale of identified challenges and level of visibility provided should be considered when prioritising due diligence decisions.

Output can also be used to build stronger relationships with consumers and influence their purchasing decisions. As consumers become more demanding to ensure their purchases are not contributing to environmental or social concerns, transparency and publicly sharing aspects of such traceability exercises can earn their trust and loyalty. This would help to create and support a more sustainable leather industry to the benefit of both the people involved and the planet. 
Understanding the environmental and social impact within a supply chain from raw material sourcing through to finished goods is critical for the footwear industry to be able to make meaningful and impactful sustainability improvements and commitments. Many companies lack traceability upstream of their supply chains, of which risk exposure remains unknown. Although new and upcoming legislation is the main driver requiring larger businesses to gain greater traceability and commit to sustainability improvements, there are various benefits for businesses themselves beyond simply complying with such legislation. 

Traceability solutions have been developed over many years with the aim of tracing supply chains back to raw material sourcing and the more recent development of supply chain mapping can bring visibility of the complete flow of goods as well as provide in-depth risk assessments surrounding sustainability concerns. The output of such exercises serves a dual purpose, not only for establishing and fulfilling sustainability commitments mandated by legislation but also for public disclosure. Consumers and stakeholders who are increasingly interested in understanding the manufacturing and sourcing of goods, seek assurance that they support environmentally sustainable and socially responsible brands. Sharing these aspects publicly aligns with this growing demand for transparency.

Footwear supply chains often operate globally.
All Credits: EUROFINS BLC

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