The Future in Focus

Hello and welcome back to The Future in Focus podcast by LRQA or if you’re new here, thank you.

In this episode we are joined by returning guest Forbes Fyfe, Technical Account Manager of Agriculture Supply Chain at LRQA, and Meghan Quinlan, Vice President of Food & Agriculture at ELEVATE an LRQA business.

Forbes and Meghan are with us to talk about responsible sourcing and production, what it is, emerging themes and how these themes are affecting food supply chains.

Great to have you back on the podcast Forbes, and Meghan this is your first time on the podcast so thanks very much for joining. Meghan, could I start by asking you to introduce yourself for our audience?

Sure, nice to meet everyone thanks for tuning in and having me here today. I am Meghan Quinlan currently Vice President of Food & Agriculture at ELEVATE which was recently acquired by LRQA. I’ve been working in ESG and Human Rights for about 20 years now ranging from voluntary certification and standards to supporting on the design and implementation of large scale responsible sourcing programmes.

Great, thanks Meghan. I’d like to start by asking you both what we actually mean when we say responsible sourcing and production as that’s what we’re here to talk about today.

The best description I’ve come across so far is from Professor Chris Elliott at Queens University Belfast. He defines it in terms of food integrity and says, “it means the food we produce is safe, the food we produce is authentic, it’s nutritious, the systems we use to produce our food are sustainable, our food is produced to the highest ethical standards and we respect the environment and those who work in the food industry”.

Well Forbes, I think that’s a great definition and a great ambition if not a huge ambition.
I think the question is ‘what does this really mean in practice’ and we are looking at a broader definition of responsibility as we’re marching forward one that is founded on the core premise that the food we purchase will be safe, it complies with our expectations but that it also considers the wider issues such as safety and fraud in the supply chain, environmental costs, ethics and human rights and ESG more broadly as well as welfare.

And I think it is these areas that are really increasingly coming into focus in the supply chain and at the centre of a lot of companies thinking about these issues and how to dig into them.

And can we talk about some of the themes we’re seeing at the moment in terms of responsible production and sourcing, are there any topics driving change?

Sure, I mean from my perspective companies are being asked to go both deeper and wider in particular when we drill down to responsible sourcing and human rights there’s a growing body of regulation that is really holding companies more accountable and simultaneously expanding the scope of expectations.

So understanding ESG and human rights practices within the Tier One context only is no longer sufficient and really what this means in reality is that companies have to have some form of due diligence across additional thousands of sub tier sites. You know really this cadence of increased regulation has been kind of up ticking over the last five to eight years if you will which is interesting you know in the last few years the interest has grown even further even with the supply chain disruptions driven by Covid. But if you look for example at towards the US in addition to the swell of withhold release orders over the last 36 months which have a significant financial impact for companies there are additional regulations being proposed and/or passed. So for example, the Security and Exchange Commission mandated rules governing reporting by companies in carbon footprint, that was proposed end of 2021, there’s a second on greenwashing in May of last year, there’s a third on human capital at the end of last year.

But then really overwhelmingly what has had the biggest impact of the companies when they’re thinking about regulation from a human rights perspective and due diligence it’s the Uyghur Forced Labour Prevention Act that was passed by Congress and mandated into law in 2022. And the presumption of this act is that products from the Xinjiang region of China are produced with forced labour and whether that’s tomatoes, solar panels, cotton etc., and unless a company can prove otherwise, they’re considered guilty.

So that’s the US, if we shift over to the EU, we’re seeing that its mandated that every EU government adapts mandatory due diligence of environment and human rights. This means regulators and courts will play an even greater role in evaluating whether companies are activating human rights and whether they are doing that sufficiently. All 27 member countries must adopt these mandatory due diligence laws. But even beyond the due diligence laws and human rights, they agreed and they also said in the context the farm to fork strategy for example commits the EU to climate neutrality by 2050 relying on a number of regulatory and non-regulatory initiatives to support/adjust transition.

At the same time you know as part of this farm to fork seek to reduce food waste, ensure there’s sufficient and affordable supply of food for its citizens, reduce the EU’s environmental and climate footprint whilst also guaranteeing that farmers receive a fair price for their products.

Additionally, the EU Code of Conduct, a responsible food business and marketing practices has been inspired by and directly/indirectly linked to the US sustainable development goals. But we’re already seeing more of these concrete requirements coming through. The Commission have adopted a legislative proposal for a Corporate Social Reporting Directive or CSRD, and work is ongoing on the details of the European Sustainability Reporting Standard or the ESRS’s to support it. The first companies will have to apply these ESRS’s in 2024.

So you know really just stepping back the clear message that we’re getting from no matter where you sit whether its in the US or within the EU, the clear message from governments is that we’re going to demand that companies produce better data and make it available as human rights and ESG is now a matter of courts and of regulation.

Great, thanks Meghan. Forbes, how are all of these things affecting the supply chain?

A good example comes from the Deforestation Regulation which was adopted in December 2022. The Deforestation Regulation requires that anyone selling products into the EU market that maybe associated with deforestation and those products include soya, palm oil, cocoa, beef, coffee, chocolate, timber, and there’ll be others added as we go along.

Those organisations will now need to assure traceability back to plot level and have proof of compliance with the new requirements and the key here is that this goes back to source, so its not just applicable to organisations operating in EU member states. And that goes back to what Meghan was saying about the scope moving from Tier One suppliers down to Tier Two and Tier Three who are the suppliers of, your primary suppliers. And what that means for those of us operating in the supply chain is that we’re going to have to embrace a wider set of environmental and social responsibilities.

We’re going to need to recognise that assurance is going to embrace a wider set of commitments with increasing focus on areas such as food waste, fraud, and environmental impact. And to do that we can see our vendor assurance programmes evolving to account for and critically to enable us to report on responsibilities in areas such as water impact, soil degradation, fertiliser use, emissions monitoring and various others.

And a couple of examples, it will mean that if we are buying sugar from Queensland, we will need to be able to demonstrate that the suppliers we’re using and their own supply chains are actively managing fertiliser run-off to protect the great barrier reef. Or if we’re buying palm oil, we’ll need to have evidence that that’s not been assured not just for quality but also to show that its been produced sustainably to enable us to demonstrate that our sourcing decisions aren’t contributing to global deforestation and habitat loss.

I mean really what it comes down to as Chris Elliott said, we will need to hold ourselves to higher ethical standards and recognise that assurance also encompasses the rights of those involved in producing the products we purchase.

And going back to themes we’ve seen emerging over recent years, Meghan could you share some insight in how companies are reacting to these new regulations, the evolving landscape and increased expectations?

What I am seeing from my perspective, from our perspective, is that consumers are hitting reset and despite cutbacks at many companies due to the recession and slow down etc., ESG teams are actually often growing. You know as a side note the term ESG came out of the World Economic Forum you know in the early noughts, and in its early days it was commonly used as an adjective for issues and factors. But really today what the terms used as an adjective for is metrics and performance.

So I’m using the term ESG, ESG teams, loosely here as they’ve had different iterations over the years whether its CSR or social compliance, corporate responsibility, sustainability etc., but in any case, these themes have tended to sit in a variety of places whether it be in marketing or in procurement, if there’s really integrated procurement processes with responsible sourcing policies or sometimes within legal.

But what we’re beginning to see is that there’s an increasing shift within companies to move the function under legal and have it be escalated within that legal structure. And when human rights is under legal, this inherently means it has to be defensible right which again comes back to data and that companies need more data, they need to be able to defend their claims and they are being audited against their claims.

So you know they’re hitting reset, they’re taking all of this into account and thinking about the data that they need to gather and use kind of in their defence if you will and this includes needing to learn more and record more data relating to the supplier hierarchy, particularly with reference to Tier Two, Tier Three and beyond, their ability to report on not just food safety standards but also ESG performance and Scope Three emissions.

And so while companies are needing to hit reset and see how they can more effectively meet this demand for data and defensibility, you know what we’re also seeing some of the leaders really asking themselves is how else can we use this data to drive sustain improvements in the supply chain. And I think this is really a critical point Holly because its not just about reporting on data, it’s using the data to manage your risk, every business uses data of course. How a business uses data is what differentiates poor from marginal and good from great, numbers aren’t the treasure they’re just simply the clues on the treasure hunt. So numbers are designed to signal when things are out of the norm, once you notice the signal its time to start asking questions.

So this type of framework is really what we’re seeing clients spending a lot of time and effort on developing and what we’ve been supporting a lot of clients through.

Thanks Meghan. With all of this in mind Forbes, how do you think the future of audits will develop and what will businesses need to do to demonstrate compliance?

Thanks Holly. I think the first and key point is that we’re not going to lose focus on food safety, what we’ll see coming is supplemental to that. So all the work we’ve done over the last 25-30 years underpins so much of what’s happening here. Now that being said I think we’re certainly going to see a more robust approach to what’s been happening so far in the sustainability space.

I see this in terms of full supply chain audit programmes where we will need to follow through from primary production all the way along the manufacturing and distribution chain. I don’t think its unreasonable to see monitoring programmes that will involve combinations of traditional onsite visits and remote reporting particularly where we are monitoring ongoing compliance.

But the scope is going to expand, its not just going to expand in terms of from Tier One to Tier Two, Tier Three suppliers, I think it will also have to expand to include other process steps. So that will include transport and distribution and country, shipping, distribution, and product or service end use. So it’ll really be that full end-to-end process map that we’ll end up having.

And at the end of this process there will be a significant piece of work involved in collating and reporting on those findings that come out from it.

Thanks Forbes. And lastly Meghan, I’d like to ask how and where businesses are getting this data and is it always reliable?

This is actually where I think it gets really interesting. Some of it is better use of big data or predictive risk data and the analytics to understand ESG risks. So this means analysing your supplier base and their supplier base to understand it inherently based on country, region, sector, demographics etc. Which suppliers might have the highest risk of say contributing to deforestation or having child or forced labour.

But similarly it is the increasing integration of ESG or human rights risks to other types of risks to enable a more holistic view of risk for suppliers and operations. And just an example, we are expanding EIQ our ESG risk analytics platform to not just include ESG risks but also integrating data from food safety audits. So currently EIQ has all the public domain data on ESG such as the Tip Report, Walk Free Foundation, UNICEF, (unclear) etc., and also data from about 20,000 social audits annually, boots on the ground data collected from auditors.

But companies can look at inherent risks then overlay then overlayed with supplier performance across an increasing number of risk areas. Because what we see is that when a supplier has weak management systems governing their food safety, often of course they have weak management systems governing their labour practices. So through triangulation companies can be more focused as they’re allocating resources to mitigate their risk, they can be smarter, they can leverage their limited resources better.

And we’ve seen signals in the marketplace that companies are really trying to figure out ways to do the same thing that we’re doing with EIQ obviously this is what contributed to our drive to do this is how do we bring this together to help drive our decision making and a more sustainable change.

But I think its also important to remember in order to leverage the value of data the ESG metrics in particular, it’s not just important to measure the relevant key metrics it is also necessary for the data and insights to be made easily available for all stakeholders. So if we want consumers, governments, stakeholders to trust our numbers they have to be checked and validated by an independent third party and so just the circle continues.

Thanks for listening to The Future in Focus podcast. Please visit our home page on Spotify to listen to more episodes and stay up to date with new releases, and to find out more about LRQA services please visit www.lrqa.com