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Who Goes First? The Sustainability Tug of War Between Brand Owners and Upstream Producers

Drishti Masand, Analyst
April 22, 2021

For most sustainable solutions, each part of the value chain seems to shift blame to the other for lack of adoption or slow progress. The fashion industry has a less than 1% adoption rate for organic cotton, with brand owners blaming upstream supply issues and upstream manufacturers and farmers blaming lack of adoption from brand owners for the small supply. This issue is consistent with other CPG industries – the adoption of recycled plastics for packaging has faced the same dialogue for the past few years. Who needs to take the first step? Do brand owners need to adopt all the available sustainable materials to signal a need for an increase in supply? Or should upstream producers first increase supply to generate larger demand and adoption?

The reality is that brand owner companies have the most resources to tackle this issue and face most of the public criticism and thus need to be the first movers. Many leading companies across different industries have adopted "alternative" business models by forming more direct relationships with upstream manufacturers. In the fashion industry, companies like Kering, Patagonia, and Prana, as well as a handful of smaller labels, have forged relationships with farmers, worked with external organizations like Textile Exchange to drive supply chain transformation and support research to improve farming techniques, or even set up their own farms in order to ensure their cotton is grown in ways that benefit rather than harm the environment. On the flip side, companies like Coca-Cola are taking ownership of waste, working with government-established Deposit Return Schemes in Norway and the Netherlands, to support recycling technologies and enable the production of high-quality recycled PET (rPET) resin, which can accelerate the transition to local circular economies for rPET. 

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However, brand owner companies partnering with other players in the value chain cannot be the only solution, as that puts too large a burden on one group of companies. This would shift too much of the accountability and burden for innovation in CPG industries. To make sustainable technologies work, the supply side needs to connect more directly with the demand to reduce the commercial disconnect between the two; however, the supply chain needs intermediary players to ensure that logistical distribution of the technologies can occur at scale. Brand owner companies also need to use the recent partnerships and relations with other sectors in the value chain to educate different players on how to adapt to more sustainable solutions and technologies. 

The key strategy to ensure and scale sustainable technologies is transparency. If brands publicly share volumes for different solutions (e.g., organic cotton, recycled plastics) they intend to purchase and predict growth thereafter, it would allow producers and manufacturers to plan production and make it easier to monitor claims of progress. In turn, suppliers also need to disclose realistic current production capacities and growth plans so that the scale-up for these solutions can be aligned from both sides of the value chain. The lack of transparency so far has led to companies having a wide range of strategies, with little change overall. Brand owner companies need to sincerely focus on sustainable solutions and commit to helping scale different technologies for ultimate success.

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For example, Coca-Cola's investments have been spread out throughout its value chains – from bottle alternatives to new material innovations, single-use plastic cup replacements, and even recycling infrastructure. While the company is not ultimately going to change its value chain position, through these investments, it is influencing all of the different components in the value chain but not in a meaningful way. Transparency can be a competitive disadvantage in the business environment and could create a negative public perception for current situations, leading to a backlash. However, in the long term, it will enable all players in the value chain to make informed decisions that can lead to substantial change for sustainable technologies.

For suppliers, the transition period is a hurdle because they need to abide by uncertain regulations and navigate quickly as downstream companies transition and trial different technologies. Changing practices is costly, with new equipment and other upfront investments while trying to have a price premium without the ability to charge the premiums associated with sustainable technologies during the transition. Transparency would incentivize suppliers to commit and feel secure enough to make the changes for the long-term benefits.

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