Greening the supply chain

Greening has become a prominent feature in the design of supply chain networks leading to the concepts of low carbon supply chains and green supply chain management.²⁹⁴ For example, understanding the sources and levels of emissions within the supply chain is the first step needed to fully design a low carbon supply chain. According to the World Economic Forum, sustainable supply-chain practices can result in cost reductions of between 9 per cent and 16 per cent²⁹⁵. Further, thanks to the connectivity that the internet of things (IoT) offers, shippers can use data to quantify the benefits of a sustainable approach to supply-chain management. The green or environmental dimension of sustainable development should contain environmentally-friendly production processes and actions for reducing the quantity of waste. Applying renewable sources in production and re-using materials, whether processing defective or consumed products, are equally essential. Crucial elements of the environmental dimension of sustainable development include organizational activities such as the selection of partners in the supply chain based on ecological guidelines, and the commitment of employees to environmental protection programmes.

Policymakers must consider the key driver of economic and environmental issues in the business environment and need to identify what regulation can be the right regulation that could be utilized to further help implement green supply chain guidelines among MSMEs. Environmental regulatory tools should be approached from a perspective of helping MSMEs to adopt greener practices rather than punishing non-compliant activities given the fragile environment in which MSMES operate, noting the current pandemic. To do this, regulatory actions need to be reformulated to address the specific characteristics of MSMEs and to provide incentives for enterprises to go beyond compliance. Keeping up to date with environmental requirements can be difficult for MSMEs, particularly when it comes to understanding which requirements apply to them. Finding guidance about what they have to do to comply with given regulations is challenging. MSMEs can feel that they are not supported enough and are unreasonably expected to cope with the same levels of paperwork and obligations as larger companies.²⁹⁶

The steps outlined in this section are meant to encourage governments to see regulatory policy not simply as a means to protect the environment but as a tool to help MSMEs become greener. Part of that process is ensuring that environmental regulation is effective while being proportionate to the cost of compliance.

Policy recommendations
Ensure collaboration between environmental and non-environmental regulatory entities and MSME agencies

Environmental and non-environmental regulators such as environmental agencies, local government, and business registration agencies can work together to identify opportunities to reduce duplication in paperwork and conduct joint or delegated inspections in selected sectors. MSME agencies are essential to this process, because they are often in close communication with the MSMEs themselves, and have a broader perspective on MSME activities. However, they also must be empowered in this co-ordination role and provided with the appropriate capacity. Listing the full range of regulations that have an impact on small businesses in selected sectors helps to identify opportunities to reduce duplication in paperwork and/or processes among regulatory authorities. Among different ways to simplify the administrative requirements for reporting on environmental issues and avoid duplication of requested information are the creation of nationwide information registration systems accessible by all competent government authorities, the introduction of e-government to replace paperwork documentation, and the implementation of the “one-window” approach for issuing appropriate permits and licenses to businesses (e.g. through local authorities). Offering compliance-related information to businesses also contributes to better regulation by reducing their transaction cost of compliance.

Improving regulation of MSMEs with low environmental risk
Simplify environmental regulatory requirements for MSMEs that are characterized by a low level of environmental risk. This simplification generally involves replacing environmental permitting with general binding rules – standardized requirements for specific activities with low environmental risk that are practiced by a large number of operators using similar technologies. Rules that require operators to notify or register with the competent environmental authority before engaging in an activity are preferable in terms of the regulator’s knowledge of the regulated community and control over its potential environmental impacts. Smaller businesses, often with limited in-house regulatory capacity, benefit from a standardized, rules- based approach to setting environmental requirements. It provides more certainty about the most effective way to achieve compliance than do individual, customized permits. Rule-based regimes also have other benefits, including reduced bureaucracy and costs to the regulator and the absence of impact on the level playing field within an industrial sector.

Taking a sectoral approach to environmental regulation
Environmental regulations tend to refer to activities which may or may not correspond to a specific economic sector. However, efforts to promote compliance with them should generally be sector-based because businesses, particularly MSMEs, respond primarily to messages adapted to their sector. The sectoral approach to outreach is part of a larger customer service perspective that environmental regulators should adopt in their relationship with small businesses. Environmental enforcement authorities should work to strengthen their own staff’s capacity to regulate and advise small businesses in specific sectors.

Using regulatory incentives to encourage MSMEs to adopt environmental management systems (EMS) Environmental regulatory structures can build in incentives to encourage MSMEs to adopt certified EMSs (see previous section on EMS background). While market demand from customers and clients is also a driver, as is the desire to improve environmental performance, regulatory systems can incentivize EMS uptake through support with EMS implementation and compliance upgrading and benefits such as reduced inspection frequency of facilities and reduced fines for infraction (see box below). Introducing incentives such as the ones described in the example below are possible at every level of EMS development, as they also help to reduce the regulatory burden for the government.

Ensure that information about regulatory requirements for MSMEs is clear
Most small businesses seek clear and consistent information on the minimum requirements for compliance. Interpretation of text-heavy guidance can be difficult for a MSME. The most efficient way of providing advice and guidance to businesses is to take into account the full suite of regulations that apply to them, not just environmental regulations. Regulatory requirements that are communicated to small businesses should be well coordinated across government. To avoid excessive or unnecessary costs for businesses, guidance should clearly state the minimum legal requirements. As the volume and complexity of both mandatory and voluntary (good practice) guidance grow, voluntary guidance can sometimes be treated as mandatory in practice. Misleading advice could lead to over-compliance and an unnecessary increase in the regulatory burden. To avoid this, compliance and good practice guidance should be clearly distinguished.

The UN Global Compact provides advice about developing sustainable supply chains. The Sustainable Supply Chains Website is a one-stop-shop for businesses seeking information about supply chain sustainability. The website organizes information by issue area, sector, region, and practice.