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Mishcon Academy: Purpose Matters - De-risking Supply Chains and the Circular Economy

Posted on 11 March 2021

Last month as part of our Purpose Matters series, Alexander Rhodes, head of Mishcon Purpose was in conversation with Ayse Toker, Legal Counsel of IKEA Limited, along with Emily Dorotheou, Associate in the Commercial team, about de-risking supply chains and the circular economy.

Increasing demands for accountability mean that businesses need to re-imagine their relationship with suppliers to mitigate environmental and social risks, and add value. Responsibility now extends deep into the supply chain across geographies and beyond jurisdictional boundaries. A greater awareness of products' "end of life" means that businesses also need to consider their responsibility for what happens beyond the point of sale, including disposal, reuse and recycling.

Alex Rhodes

Welcome everyone, I’m Alex Rhodes, the Head of Mishcon Purpose and I’ll be your host today.  We’re going to discuss the importance of supply chains to business and in particular we’re going to consider how companies are re-examining their value chains including the steps they’re taking to manage Environmental, Social and Governance, or ESG risks.  And we’re going to explore the value that companies see in the concept of the circular economy.  The question of where responsibility and accountability lies especially for social and environmental impact has never been so live for businesses as it is today.  I’m really excited to be joined by Ayse Toker, who is legal Counsel at Ikea.  Ayse has been centrally involved in their ground-breaking Buy Back initiative and we’re going to be talking together with Emily Dorotheou who is an Associate in our Commercial Team, who has a specialist interest in the circular economy.  Ayse, perhaps I can start with you.  June last year, Ikea announced its goal of becoming fully circular by 2030 and I wonder whether you could just share a bit about that with us, what does it mean and why is it important for the business?

Ayse Toker

For us at Ikea, it’s all about setting long-term goals and for us to be able to have a roadmap to follow.  So, our aim is to make all of our products 100% renewable and 100% circular.  So, they’re quite ambitious targets and it brings about quite a few challenges for us and the way that we work in our stores.  But that’s also exciting because we have an opportunity to be able to change the retail industry generally but also consumerism as a whole. 

Alex Rhodes

The creation of an opportunity for resale is something that we’ll talk about in a moment.  Emily, first can I just come over to you and ask you, I mean when you’re advising businesses on their supply chains, what are the key ESG factors that they’re concerned about?

Emily Dorotheou

Supply chain complexity probably really started taking off in the late ‘70s and early ‘80s when we had the huge surge in globalisation which allowed companies the opportunity to start resourcing raw materials from different parts of the world and to also investigate you know, whether they could move their manufacturing or different parts of their supply chain to other territories, primarily sort of for cost saving purposes.  And a natural consequence of that has meant that it’s so difficult for the brand at the very top to know exactly what’s going on sort of beneath them in terms of the environmental risks.  Obviously, supply chains have different by-products and by-waste that’s created at every stage and so it’s a question of how do you assess that?  How do you deal with it?  Can you reuse it? Can you recycle it?  You then have issues of excess stock at the end of the supply chain.  How do you get rid of those?  And obviously along the way you’ve got carbon emissions, whether it’s through the manufacturing of products or through the delivery to consumers at the end of the supply chain.  So, you’ve got this horrible situation where you have really complicated supply chains and really complicated and big issues that brands have to identify and then have to deal with. 

Alex Rhodes

I mentioned earlier Ikea’s Buy Back initiative which you’ve been so involved in piloting here in the UK.  Can you tell us a bit about that?

Ayse Toker

So, we at Ikea are constantly examining consumer attitudes and we realise that consumer attitudes are changing.  Our customers want to reduce their impact on the environment and increasingly sustainability has become a factor when it comes to their decisions in purchasing products.  So, we wanted to explore the idea of furniture as a service and through that to be able to give second-hand products a new lease on life and this fits in line with Ikea’s value of being both people and planet positive as well.  So, I’m pleased to say that the Ikea Buy Back scheme will be launched in 27 different markets including the UK and Ireland.  We did have a test in the UK last year and we received a positive response from that from our customers.  So, a bit about the initiative and what is the Buy Back scheme? It provides an opportunity for our customers to be able to go online, go on the Ikea website and to be able to find out how much they’re able to get for their Ikea products.  The second-hand furniture that they perhaps no longer, it no longer fits in with what they want in their homes and then they’re able to return those items back to Ikea for up to 50% of the original purchase value.  At that point, give our customers a voucher so that they’re able to re-use that voucher in our stores.  What we then do with those second-hand items is we’re able to sell those on in our Buy Back areas for other customers so that it becomes even more affordable for those customers and it also gives those products a second-hand lease, a new lease on life. 

Emily Dorotheou

It definitely is a big part of it and just rethinking supply chains and rethinking the sort of the linear versus the circular economy is about taking customers with you along the journey which is what Ayse said that Ikea are doing because you know for so long, I think most people have been thinking about things as, ‘Okay well, the company sells it to me.  I buy it.  I then throw it away’ and it’s about getting out of that mindset and imagining different possibilities of what you can do with that product at the end.  Whether you can recycle it.  Whether you can repair it and give it a new home. 

Alex Rhodes

Emily, I wanted to ask you about you know the client relationship.  What are your sort of top tips I suppose for brands that are looking to manage reputational risks arising from their supply chains?

Emily Dorotheou

So, I think the first sort of and foremost tip is sort of what I alluded to earlier and that’s about having a knowledge of your supply chain and then I think the second tip is, once you’ve got that understanding and as and when you do uncover any issues that are in your supply chain you know, to not be afraid of confronting those issues. 

Alex Rhodes

I read that Ikea is reported to have as much as 1% of global commercial wood supply running into its products.  I wanted to ask you about how you manage your supply chains.  How you actually do what Emily’s just been talking about.  I know you have a policy called IWAY. 

Ayse Toker

As you’ve mentioned, IWAY is what we have at Ikea, which is our supplier code of conduct and it’s our communication to suppliers of what our standards are.  But it means that our suppliers are aware that we would expect to have announced and unannounced audits.  But that’s just an internal process and of course we also have external processes, for example, 98% of Ikea’s wood is either ethnicity certified or it’s recyclable and that’s something that we feel is important.  Not just to have internal processes that govern our supply chain but to also have external processes. 

Alex Rhodes

We’ve had another question in here which is to do with the Buy Back scheme and it sort of someone thinking, ‘Actually might this end up driving more consumerism?’ because people will buy, people will buy a piece of furniture, have it for a bit and then sell it on and then they’ll buy something else. 

Ayse Toker

I think for us it’s more about changing the way that our customers respond to products and to consumption in general.  So, if that means that more second-hand products are going to be purchased rather than new products and that to us is still a very strong positive to come out from the Buy Back scheme. 

Alex Rhodes

Emily, I wanted to talk about, I wanted to ask you about the law.  I wanted to ask you about contracts because fundamentally all of this that we’re talking about is about relationships and there are different approaches that those, that those relationships can take.  Traditionally think about a contract just being a… one of obligation.  Ayse mentioned the concept of announced and unannounced audits being built into the IWAY policy, which is of course a significant extension from that starting point.  Can you talk a little bit about how, as a matter of practice, you include those provisions into contracts and make them work?

Emily Dorotheou

I do appreciate that actually it’s about the day-to-day relationships that brands have with their suppliers.  You know, and the contract is there sort of underpinning it but really it’s, as Ayse mentioned, it’s about those day-to-day interactions, making sure that you’re onboarding the right kind of suppliers and that you’re checking up on them and that you’re kind of all working towards the same goal.  I mean if we go… if we just look at the underlying agreement I mean, as you said Alex, this would, the first flavour of the ways in which you can oblige suppliers to do anything is just to have an absolute obligation on them to do something.  So, you know for example, ‘Supplier you will reduce your carbon emissions’.  You can have varying sort of shades of that whether it’s an absolute or a reasonable endeavours whatever.  But either way you’ve got that clear obligation on them to do something.  You know, the next stage from that would be, ‘I oblige you to do something but then I’m also going to check up on you to make sure that you’re doing it’. The next stage from that is, and this is more sort of going towards the Ikea end of the spectrum, is that overall collaboration between a brand and the supplier and I think the trend is moving definitely towards that. 

Alex Rhodes

How does Ikea go about sort of prioritising risk and prioritising to address those conflicts?

Ayse Toker

We think that we are always very clear with our communication with our supplier’s right from the outset and through our actions and our conduct and everything that we do on a day-to-day basis.  What our long-term vision and what our goals and what our business plan is and I think that provides a good foundation for us to go on with our suppliers.  Therefore there isn’t a kind of surprise from our suppliers, when it comes down to the nitty gritty of the contracts they know what to expect. 

Alex Rhodes

Emily, at this point I wanted to talk about, I wanted to talk more about the law.  I wanted to talk about the sort of developing legal and regulatory landscape.  Business is going to have to work together in a different way to be able to comply with the legislation and how do you see that interaction playing out?

Emily Dorotheou

The regulation in this space and the legislation is moving such where I think it’s inevitable that there’s going to be sort of greater blending between brands and their suppliers.  People have just got to work together to deal with these because we’re talking about global issues as well.  So, it’s only right that the solution has got to be a collaborative global one. 

Alex Rhodes

Ikea launched a partnership last year with the Ellen MacArthur Foundation and the aims of that were to create lasting impact on a global scale and to drive global transformation towards a circular society.  Can you talk a little bit about that project and how Ikea sees its commitment to sustainability extending beyond just its own business?

Ayse Toker

Firstly, I think Emily’s touched upon it already - collaboration is key.  So through the Ellen MacArthur Foundation we’re hoping to ensure that circular economy is an essential part of the home furnishing industry in general which is why we believe that the partnership will help us to bring about a transitional movement towards a sustainable industry and together we’re hoping to develop a set of global definitions for circular design but also to be able to have an impact possibly on legislation. 

Alex Rhodes

Emily is the author of Alex’s Clause which is the precedent circular design clause.  Emily, could you tell us a little bit about how that works and what it seeks to achieve?

Emily Dorotheou

So, the Chancery Lane Project is a group of lawyers and non-lawyers who are interested in coming up with legal solutions to combat climate change and sort of environmental risks so, as part of my involvement with that I got the opportunity to draft this circular economy clause and so what my clause says it’s just you know, it’s got some obligations on designers for example to not include you know micro-plastics or glitter within the design of the product because they’re both terribly unfriendly for the environment.  But also to design products whose constituent parts can be removed and so replaced or repaired.  It’s also got obligations on manufacturers to firstly try to recycle and reuse waste created during the manufacturing process before sort of destruction and to also consider whether it’s feasible to operate a take-back scheme for any waste products or end-of-life products at the end. 

Alex Rhodes

So, Ayse that requires a sort of possibly a change in the way that one runs, runs the business.  You know, if you’ve got to think about… if a risk to the business for example is that you’re having you know, a bad environmental impact because your products ultimately can only go back into waste - whether it be burnt or buried - and you want to address that you have to think about how you reintegrate the different parts of your business in the way that Emily’s said. 

Ayse Toker

Absolutely, and this is why we’re looking at finding different types of circular solutions for our customers at all different stages of our products’ life.  Whether that’s from the beginning and that’s from the product development phase and making sure that our products are developed in a way that they’re able to be reused, refurbished, re-manufactured and then eventually recycled but all the way back to the ends where we have the final product in our homes.  What can we do with that?  How can we make sure that it doesn’t end up on the landfill?

Alex Rhodes

The pandemic has really brought a focus around ESG issues.  Has brought a focus on how businesses that are focused on this are seeing value and are driving value.  When we were talking about this a little bit earlier before today’s conversation, you had a couple of really interesting thoughts about how the pandemic has possibly affected the way that you’re thinking about sustainability in a positive way.  And I wondered, I was really struck by those and I wondered whether you could just sort of share those with everybody?

Ayse Toker

From us it’s clear that we’re… the pandemic hasn’t de-tooled us in any way from our commitment to sustainability and I think it draws back to the fact that sustainability is too integral in our business and it’s part of our business it’s who we are.  So, I think it’s clear for Ikea if anything that what’s happened through the pandemic is that we need to think about accelerating solutions for our customers even more now than ever before.  The ongoing global pandemic has shown as you’ve mentioned, Alex, unfortunately how fragile the world can be that we live in.  But I think it’s also had some positive change in that it reinforces the importance of our communities and how important they are to all of us and our homelife and the importance of being able to live in a more healthy and sustainable way at home and I think it’s all the more reason for us to be able to inspire our customers to live in a healthy and sustainable way and to lead those lives but one which is where we’re also able to afford, be able to have products that are more affordable and more accessible for the many.  It can also mean that some customers are, that we’re able to as a business be able to react to things a lot quicker through the pandemic than ever before and I think that could be a real positive in the way that businesses think but also in the way that our consumers are thinking about their lives as well. 

Alex Rhodes

Thank you both very, very much.  It’s been – it’s been really fun talking together and really, really interesting. 

Emily Dorotheou

Thank you. 

Alex Rhodes

Thank you. 

The Mishcon Academy Digital Sessions.  To access advice for businesses that is regularly updated, please visit mishcon.com. 

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