Each September, leaders from business, government, and civil society descend on Gotham for Climate Week NYC, but there is an equally important voice that can enrich these conversations: micro-, small-, and medium-sized enterprises (MSMEs).
MSMEs make up about 90% of businesses worldwide. They include, for example, cocoa farmers whose harvests produce our favorite candies, textile manufacturers that create fabrics for our clothes and furniture, and mint cultivators who source the essential oil to flavor our toothpaste and mouthwash. These founders and entrepreneurs supply the world’s largest companies and are vital to their decarbonization efforts.
Studies show that emissions from a company’s value chain can account for more than 70% of total emissions. Yet, MSMEs often lack the resources necessary to reskill and upskill workers in low-carbon technologies and best practices to meet evolving business needs and corporate sustainability targets. New research from the World Resources Institute (WRI) finds that only 3% of large companies set goals to invest in worker skills or improve working conditions. But when MSMEs fail to help these businesses attain their decarbonization goals, then they face the strong possibility of canceled contracts. And when this happens, global supply chains and the people who comprise them suffer.
The results are unfortunate but exemplify stakeholder capitalism gone wrong. Everybody—the companies procuring goods and the MSME owners and workers producing them, as well as corporate shareholders and product consumers—is up the proverbial creek. And let’s not overlook the world’s population whose lives are affected by the changing climate..
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The major players gathering for Climate Week NYC can help avoid these kinds of pitfalls if they take the time to identify and understand the imperative for people-centered supply chains to achieve desired business and societal outcomes. What’s more, big buyers will likely find themselves better able to hit their sustainability targets if they extend the support their suppliers need to make this possible.
STAKEHOLDER CAPITALISM IS HUMAN-CENTRIC
Technology often dominates conversations about the future of supply chains, from the use of AI in manufacturing to automated operations, but the human element remains fundamental. As supply chain expert Radu Palamariu noted in a recent podcast, humans are only becoming more important as the decisions they make regarding the programming and management of these systems can have larger impacts on production. Failure to reskill and upskill workers to drive value creation will mean even the most advanced systems risk failure.
The same is true when it comes to the business of philanthropy. At the Ares Charitable Foundation, we prioritize improving people’s quality of life by giving them voice and agency to advance economically. For example, our Climate-Resilient Employees for a Sustainable Tomorrow (CREST) initiative addresses the sustainability reskilling needs of MSMEs in India’s automotive and textile sectors while considering what Klaus Schwab and Peter Vanham describe as “a global economy that works for progress, people, and planet.” Aligning with stakeholder capitalism’s core tenets, CREST is helping ensure MSMEs’ participation in global supply chains, future-proof MSME workers’ jobs, ward against supply chain disruptions to benefit shareholders and consumers, and protect the environment.
INVESTMENTS IN PEOPLE ARE KEY TO SUPPLY CHAIN SUCCESS
While some companies are finding innovative ways to support the MSMEs that power their supply chains, overall commitment remains low. WRI’s research shows that only 12% of large businesses have at least one people-centered supply goal, e.g., the intent to improve workers’ conditions and safety, invest in reskilling, or support workers’ and communities’ well-being.
Nevertheless, investing in the people in global supply chains is equally smart and critical for stakeholder capitalism to succeed. Like WRI points out, companies can’t afford to overlook this fact and must rethink their supply chain strategy to remain competitive.
STAKEHOLDER CAPITALISM ADDS SIGNIFICANT SOCIETAL VALUE
Putting people first is a fail-safe plan, especially in the most uncertain times. Avoiding supply chain disruptions—and achieving a more sustainable future—requires adding societal value in ways that go far beyond revenues and profits. Once businesses embrace that stakeholder capitalism at its best is rooted in setting and attaining people-centered supply chain goals, then prioritizing workers’ reskilling and upskilling is an easy decision.
Michelle Armstrong is president of Ares Charitable Foundation.