Source: AsiaInspection

Source: AsiaInspection

Environmental impact is expected to move up the priority list for sourcing executives this year, according to new analysis, as brands and retailers assess the impact of their supply chains.

The 2016 Q1 Barometer report from compliance service provider AsiaInspection (AI) shows that demand for environmental audit services picked up in 2015, in the wake of initiatives such as the Greenpeace Detox campaign and the Zero Discharge of Hazardous Chemicals (ZDHC) principles. This is expected to continue into 2016.

But while the recent COP21 climate change summit has shown positive signs and willingness of governments to tackle global warming and incite environmental consciousness, in China the situation is proving different. 

Pollution in the country, which has issued a 'red alert' twice in the last month, accounts for around 17% of the nation's annual death toll, killing over 1.5m people every year. Combined with heavy water pollution, the current environmental situation in China remains "very grave and continues deteriorating", the report explains. 

Massive efforts, however, to combat the problem are underway, as the government tightens environmental regulations, while NGOs take to publicly shaming the worst offenders.

The environmental issues China is battling might not be the only reason buyers might look to new sourcing regions. Cost has also become a problem as brands and retailers search for cheaper alternatives. 

But 2015 also brought to light how less mature export economies are often plagued with ethical supply chain issues.

In Turkey, worker health and safety remains a grave issue, the report noted, with the country named among the worst for labour rights and worker safety by the International Trade Union Confederation and the International Labour Organization (ILO).

Globally, AI data on factory auditing scores – based on ethical, structural, environmental and manufacturing factory audits – showed no improvement year-on-year as scores remained flat in 2015. Again, less mature manufacturing economies were the low performers and saw factory compliance deteriorate, with Cambodia seeing its average factory score decrease by more than two points (out of ten) in Q4 2015 versus 2014, and Pakistan, Indonesia, and Vietnam also seeing compliance drop.

In terms of global trade, while 2015 saw the "slow death" of the Doha Round of negotiation within World Trade Organization members, regional bloc-to-bloc agreements could help reinvigorate global trade in 2016, the AI report suggests.

"The Trans-Pacific Partnership (TPP) between North America and Asian countries and the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US are due for finalisation and will complement global WTO agreements to come, in a move to boost bilateral and global trade," authors noted.

And, as experts anticipate a global trade rebound, particularly in south-to-south exchanges, AI says it has seen growth building up in the southern hemisphere throughout 2015, as product inspection volumes increased: including by 129% in Cambodia, 119% in Thailand, 114% in Peru, and 108% in Vietnam.

The latter country, AI says, could be a 2016 winner: already among the US's top ten trading partners. Vietnam expects to see explosive growth in export, with reports estimating by 50%, when the TPP eventually takes effect. 

"The country's export-oriented RMG sector is already undergoing changes to integrate more companies, especially SMEs, into global supply chains, into which only 21% of Vietnam's SME are integrated at this time," the report notes.