TechPulse 360

Hewlett-Packard has received accolades for imposing environmental requirements on its sprawling network of suppliers — but IBM isn’t ready to cede the eco high ground.

The battle between the world’s two largest information-technology giants is heating up this year. The fallout could be a massive shift in the way supply chains monitor, measure, manage and reduce greenhouse gas emissions.

IBM unveiled new demands on its suppliers including the public release of environmental performance

Big Blue this week unveiled a sweeping new policy the company will impose on its 28,000 suppliers in 90 countries. At its heart is the demand that companies selling everything from electronics components to tax services develop formal management systems for monitoring, measuring and reducing energy use, greenhouse gas emissions and waste.

The new sustainability policy requires for the first time that companies make public their progress against voluntary goals. Public disclosures could also include carbon footprints, water consumption and incidentals, such as environmental fines.

The initiative takes IBM policy “up another notch,” says Edan Dionne, director of corporate environmental affairs. “It’s a natural step in the process. It behooves us to have a [systematic] approach to dealing with environmental issues” instead of the sometimes ad hoc measures of the past.

H-P put a similar policy in place last September. The Silicon Valley company’s Global Citizen effort requires suppliers to reduce the environmental impact of their operations — including the products and services they provide H-P. The policy covers energy use, emissions and the use of hazardous materials.

It also requires the creation of management systems to measure and monitor improvements on environmental, occupational health, human rights and labor issues. The systems must be integrated into a company’s business practices, according to a statement released at the time.

Furthermore, “suppliers are to provide clear, timely, accurate and appropriate reporting to H-P upon request,” the policy states.

Joseph Sandor, a professor of supply management at the Eli Broad School of Business, says the two companies’ intentions are aimed at mitigating a big chunk of their environmental impact. Most corporations generate 30 percent of their carbon footprints from internal operations and 70 percent from their suppliers’. The ratio at high-tech firms is more one-sided. As much as 90 percent comes from the supply chain since manufacturing and distribution are typically outsourced, says Sandor.

He says the public disclosure requirement in the IBM policy may have a lasting impact on doing business with corporate America. “The more public nature of IBM’s initiative may be more ‘sustainably’ positive insofar as it raises awareness among multiple stakeholders,” he said in an e-mail. Further, the company’s demand that first-tier suppliers impose the management-system requirement on their suppliers is “clear evidence that IBM is using its position and spending power to influence the broad supplier network,” he wrote.

H-P is unlikely to let down its guard. The company was the first major IT firm to report greenhouse gas emissions from its supply chain — 4.1 million metric tonnes in 2008, which is more than twice the emissions of its own operations. Suppliers representing 86 percent of materials and manufacturing spending reported their energy use and greenhouse gas emissions, up from 81 percent in 2007.

“We are working more broadly to better standardize tools and methodologies to facilitate consistent and reliable reporting among suppliers,” the company said in the Global Citizenship Report for 2009 it recently issued.

As to the new IBM policy, Dionne says the initiative is not designed to be a “one-size-fits-all” requirement and that it could be several years before all companies have a formal management system in place. “Some suppliers are already there,” with institutionalized policies that extend from the top of the organization to the bottom with integrated business processes and accurate measurement tools, she said. Others have significant ground to cover and will create policies appropriate for their businesses.

In the process, will firms be required to buy needed software and hardware from IBM? “No,” says Dionne. But suppliers should take note: failing to meet the requirements could mean an end to an IBM business relationship. It has happened in the past over environmental concerns, says Dionne.