Microsoft to pressure supply chain on sustainability

Microsoft has announced it will require annual sustainability disclosure from suppliers.

Bowing to activist shareholder pressure Microsoft has announced it will mandate supplier sustainability disclosure from 2013. Microsoft is taking action on a proposal made by the New York City Comptroller John C. Liu on behalf of the New York City Pension Funds. In a statement Microsoft said:

Starting in 2013, Microsoft will require a cross section of its suppliers to provide reports on their adherence to the requirements listed in the existing Microsoft Vendor Code of Conduct. The code of conduct sets standards for legal compliance, business ethics, labor and human rights standards, environmental protection, and respect for intellectual property.

This is a good move in the right direction for Microsoft because when large corporations start to orchestrate their supply chains on sustainability it can have truly market making effects and unlock real value for businesses upstream and down. For example, leading British retailer Tesco recently assigned a 30% carbon reduction target to its suppliers which must be achieved by 2020. Wal Mart is similarly working with its suppliers to improve sustainability performance.

For Microsoft to be successful in driving business benefits such as reduced cost, environmental impact and risk from it's supply chain then it too will need to move beyond transparency to targeting performance. You can expect, once Microsoft has set up the process, it will soon afterwards start moving towards performance objectives too. The open question is whether the pace of action will be acceptable to the pressure groups who have pressured Microsoft to move on this now. Its clear from Liu's statement this is just a first 'step' for Microsoft and that his office intends to use Microsoft's momentum to now leverage the rest of the industry to follow suit.

Microsoft has taken an important step to promote sustainability and transparency among its global suppliers ...... If more firms showed such leadership it would hold more suppliers accountable for protecting human and workers’ rights, and reduce the legal and reputational risks that companies and their shareholders face. The New York City Pension Funds are taking this proposal to other companies and expect that they will follow the prudent path Microsoft has chosen.

Let the games begin.