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Pay Your Way

Greys Sošić has designed a model to allocate who’s responsible for emissions at each stage of the supply chain.

 

September 14, 2018

Researcher Greys Sošić began to study sustainability in 2010 in tandem with her growing concern for the environment. An associate professor in data sciences and operations at USC Marshall, she started by assessing the prevalence of sustainability among companies. “There was not a lot of information,” she said. “Some companies were visionary and interested in inserting sustainability into their mission, but not a ton of them. Now, almost every company has something about sustainability on its website.”

Already an established scholar in the relationship between cooperation theory and game theory, Sošić has discovered ways to integrate sustainability into her work in these areas. She marries these interests, as well as work in supply chain management, in projects around sustainable cooperation and sharing technology to improve product recyclability.

Making Progress

The supply chain is catching up with her concerns and her research. Since Sošić began her work on sustainability, she’s seen increased efforts made by companies, governments and port authorities to address climate change issues caused by the global supply chain. Ambitious goals to decrease carbon footprints are pushing participants across the logistics industry to implement plans with deadlines only a few years away.

For example, since 2005, when they adopted a Clean Air Action Plan, the ports of Los Angeles and Long Beach have seen dramatic reductions in pollution: down more than 85 percent for particulate matter, 50 percent for nitrogen oxides and 95 percent for sulfur oxides. Their target is to reduce impact from every source—ships, trucks, trains, harbor craft such as tugs and workboats and cargo-handling equipment such as cranes and yard tractors—to zero-impact by 2030 (trucks to zero by 2035). The Port of Long Beach is so committed it is branding itself “The Green Port.”

"More and more companies are working on a green supply chain. It’s becoming a corporate responsibility." - Greys Sosic

Globally, the World Bank and the International Monetary Fund have increased their participation in climate finance, particularly since the 2015 Paris Agreement. In fact, the World Bank Group announced this summer that in fiscal year 2018, 32.1 percent of its financing had climate co-benefits, exceeding the 2015 target of 28 percent by 2020. This amounted to a booming $20.5 billion in climate-related finance delivered in the last fiscal year.

It’s Good to Be Green

Such investment is paying off. Countries and companies are seeing a connection between economic and business growth and environmental responsibility. This is partly because companies are now, for a number of reasons, expected to have a sustainability program in place.

Sošić cited Walmart and Seventh Generation, an environmentally-oriented maker of cleaning, paper and personal care products. She said Seventh Generation didn’t want to be carried in Walmart because the store didn’t seem green enough. But upon investigation, Seventh Generation learned that Walmart has been focused on sustainability for nearly 20 years, and is now a leader in sustainable initiatives. According to a late 2017 Huffington Post article, Walmart’s “sustainability initiatives are having a real impact today. The company has strategically used its scale to its advantage to enact change within as well as outside the organization.” Now, Seventh Generation is on the shelves of Walmart.  “If companies don’t have a climate plan, they are missing out on contracts,” Sošić said.

Another factor for companies is shareholders’ interest in the environment. “They see climate attitude as indicative of company positioning,” said Sošić. “Companies with a pro-active climate policy have higher returns—it reflects their overall management capability.”

The same goes for attracting talent, she said. “Employees want the company to be aligned with their values. Stakeholders need to want to be associated with the ethos of the company. This sort of comprehensive approach keeps companies competitive. In the long run, companies are learning it’s good business.”

And, Sošić said, “It’s this setting that provides strong incentives for supply chain makers to actually invest in emissions abatement.”

Research with Relevance

Supply chain makers can also look to academic research to support sustainability efforts. “A science-based approach enables companies to determine what they need to do and what effect it will have,” Sošić said. “It helps them measure.”

Her own work provides tangible tools that participants in the supply chain can use. In a current working paper, “Incentives and Emission Responsibility Allocation in Supply Chains,” with Sanjith Gopalakrishnan, Daniel Granot, Frieda Granot and Hailong Cui, Sošić has developed a model for determining who should be responsible for greenhouse gas (GHG) emissions at every point along a supply chain. She said the model is easy to understand, easy to calculate and includes incentives for companies to comply. “Our challenge,” she said, “was determining how to allocate responsibility for emissions to provide cross-incentives.”

Their solution was to use, “a cooperative game theory methodology to allocate responsibility to the firms in the supply chain. “The model has nice properties. If you use it, you benefit. If you don’t, you won’t,” Sošić said.

Getting Buy-In

Even with incentives, companies often opt out of measures that protect the environment. “With the global supply chain, the main issue is implementation,” said Sošić. “Some countries have highly developed regulations, others don’t. How do we implement an incentive program across countries?”

It’s especially challenging when manufacturers look to save money when choosing where to be located. “There are more manufacturers in areas where there is less legislation,” said Sošić. “It’s less expensive in places where there is no penalty for emissions or non-compliance.”

But the trend is still pointing upward. In the United States, for example, companies currently aren’t required to disclose climate impact, but reporting impact has gone from 20 percent to 80 percent.

“Now,” said Sošić, “more and more companies are working on a green supply chain. It’s becoming a corporate responsibility.”