New CITI index exposes brands' supply chain pollution
China’s Institute of Public and Environmental Affairs (IPE) and the US-based Natural Resources Defense Council (NRDC) are collaborating on an annual joint report called the Corporate Information Transparency Index (CITI) to expose brands’ supply chains in China.  Its 2015 findings indicate that only 28 of the 167 companies reviewed were operating in China at minimal acceptable standards. Many experts argue that the worst pollution often happens in the supply chain. Yet some established indexes, such as the Dow Jones Sustainability Index, Global Reporting Initiative, and Carbon Disclosure Project, concentrate on the end of the process. CITI focuses on the manufacturing process and evaluates factories itself. Brands which score highly in other indexes may score poorly on CITI.

Despite abundant “green” labels and corporate sustainability reports, there’s a gaping hole in many brands’ efforts to run sustainable, eco-friendly businesses. Sourcing might be ethical and storefronts energy-efficient, but the supply chains linking manufacturing in China to sales abroad are surprisingly dirty, says new research from a US and Chinese watchdog partnership.

Together, China’s Institute of Public and Environmental Affairs (IPE) and the US-based Natural Resources Defense Council (NRDC) are trying to redefine how big companies think of sustainability. The two teamed up a few years ago, after IPE documented proof that Apple was sourcing from heavily polluting factories in China, an allegation Apple initially brushed aside. But once IPE enlisted NRDC’s help to prompt Apple to conduct an independent review in 2012, Apple vowed to clean up.

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Now, NRDC and IPE are collaborating on an annual joint report (pdf) called the Corporate Information Transparency Index (CITI) to pull back the curtain on brands’ supply chains in China, the epicenter for global manufacturing. And its 2015 findings aren’t pretty: Only 28 of the 167 companies reviewed were found to be operating in China at minimal acceptable standards.

Top scorers included Adidas, Levi’s, Panasonic, Wal-Mart, Microsoft, and Hitachi. Apple has genuinely cleaned up after being called out by IPE and NRDC and led all brands. H&M, though its biggest challenge may be the sheer quantity of manufacturing it does, also scored highly, showing it’s committed to mitigating its huge footprint in China.

On the other end were brands such as Macy’s, Hyundai, Guess, Polo Ralph Lauren, Victoria’s Secret, and Chanel, according to the report.

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Many environmental professionals argue the worst pollution often happens in the supply chain. Luxury group Kering, owner of fashion brands such as Gucci and Saint Laurent, has found in its own audits that more than 90% of its environmental impact happens early in its supply chain. Yet factors at the end of the process—like the carbon footprint of a brand’s retail operations, or its recycling efforts—are what tend to attract the attention of more established indexes, such as the Dow Jones Sustainability Index, Global Reporting Initiative, and Carbon Disclosure Project. As CITI notes, ”Even a failing ‘grade’ in supply chain oversight will impact a company’s total sustainability score in these [other indexes] by only 5% or less.”

CITI makes an important addition to other prominent environmental indexes by focusing on the manufacturing process. And unlike most other sustainability indexes, CITI evaluates factories itself, rather than allowing brands to self-report their practices. (While it’d be great if corporations announced their own bad habits, Volkswagen’s and other car makers’ consistent fudging of emissions tests suggests they aren’t likely to do that.)

Here’s how it works: IPE examined factories in China that had an environmental complaint against them. It then researched which brands were sourcing from those factories, and made every effort to alert the brands to the problem.

IPE scored brands for sustainability based in part on how they responded, and according to other criteria it developed with NRDC. Brands earned points, for instance, by having a screening mechanism in place to check on their supplier factories, and for keeping track of where waste water from those factories ended up.

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The unique methodology means that some brands, though high-scorers in other indexes, scored poorly on CITI. Nestlé, which was at the top of its category in the Dow Jones index, scored just 9 out of 100 possible points on CITI. GM, a high scorer in the Carbon Disclosure Project, scored 5.5 on CITI.

The Kering group has a robust sustainability program, yet in the category of leather goods, subsidiary Gucci scored only 3 points. Greer tells Quartz that the brand was “utterly unresponsive” when contacted about problems at a factory in China, which is surprising given that NRDC works closely with Kering on other projects.

In a statement to Quartz, a spokesperson for Gucci said:

“We wish to point out that all of Gucci’s leather goods products—like the ready-to-wear and shoes products categories—are manufactured in Italy, following with the utmost respect the highest standards in terms of quality and Italian craftsmanship that made Gucci one of the most respected Italian luxury fashion brands. Gucci made this point very clearly last year once asked about. As far as our brand is concerned, the outcome of the study is therefore to be considered incorrect.”

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Scoring was handled entirely by the IPE, according to Greer, since they were on the ground in China and better positioned to understand local context around factory violations.

“These [factories] are thousands and thousands of miles away, so American consumers or consumers in Europe and these kinds of places are not viscerally connected with it,” says Greer.

She notes that CITI’s standards are the minimum that would be required of companies operating in the US. ”It really reflects what a basic environmental-management program should look like,” she tells Quartz. “Despite the fact that we have the internet, and there are many, many incidents where people take pictures and they go viral, I still think that many of these companies are sort of hiding behind the opacity of their supply chain.”

Thanks to initiatives like CITI, that’s starting to change.