The Impact of Globalization on Corporate Value Chains

As a sustainability expert, I’ve witnessed how globalization influences corporate value chains—from downstream to upstream. Globalization means companies must navigate complex networks of production, trade, and consumption that stretch across the world. This creates both opportunities and challenges, particularly regarding transparency, environmental impact, and human rights.

Global Value Chains – Opportunities and Risks

Globalization and global value chains are about understanding the dynamics between economic globalization and international trade. This involves analyzing how production, trade, and consumption are interconnected through various value chains.

Value chain analysis means identifying and understanding the parties and processes involved in the flow of material resources, finances, and knowledge between buyers and suppliers. Many companies ask themselves how their value chain affects the environment and social aspects, but few know what the actual impact looks like.

Technological advancements have made value chains even more complex and difficult to oversee, creating new risks that companies must consider. As digitalization, automation, and globalization have transformed how companies produce, distribute, and sell their goods and services, value chains have become more fragmented and reliant on a large number of actors, often spread across multiple geographical regions.

This means companies no longer have full control or visibility over every part of the chain, increasing vulnerability to disruptions such as cyberattacks, delivery delays, geopolitical conflicts, and non-compliance with sustainability requirements.

To manage these challenges, a more proactive and strategic approach is needed. Transparency, data-driven analysis, and close collaboration with suppliers and partners become critical factors for ensuring a sustainable and resilient value chain.

Sustainability Risks in the Value Chain

Companies may be indirectly linked to human rights violations and environmental damage through their value chains. For example, child labor and environmental degradation are often present in the early stages of the upstream value chain.

Different countries have varying levels of legislation regarding labor conditions and environmental protection, such as how they address deforestation and carbon emissions, making it difficult for companies to ensure that their operations are ethical and sustainable.

In the past, some of these risks went unpunished and were voluntarily managed, but new laws and regulations have changed the market. More companies are now systematically addressing these issues, which in turn has increased transparency in value chains.

With increased transparency comes increased pressure on subcontractors in the value chains. This pressure has led more companies to be required to report the requested data, often stemming from the upper parts of the value chain and from international and national laws and frameworks.

New Legal Requirements Drive Change

Examples of new frameworks and laws include the UN Guiding Principles on Business and Human Rights (UNGPs) and the EU Corporate Sustainability Due Diligence Directive. These require companies to work more actively with social and environmental issues and ensure transparency in their value chains.

Common to these frameworks is that they require companies to:

• Assess their impact throughout the value chain

• Have the right tools and processes to analyze social and environmental risks

• Provide information that enables traceability and accountability

Among other things, Human Rights Due Diligence (HRDD) requires companies to assess their impact within the value chain.

One clear example is the requirements within Human Rights Due Diligence (HRDD), where companies must be able to demonstrate their impact in the value chain. This requires effective systems to map business relationships and identify risks throughout the chain.

International Guidelines for Agriculture and Raw Materials

The OECD and the UN’s Food and Agriculture Organization (FAO) have jointly developed the OECD–FAO Guidance, an international standard for responsible agricultural value chains. It recommends that all upstream suppliers implement physical segregation and traceability.

Downstream companies—such as retailers and manufacturers—must therefore be able to identify their upstream suppliers, including the origin areas of these suppliers.

Sustainability Analysis – The Key to Accountability

An essential part of my work as a sustainability expert is helping companies conduct sustainability analyses of their value chains. This involves identifying and analyzing risks that could affect the stability and efficiency of the value chain—economically, socially, and environmentally.

Sustainability risks in the supply chain refer to potential conditions or events related to sustainability that may trigger harmful reactions from stakeholders within the supply chain.

These risks can arise from factors such as environmental issues, ethical dilemmas, or regulatory changes, leading to negative effects on trust, reputation, and financial performance. By using the right tools and processes, companies can gain an accurate picture of their business relationships and analyze social and environmental risks throughout the value chain.

Business Benefits of Sustainable Value Chains

• Increased transparency and trust: By gaining visibility into the entire value chain, companies can build trust with customers and stakeholders by showing accountability for their suppliers’ working conditions and environmental impact.
• Cost savings: Effective value chain management can result in cost savings by optimizing processes, reducing waste, and improving resource usage.
• Competitive advantage: Companies that can demonstrate sustainable and ethical value chains can differentiate themselves from competitors and attract customers who value sustainability.
• Compliance with laws and regulations: By adhering to international and national sustainability frameworks, companies can ensure they meet legal requirements and avoid legal issues.

Four Concrete Steps to Reduce Sustainability Risks

Here are my recommendations for companies looking to reduce sustainability risks while creating long-term value:

1. Implement traceability systems
   Track products and materials throughout the value chain to identify potential risks and take action to mitigate them.
2. Educate suppliers
   Ensure all suppliers are aware of the company’s sustainability requirements and expectations.
3. Conduct regular audits
   Perform regular supplier audits to ensure compliance with sustainability standards.
4. Use sustainability certifications
   Certifications help verify that products and materials meet sustainability requirements.

By following these steps, companies can not only reduce their sustainability risks but also strengthen their reputation and trust among customers and stakeholders.