Stepwise Approaches as a Strategy for Scaling Up. Background Report - April 2011

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1 Stepwise Approaches as a Strategy for Scaling Up Background Report - April 2011

2 Table of Contents Executive Summary 3 1. Introduction 5 2. Study methodology 5 3. Stepwise approaches and scaling up 8 4. A typology of stepwise approaches 9 5. Structuring steps Subsequent steps Timing Verifying Responding to (lack of) progress Additional incentives and support Revenue models Success? Conclusions 24 Appendix 1: Learning about success factors 30 Cover image: 4C-Association Claire Hogg 2

3 Executive Summary In September of 2010 the ISEAL Alliance initiated a research study on stepwise approaches as a possible strategy to help scale up the impacts of voluntary standard systems. Stepwise approaches are initiatives or programmes that enable producers or enterprises to move in a gradual way towards improved social and/or environmental performance. The defining feature of a stepwise approach is the structured, stepped path to performance improvement that it lays out for producers and businesses. Among the seventeen stepwise approaches investigated in the preparation of this report, some have improvement requirements embedded within standards. Others keep the stepping up outside of the standard or combine internal and external steps. Some require improvement within a set time frame; others make improvement optional. Several cases of stepping from one standard to another are included in the report. The report details possible advantages and disadvantages of each model. Most of the stepwise approaches bundle a number of different strategies aimed at reducing barriers to entry for producers and businesses and supporting them in their efforts to improve performance. The steps themselves are one strategy. Other strategies include: Marketing (use of a label, for instance) Market access Reduced (or no) entry and audit costs Technical support (capacity building, often free of charge) Financial incentives (such as price premiums) Credit access When asked which strategy seemed to be the biggest draw for bringing participants into a programme, the majority of respondents answered, market access. Some also mentioned free structured support, credit access, and price premiums. As many of the stepwise approaches are quite new, it proved difficult to gather data regarding the implementation and success of stepwise approaches and thus also to draw firm empirical conclusions about the effectiveness of individual approaches or about stepwise approaches as a generic strategy. Nonetheless, the study makes some salient observations and recommendations about stepwise approaches as a strategy for scaling up: The specific structure of a stepwise approach does not seem to be a significant determinant of success. Market demand, market access, and the provision of free support appear to help ensure success. Steps by themselves are not adequate to entice large quantities of hard-to-reach participants to join and improve performance other complimentary incentives are needed. Stepwise approaches seek to reduce a number of different barriers to certification. At a minimum, they reduce entry requirements, which is likely to attract more participants. Few actually eliminate all entry level requirements, however: keeping some entry-level requirements (i.e. most egregious practices are eliminated) help control risks to the reputation of the stepwise programme. In addition to reducing barriers to entry, stepwise approaches also try to keep costs low for participants, often by enlisting actors higher up in the supply chain to subsidise support and audit costs. The stepwise approaches 3

4 studied here have done less to address access to credit and producer organisation (other commonly cited barriers to certification). The idea of linking existing standards together to create a stepwise approach is appealing, and the examples provided in this report show a number of ways this could be done. But the report also details questions and challenges surrounding these approaches. If stepwise approaches are going to contribute to scaling up goals, it is important to identify a sustainable business model for each stepwise approach, to pay attention to the supply chain and market demand when designing stepwise approaches, and to structure the incentives included in stepwise approaches in such a way that they encourage improvement, not just participation in the programme. 4

5 1. Introduction The ISEAL Secretariat has been investigating the potential of stepwise approaches as part of its development of a strategy to scale-up the impact of voluntary standards system. Stepwise approaches are initiatives or projects that enable producers or enterprises to move in a gradual way towards improved social and/or environmental performance. In most but not all stepwise approaches, the end goal is certification to a recognised standard. For these standard systems, stepwise approaches are a strategy for bringing businesses and producers with poor social and environmental performance into their orbit. More generally, stepwise approaches have the potential to help increase the supply of certified products and to enhance the collective social and environmental impact of standard systems. The defining feature of a stepwise approach is the structured path to performance improvement that it lays out for producers and businesses. Most stepwise approaches define a limited number of steps along the path to improvement and set requirements about how and when producers or businesses must comply with each step. Some stepwise approaches track progress using continuous improvement indicators or customised action plans. While steps and improvement paths make up the core of a stepwise approach, most of the examples studied for this report also employ other strategies or incentives (such as marketing benefits, capacity building and price premiums) to encourage participation in and progression through the stepwise programme. Standards systems also employ some of these strategies and incentives outside of stepwise approaches to attract and support producers and businesses. In this sense, the stepwise approaches studied for this report are best viewed as a package of strategies for encouraging performance improvement, of which steps are only one. This study reviews a sample of existing experiences with different types of stepwise approaches, across a range of industry sectors. The objective of this study is to explain how the different stepwise approaches are Structured, managed, and financed, to examine factors that contribute to success, and to make Recommendations about the design and use of stepwise approaches for scaling up. 2. Study methodology The findings in this study are based on the examination of seventeen different stepwise approaches. In choosing stepwise cases to include in the study, the goal was to cover a range of different stepwise models and sectors and to choose cases that seem to be working as well as cases that have more challenges. The cases included in the study do not include all existing stepwise approaches, or even all stepwise approaches in which ISEAL member standard systems are engaged. The final sample (Table 1) includes 7 examples from agriculture, 2 each from forestry, the building industry, and tourism, and 1 each from manufacturing, bio-trade, and fisheries. Thirteen of the 17 cases are linked in some way to an ISEAL member or affiliate. Information about all but two of the cases was gathered through semi-structured interviews with staff of organisations running stepwise approaches. In two cases (Costa Rica s National Tourism Certification Program and the Qualihab program) information was drawn from existing case studies. In preparing the interview questionnaire and analysing the results, we also reviewed previous analyses of stepwise approaches from the forestry and manufacturing sectors. 5

6 Table 1: Cases included in the study Stepwise approach 4C Code of Conduct 4C Verification to Rainforest Alliance Certification Cotton Made in Africa Description The 4C Association s Code of Conduct is intended to be a baseline standard for the coffee sector. It requires continuous improvement following a traffic light system. The 4C Association and the Rainforest Alliance have undertaken pilot projects in El Salvador and Colombia to assist 4C members who had undergone a successful 4C Verification with implementation of the Sustainable Agriculture Network coffee standard and Rainforest Alliance certification. This programme seeks to move African smallholder cotton growing towards sustainable practices. It includes gradual improvement steps for producers, an ingredient label for retailers, and support to farmers through agricultural training and community development programmes. AGRICULTURE Nespresso AAA Sustainable Quality Program Starbucks Cocoa Practices Since May 2009, the sustainability piece of the Nespresso AAA Sustainable Quality Program (which also addresses quality and productivity) has been aligned with the Sustainable Agriculture Network Standard. Thus, Nespresso farmers are now being stepped-up to the SAN standard and Rainforest Alliance certification. Nespresso has committed to sourcing 80% of its coffee from the AAA Program by The Cocoa Practices program is designed to ensure that Starbucks sources sustainably grown and processed cocoa beans. Described as a supply chain management tool, the program is managed by Starbucks in conjunction with a large cocoa processor. Participants (farmers, farmer organisations and suppliers) are guided to a higher level of performance over a 2-year period. Social Responsibility in Tobacco Production (SRTP) UTZ Certified Managed by Leaf TC, the SRTP programme is a stepwise programme covering a range of sustainability issues (including social issues, pesticides, and climate). It is used by a large segment of the tobacco industry and could be applied to other industries as well. Suppliers develop action plans to improve performance scores. Tobacco manufacturers who use the programme to manage their supply chain can choose to set minimum performance standards for suppliers. The UTZ Certified Cocoa and Tea standards have always included a stepwise approach. The UTZ CERTIFIED Coffee standard has included a stepwise approach since The objective is to increase the number of producers participating in the certification programme by offering an achievable entry level. There are 3 steps some mandatory requirements and then additional requirements must be met every year. Producers have 3 years to come into full compliance with all requirements. BUILDING LEED LEED is a certification program organised by the US Green Building Council with the goal of transforming professional building practice. The standard can be applied to any building type and any building lifecycle phase. Four levels of certification are available: LEED Certified, LEED Silver, LEED Gold, and LEED Platinum. 6

7 Stepwise approach Qualihab Forest Stewardship Council Modular Approach (draft) Description An initiative of the State of Sao Paolo s Housing and Urban Development Company, this program sets stepped requirements for builders who want to participate in the construction of low-income housing projects. It establishes four steps toward compliance with ISO A proposed FSC Modular Approach programme (FSC MAP -- FSC-STD Draft 1-0) was circulated for stakeholder consultation in FSC MAP provides a platform for forest management enterprises participating in credible stepwise approaches to apply the FSC Principles and Criteria in a stepwise fashion. The first step is legal wood ; the second step is controlled wood ; and the third step is FSC certification. FORESTRY Rainforest Alliance SmartWood SmartStep As a way of providing more opportunities and incentives for forest management enterprises to pursue Forest Stewardship Council (FSC) certification, Rainforest Alliance developed a service called SmartStep. SmartStep is designed to provide forest management enterprises with a clear path to achieving FSC certification while gaining access to potential market benefits before achieving certification. The Forest Trust (TFT) Costa Rican National Tourism Certification Using a transparent supply-chain approach, The Forest Trust helps companies deliver responsible products. Funds from buyers help to support capacity building programme for producers, enabling them to meet targets and standards such as FSC, RSPO, and SA8000. The Costa Rican National Tourism Institute runs a certification programme that covers four aspects of sustainability physical biological, infrastructure and services, client interaction, and the socio-economic environment. Tourism operators receive a sustainability rating between 1 to 5, depending on how they score on these fronts. TOURISM OTHER Rainforest Alliance Sustainable Tourism Program Business Social Compliance Initiative to SA8000 Fairtrade shrimp aquaculture standard (draft) This programme was created to increase demand among consumers for sustainable tourism and to help small and medium-sized tourism businesses become certified to meaningful, local certification initiatives. Tourism operators begin by working towards partial compliance with the global sustainable tourism criteria and then graduate to compliance with a local tourism certification programme accredited by the Global Sustainable Tourism Council (GSTC). BSCI was originally created as a step on the way to SA8000. The code is derived from SA8000, and they use SAAS accredited auditors. An applicant status programme seeks to make the transition to SA8000 certification easier and less costly. This draft Fairtrade standard has several embedded steps and then expects producers to pursue continuous improvement. The standard requires certification to either an ISEAL or IFOAM member standard within 6 years. 7

8 Stepwise approach Sustainable Fisheries Partnerships Union of Ethical BioTrade Description A Fishery Improvement Partnership is an alliance of buyers, suppliers and producers that work together to improve a fishery by pressing for better policies and management while voluntarily changing purchasing and fishing practices to reduce problems such as illegal fishing and habitat impacts. The objective is to gradually move fisheries towards the MSC standard and certification. This standard system defines ethical practices in bio-trade and seeks to expand the use of these practices by different actors in the industry and across a supply chain. The programme encourages performance improvement over a 5 year period. 3. Stepwise approaches and scaling up Scaling up is a goal of all of the stepwise approaches included in this report, but different programmes focus on different aspects of scaling up: scaling up volumes, scaling up numbers, scaling up quality, or scaling up sustainability performance. Goals include: increasing the number of participants in a specific standards programme improving the sustainability performance of particular producers or businesses (e.g. small or mediumsize business, small-scale producers...) expanding sustainable practices in an industry (in a particular geographic area) ensuring the availability of a stable and high quality supply of a product through a supply chain, and/or improving the sustainability or quality performance of a particular supply chain. Many stepwise approaches address more than one of these goals. For example, when the explicit goal is to get more producers or businesses into certification programmes, stepwise approaches do so because they believe that joining certification programmes will bring performance and sustainability improvement. While the goals are similar and often overlap, the subtle differences between them have important implications for how stepwise approaches are designed and structured. In programmes focused on attracting producers or business to specific certification programmes, the fundamental question is how to attract and reduce barriers to entry for new entities. Stepwise approaches generally operate on the assumption that one of the major barriers to entry is the difference between current sustainability performance and the entry requirements of standard systems or sustainability initiatives. Lowering the starting requirements should make it easier for producers or businesses to enter; helping them improve performance is necessary to enable them to access higher levels of certification. Another assumption is that strong market signals will alter producer or business behaviour and increase the attraction of certification programmes. For this reason, stepwise approaches build in market incentives or market pressures. When the primary focus of a stepwise approach is on improving sustainability performance or quality, the major challenge to overcome is how best to encourage steady and/or continuous improvement (potentially even 8

9 beyond the requirements of high-level standards). A common underlying assumption is that participants need guidance, training, or other forms of support in order to start and continue the improvement process. Nearly all stepwise approaches include some form of support or training. Some programmes see a lack of information as a major barrier to improving sustainability performance in an industry. In this case, the focus is on providing information about what would constitute better performance or how to get there (e.g. through the requirements of a standard, by defining performance levels required at each step, and/or by establishing the metrics by which performance will be measured). Others believe that hands on, customised support is necessary to secure improvement. These programmes prioritise having staff on the ground to work directly with participants on the particular problems they face. When the goal relates to the performance or stability of a particular supply chain, stepwise approaches are characterised by strong involvement of market players above the production level (brands or manufacturers). Some are run by or for brands or manufacturers who are interested in seeing improvements in their own suppliers. Other programmes are independent of the supply chain but seek to involve actors in the supply chain because they believe that this is the most effective way to generate change or create incentives for producers or an industry more generally. 4. A typology of stepwise approaches The stepwise approaches studied for this report are all very different, but they can be roughly organised into groups along two different dimensions. The first dimension captures the relationship to a standard or code of conduct does the stepping up occur outside of the standard or are steps embedded in the standard or code of conduct? When the stepping up occurs outside of the standard, the goal is to help bring producers and businesses up to the level required for certification to a particular standard. The alternative is to build steps into a standard, allowing producers and businesses to become certified at a lower level of performance. Embedding steps into a standard reduces one barrier to certification the difference between current performance and demanding requirements of standards. Reducing this barrier enables standard systems to attract a wider-range of participants and thus presumably more quickly expand certified volumes. Embedding steps into a standard also carries some risks, however: How will the lower entry level be perceived by the market?, Will participants actually be able to make the improvements required to stay certified or verified?, Will there be pressure on standard systems to reduce improvement requirements in order to preserve supply volumes? Organising the stepping up outside of the standard avoids these risks by keeping the process of improvement separate from the standard itself. This model of stepwise approach faces a different set of challenges: Who will run, organise, and fund the stepping up? If standard systems invest in these programmes, what guarantee do they have that participants will choose to become certified to their standard? 9

10 For stepwise approaches that rely on market incentives to encourage participation, is there a market for transition products on the road to improvement but not yet certified? Or is the promise of future certification attractive enough to pull participants up through the steps? The second dimension used to categorise stepwise approaches is whether or not stepping up is required or expected. Some stepwise approaches set up a structure to encourage or facilitate stepping up, but the decision about what level of performance to achieve is left entirely up to the producer or business. In other programmes, producers and businesses participating in the programme are clearly required or expected to improve. One model is to expect producers or businesses to improve over time, but not set hard deadlines or targets that they must meet as a condition for continuing in the programme. Another model is to require producers or businesses to reach a target level of performance (e.g. certification to a standard) within a predefined time frame. Making improvement mandatory and setting deadlines puts pressure on producers and businesses to step up, provided that the threat of exclusion from the programme is real. The defined time frame for improvement also helps preserve the credibility of the stepwise approach it clearly communicates that all producers or businesses in a programme are required to improve their performance. The problem with a standard timeframe for performance improvement, however, is that it could make stepwise progression infeasible for some producers or business. Stepwise approaches that make stepping up optional or are more flexible in their expectations for improvement avoid this problem producers and businesses can improve at the speed and/or to the level that makes sense for them. Stepwise approaches that choose not to set a hard time limit for improvement are betting that the information and support they provide, and the pressures of market demand, are enough to encourage and enable producers or businesses to improve over time. Table 2 presents the typology of stepwise approaches, classified along these two dimensions. As the table shows, some of the approaches in each category have one additional important distinguishing characteristic: they link together two or more existing standards or codes of conduct. In these programmes that involve stepping between standards, participants first reach compliance with one standard or code of conduct and then work towards compliance with another. To qualify as a stepwise approach, the step between standards needs to lead to improvement (as opposed, for example, to dual certification to similar standards or a lower level standard). 10

11 Table 2: Classifying cases included in the study by a typology of stepwise approaches Stepping up required or expected Stepping up optional Steps outside of the standard FSC Modular Approach Program (draft) Nespresso AAA Sustainable Quality Program Qualihab Rainforest Alliance Sustainable Tourism Program Rainforest Alliance SmartWood SmartStep Social Responsibility in Tobacco Production (Leaf TC) Starbucks Cocoa Practices Sustainable Fisheries Partnership The Forest Trust (TFT) Stepping between standards: 4C verification to Rainforest Alliance certification Stepping between standards: BSCI to SA8000 Steps embedded in the standard 4C Association Code of Conduct Union for Ethical Biotrade UTZ Certified standards Cotton Made in Africa Stepping between standards: Fairtrade Standard for Shrimp Aquaculture (draft) Costa Rican National Tourism Certification LEED 5. Structuring steps The defining feature of all stepwise approaches is that they incorporate steps. Both initial steps (the entry level requirements) and subsequent steps can be structured in a variety of ways. Entry level requirements Stepwise approaches operate on the assumption that one of the major barriers to entry is the difference between current sustainability performance of a farm or business and the entry requirements of standard systems or sustainability initiatives. Lowering the starting requirements should make it easier for producers or businesses to enter a stepwise approach that will eventually lead them to higher levels of performance. Barriers to entry are lowest in programmes that focus on improvement and that are committed to working with all participants regardless of their starting level of performance. LeafTC s SRTP tool, for example, can be applied at any starting level of performance (though manufacturers may also choose to set minimum performance requirements for their supply chains). The Sustainable Fisheries Partnership and Qualihab do not set specific minimum requirements for entry. Cooperatives that enter the Starbucks Cocoa Practices programme must 11

12 primarily meet the company s initial quality standards. Producers that want to work with The Forest Trust do not need to be able to meet minimum performance requirements, but must demonstrate that they have no fundamental barrier to achieving the standards they are aiming for and that they are committed to and have the resources necessary to make the required changes. To enter Rainforest Alliance s Sustainable Tourism programme, tourism operators only need to sign a verification agreement. Other programmes choose to define the base level of performance required to enter the stepwise approach (see Table 3). All of the standards with embedded steps require that participants eliminate a series of unacceptable practices or reach a base level of performance for entry. Similarly, the Nespresso AAA Sustainable Quality Program makes both quality and compliance with non-tolerance criteria conditions for entry. In the stepping between standards examples, entry requirements are defined by the starting level standard, but additional requirements are set to initiate the step up to the next standard. In the case of BSCI and SA8000, for example, a good BSCI audit report is required to make use of the expedited transition to SA8000. In the pilot programmes to move from 4C to RA certification, producers needed to have achieved average yellow on the 4C Code Matrix in order to qualify for assistance with the stepping up. Table 3: Structure of steps Stepwise approach Performance Structure of subsequent Top step requirements at entry steps LeafTC None No defined steps: custom action plan based on pointbased scoring system Not defined continuous improvement Sustainable Fisheries Partnership's Fisheries Improvement Projects None Five defined steps Show improvements in key scientific indicators Qualihab None Four defined, cumulative steps ISO9000 certification Starbucks Cocoa Demonstrated quality Two steps defined by Full compliance with zero Practices percentage-based scoring tolerance criteria; 80% system with other; minimum overall compliance for full supply chain RA Sustainable Tourism Currently none (but One intermediary step Certification to local Program entry requirements are defined by percentage-based tourism standard in development) scoring system The Forest Trust Show commitment and No defined steps: custom Responsible Sourcing that no fundamental action plan Guidelines beyond barrier exists certification standards (not required) FSC Modular Approach Minimum requirements Three defined, cumulative steps FSC certification 12

13 Stepwise approach Performance Structure of subsequent Top step requirements at entry steps Cotton Made in Africa Minimum requirements Three steps based on traffic light system All green Custom action plan based on Average green traffic light system; 4C Code of Conduct Minimum requirements elimination of red within two years after 1st verification UEBT Minimum requirements Custom action plan; specific objectives to meet in years 3 and 5 UTZ Certified standards Minimum requirements Defined number of requirements to meet each year, over 3 years Meet all UEBT requirements Meet all requirements of standard Fairtrade shrimp aquaculture standard (draft) Minimum requirements Two intermediary steps, each with defined requirements Certification to an ISEAL or IFOAM member standard Rainforest Alliance Minimum requirements; No defined steps: custom FSC Certification SmartWood SmartStep > 1 year away from FSC action plan certification Nespresso AAA Demonstrated quality; Series of levels with defined High performing farm, Sustainable Quality meet no tolerance requirement for quality, including compliance with Program criteria productivity, and SAN standard and RA sustainability at each level Certification BSCI to SA8000 Good BSCI audit report No intermediary steps SA8000 certification to begin expedited transition to SA8000 4C Association Code of 4C s minimum entry Compliance with SAN Conduct to RA requirements; at least No defined steps (in initial standard and RA Certification average yellow to pilot projects) Certification begin stepping up to RA Costa Rican National Level 1 certification Five levels defined by Level 5 certification Tourism Certification percentage-based scoring system LEED LEED certification Four levels defined by pointbased scoring system LEED PLATINUM certification 13

14 6. Subsequent steps The most prescriptive approach to defining subsequent steps in a stepwise approach is to define exactly what performance achievements must be met at each step. FSC s modular approach requires achievement of legal wood requirements at step 1, controlled wood at step 2, and FSC certification at step 3. The advantage of this approach is that it provides clarity for buyers and consumers about what exactly producers or businesses have achieved at each step. A disadvantage is that it could make it more difficult for some participants to move up if they are unable to comply with one requirement of the next step, they get stuck at the lower step. LeafTC s STRP programme moved away from its original system of four pre-defined steps for this reason. Another approach to pre-defined steps is to create process-oriented steps steps that define what kind of activities take place at each step. In Brazil s Qualihab programme, construction firms working towards ISO 9000 certification follow four pre-defined, process-oriented steps, starting with D level (engagement and diagnostic) and progressing to A level (certification). Similarly, the Sustainable Fisheries Partnership defines five steps from launch, to encouraging improvements through regulation, product specification, and procurement policies, to finally delivering improvements in the water (e.g biomass, fishing mortality, etc). An alternative to pre-defined steps approach is to use a traffic light, point-based, or percentage-based scoring system. Performance is assessed in relation to a single set of standard requirements. The level of compliance with these requirements defines the steps. The LEED multi-level standard uses a point-based system. Projects qualify for different certification levels depending on the score they achieve. The Starbucks Cocoa Practices programme uses percentages, requiring compliance with an increased percentage of criteria each year. In 4C s traffic light system, compliance with each requirement is assessed as green, yellow, or red (unsustainable). A 4C Unit can score an average yellow on a particular dimension if the number of red criteria in that dimension is balanced by an equal number of green criteria. In the UTZ Certified standards, producers must meet a certain number of standard requirements each year, but have some flexibility about the order in which compliance is reached. LeafTC s improvement programme also uses a scoring system, but, in this case, participants are expected to show continuous improvement of the indicators. The scores are not used to define steps. Process-based steps and scoring systems are useful for showing activity and/or improvement, but provide less of a guarantee about that actual state of performance in a particular aspect of sustainability during the stepping up process. One could score well overall, but still have a low score in an area of special importance to a buyer or a consumer. One way to address this problem is to combine a scoring system with a set of minimum criteria. Another is to base the final assessment of performance on the lowest level of performance achievement. Costa Rica s National Tourism Certification programme uses this approach. The programme covers four dimensions of sustainability physical-biological, infrastructure and services, interaction with external clients, and the socioeconomic environment. The assessed certification level corresponds to the lowest percentage score in any one of the four areas. Yet another possible structure for steps is to define performance modules organised around different aspects of performance, but to allow participants to decide in which order they tackle the different modules. An example of this is the Pro-Forest Modular Implementation and Verification toolkit. The guide divides 14

15 performance requirements into distinct pieces and provides guidance to producers about how to come into compliance with each set of requirements. The flexible implementation of pre-defined modules has the advantage that producers and businesses have some say over what to prioritise and what to postpone. Another possible advantage of this approach is that it could be adapted for use in stepping up to more than one standard (e.g. compliance with a certain set of modules would lead to compliance with x standard, and other set with y standard). None of the stepwise approaches studied here adopted this approach. Finally, the most flexible approach to defining and measuring steps is to base goals for, and assessment of, performance improvement on customised action plans, designed for a particular producer, producer group, business, or supply chain. The advantage of this approach is that steps can be designed to take into account the specific problems and challenges of each entity. The disadvantage is that it is more time intensive to set up and more complex to monitor improvement and compliance. A third of the stepwise approaches included in this report base performance improvement on customised action plans. This includes the Nespresso AAA Sustainable Quality Program, which has adopted custom action plans (developed in cooperation with either cooperatives or an exporter for a group of producers) as an alternative to its previous system of pre-defined steps. 7. Timing More than half of the stepwise approaches studied for this report require producers or businesses in the programme to reach a defined performance level within a defined period of time (Table 4). The shortest time period between first to last step is in Starbuck s Cocoa Practices: producers have two years to step up to the target level of compliance. The forestry programmes (SmartWood SmartStep and FSC s modular approach) adopt 5 year time limits. The Forest Trust is more flexible in the time frame for reaching FSC certification (usually 3-5 years), but requires that entities in its programme complete agreed actions each quarter. In choosing a time limit, a number of considerations come into play. How long can a supplier wait for performance improvements? How long can a standard system wait to increase supply? How long a transition period will be credible with buyers and consumers? What speed of improvement is feasible for a given industry, producer group, or producer? 8. Verifying Requiring defined levels of performance, and achievement of those levels within a particular time frame, has little meaning unless performance levels are actually verified, and action taken in response to the findings. It is logical to expect that stepwise approaches would set up a verification system that follows the stepping up requirements if progress is required within a two year period, progress achieved would be verified after two years. Some of the stepwise approaches examined here adopt that approach (Table 4). The Forest Trust sends its staff into factories and forests on a regular basis to see if agreed actions for the quarter have been completed. The Starbuck s Cocoa Practices programme has targets for year 1 and year 2 and includes an annual independent verification of progress. The FSC Modular Approach likewise expects to see annual progress and calls for an annual progress assessment. The more frequent the audits, the more pressure on participants to make the expected improvements and the more frequent the feedback they receive about their performance. 15

16 Table 4: Time limits and verification Stepwise approach Time limits for stepping up Verification of progress 4C Association Show progress 2 years after first verification Every 3 years, by independent thirdparty verifier Cotton Made in Africa Show progress every two years Every odd year: signed self assessment; every even year: independent 3 rd party verification. Fairtrade shrimp aquaculture standard (draft) FSC Modular Approach (draft) Nespresso AAA Sustainable Quality Program Meet additional requirements in years 1, 3, and 6 Show progress each year; 5 years to certification Goals defined by cluster, global goals every 4 years Annual surveillance, audits every three years Every year, by certification bodies Every year, by inspection bodies reporting to management and certification body Rainforest Alliance SmartWood SmartStep 5 years to certification Every year, by auditors appointed by SmartStep Rainforest Alliance Sustainable Tourism program 2 years, after being allowed to use RA verification mark Every 18 months, by assessors appointed by the Rainforest Alliance, until ready for certification Starbucks Cocoa Practices 1 year for first step; 2 years to top Annually by independent verification organisation The Forest Trust Flexible, but usually 3-5 years to certification Frequent factory and forest visits by TFT staff Union of Ethical Biotrade 5 years to full compliance Every 3 years, by certification body UTZ Certified 1 year for first step; 3 years to top Annually, by certification bodies contracted by UTZ Certified Audits are, however, expensive and time consuming. Stepwise approaches studied here have attempted to address that problem in a variety of different ways. One is to reduce the frequency of audits. UEBT requires independent audits only once every 3 years, even though they expect more continuous performance improvement. Another option is to lower the expectations for the assessment or vary the type of assessment required. The Sustainable Fisheries Program and LeafTC use self-assessment. LeafTC s staff also reviews the self-assessments to look for inconsistencies and do some site visits each year. Members of the 4C Association (producers and other members of the supply chain) are required to send annual updates to the Secretariat to monitor their performance, while verification takes place only every three years. Cotton Made in Africa requires selfassessments every other year, and third party verification every other year (at which time management plans 16

17 are updated). In the Rainforest Alliance Tourism programme, operators are first verified by assessors appointed by Rainforest Alliance and then progress to audits by accredited certification bodies. The agricultural stepwise approaches included in this study generally work with producer groups. Group verification and a group s internal control systems can also help reduce costs. Starbuck s Cocoa Practices has a system for directly collecting data at the farm, farmer organisation, and cocoa processor level. The improvement is measured by the change in the scores of each of the entities in the supply chain. In Nespresso s AAA Sustainable Quality Program, a sample of farmers is inspected by internal inspectors and a smaller sample is verified by SAN auditors. The LeafTC programme requires tobacco processors to have a system in place for auditing the farmers that supply their tobacco and reporting on what percentage of farmers have adopted certain management practices. Another approach to cost reduction is to pursue joint verification. For example, the Starbucks Cocoa Practices verification can also be performed jointly with other certification systems (e.g. UTZ Certified). 9. Responding to (lack of) progress Taking action in response to improvement (or lack thereof) is as important as verifying progress. In many stepwise approaches, achieving the required performance level (on time) opens up benefits (see more below). What happens when supply chains, producers, or producer groups fail to reach a target level of performance? Are there any consequences for not stepping up? In general, programmes in which stepping up is optional or no firm deadlines are set for improvement do not have any pre-defined consequences for not improving. These programmes would prefer to keep working with participants who have not made sufficient progress. Still, they may include some consequence for failing to achieve improvement targets. The Forest Trust, for example, encourages buyers to put pressure on their supply chains by imposing a levy on members whose supply chains do not reach FSC certification. In addition, they will withdraw from the relationship completely if producers do not make the progress needed to reach the targeted performance level or standard. LeafTC recently introduced a minimum requirement (defined by each tobacco company for its own suppliers) in order to address the problem that some of the suppliers participating in the SRTP programme repeatedly failed to improve performance. Tobacco companies are notified when suppliers fail to reach the minimum requirements, and buyers decide how to respond. In the Sustainable Fisheries Partnership s Fisheries Improvement Projects, buyers are similarly informed about progress (or lack of progress). Instead of establishing minimum requirements, progress reports on all agreed indicators are shared regularly with potential buyers. As in LeafTC s programme, buyers can then make their own decisions about whether or not to continue to buy from a supply chain that makes no progress. The Nespresso AAA Sustainable Quality Program reserves the right to decrease the volume purchased from a particular supplier if they do not meet improvement requirements. The story becomes trickier with stepwise approaches that set hard deadlines for improvement. Incentives for enforcement of these performance goals can be mixed. The reputation of stepwise approaches (and particularly of standards with embedded steps) depends on being able to show that they deliver the improvements in environmental or social performance they promise. On the other hand, if the programme depends on certified volumes as a revenue stream, disqualifying some participants for not achieving a step reduces revenue or potential revenue. 17

18 One way to reduce this conflict of interest is to establish clear verifiable improvement targets and require independent verification of progress against those targets. In the FSC Modular approach, both are listed as required characteristics of credible stepwise approaches. Nearly all of the stepwise approaches studied for this report are quite new, and participants have not yet reached all the critical stages in the stepped approach. It is thus too early to draw conclusions about how performance goals will be enforced in practice. 10. Additional incentives and support The step structure adopted in a stepwise approach provides guidance (information) about how to improve performance and set improvement targets and also establishes the basis for verifying and acting upon actual progress. This step structure makes up the skeleton of a stepwise approach. Most approaches supplement this with additional incentives or support to producers or businesses who are working towards improvement. A main incentive is attached to the improvement itself. Better practice may increase yields, reduce costs, and/or improve product quality. Achieving certification also brings management, marketing, and market access benefits. The more attractive the final certification, the stronger the inherent incentive to improve. On top of this underlying incentive, stepwise approaches offer additional benefits and support services in order to sweeten the offer to producers and enterprises, and to increase their chances of success in the stepwise programme. Any benefits provided to all participants in the programme are best seen as incentives to enter the stepwise programme; there is no added incentive to step up while in the programme. Many programmes make some benefits of participation (e.g. use of a label) conditional on reaching a particular performance level. This helps protect the reputation of the stepwise programme and provides a clear incentive for producers and businesses to improve. Labels and logos The stepwise approaches that permit use of a label directly upon entry are generally those that have higher entry level performance criteria (Table 4) such as standards with embedded steps. For example, coffee, cocoa, and tea can be marketed as UTZ Certified once producers are certified at the entry level of compliance. Those in the UEBT programme (a membership-based programme) can use the UEBT logo on corporate communication upon entry. Other stepwise approaches condition access to labels and compliance language to the level of achievement. In the Rainforest Alliance Sustainable Tourism program, operators must comply with 50% of the requirements (based on the criteria of the Global Sustainable Tourism Council) before they can publically claim participation in the Rainforest Alliance programme. Members of the 4C Association cannot market 4C Compliant Coffee until they reach an average level of yellow on the 4C Code Matrix. FSC s modular approach would only allow B2B claims about progress once forest management entities reach the level of legal wood. In Rainforest Alliance s SmartWood SmartStep programme and the FSC modular approach, forest management entities are authorised to use different language depending on their level of involvement and progress. Market access Another incentive is to offer participants improved access to a market. The best examples of this are the stepwise approaches run by or for brands, such as Nespresso s AAA Sustainable Quality Program or Starbuck s Cocoa Practices. Participants in these programmes are included in the brand s buying programme. In 18

19 Nespresso s case, stepwise progress towards Rainforest Alliance certification also offers farmers the promise of higher prices for the part of their crop not purchased by Nespresso. The Rainforest Alliance s SmartWood SmartStep programme and Sustainable Tourism programme both make use of a web listing to market the products and services of participating entities. The Tourism programme also makes agreements with intermediaries in the value chain to work with participating operators. The Sustainable Fisheries Programme provides a listing and tracking of progress indicators on their Fishsource website. The Cotton Made in Africa programme offers an ingredient label for textile retailers to help build demand for cotton from the programme. The Forest Trust seeks to link participating entities into member supply chains. Financial incentives Five of the stepwise approaches offer or plan to offer producers some sort of financial premium for participating in the programme (UTZ Certified, Fairtrade, Nespresso, Starbucks, and Cotton Made in Africa). In Starbucks Cocoa Practices, the premium above the market price is split between the farmer and the farm organisation, offering an incentive to both parties. Cotton Made in Africa offers producers the possibility of eventually receiving a dividend, but only after the programme reaches a certain level of sales. Cotton Made in Africa also funds a number of community based projects in CMiA producer communities. Both the dividend and the projects are funded out of revenues from the ingredient label. In the case of LEED, builders receive financial incentives for participating in the programme, but not from LEED itself. Some governments in the United States offer incentives and rebates for achieving LEED certification. The Rainforest Alliance Sustainable Tourism programme offers discounts on the cost of technical assistance, with the discount increasing with the level of achievement reached. The Forest Trust takes the opposite approach it imposes levies on members whose supply chains do not achieve FSC certification. This gives actors higher up in the supply chain an incentive to encourage change in the forest management entities and other actors with whom they work. Credit Another way to support participants in their attempts to step up performance is to provide credit. Many of those interviewed for this study said that providing credit should be part of stepwise approaches. Surprisingly, few programmes offer credit as part of their programmes now. Starbuck s Cocoa Practices is working with Root Capital Verde Ventures and the Calvert Foundation to provide loans to cocoa farmers. UTZ Certified, the Rainforest Alliance Sustainable Tourism, and Nespresso have pilot credit projects. The Sustainable Tourism programme also has works with other organisations that provide credit or grants to tourism companies committed to sustainability. Reducing entry and audit costs Another way of enticing participants is to reduce administrative or financial barriers to entry. For example, several programmes facilitate or provide the initial audits that assess baseline sustainability performance, a requirement for entry in the stepwise approaches. Many programmes protect producers and businesses from the costs of participation audits, membership fees though there may be costs applied to others in the supply chain. The Social Accountability International applicant status programme allows a Business Social Compliance Initiative client with a good audit report to make a seamless application from BSCI to SAI (3 to 6 months to reach applicant status) and then another year to certification. 19

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