Along with the gradual development of the ESG (Environmental, Social and Governance) ethos and the increasing acceptance of green consumption viewpoint among people, more and more enterprises are considering how to create more environmental benefits, enhance corporate image and burnish social responsibility when developing their business and pursuing profits. In addition to the direct emission reduction methods (e.g., carbon emission allowance and carbon credit trading) and indirect emission reduction methods (e.g., green electricity or green certificate trading), enterprises can also, from the perspective of supply chain management, build their own green supply chain management system and carry out low carbon management in the entire production cycle, in order to reduce their carbon footprint and achieve the goals of low-carbon and emission reduction.

Green supply chain management has already become another "main force" of enterprises in the carbon neutrality revolution after carbon trading and green electricity trading. Therefore, understanding green supply chain and strengthening its management have become essential skills that enterprises need to master. This article will introduce the concept of green supply chain and to illustrate how it can be managed comprehensively from both theoretical and practical perspectives.

The first discussion on the concepts of "green supply chain" and "green supply chain management" came from Western nations. The concept of green supply chain was firstly defined in 1996 by Manufacturing Research Consortium of Michigan State University in its study of "Environmentally Responsible Manufacturing (ERM)", which was considered to incorporate environmental factors into all aspects of the supply chain, including procurement, product design, manufacturing and logistics. Since then, the concept of "green supply chain" has gradually entered into the public, and has been widely studied and cited.

Subsequent explorations into the definition of "green supply chain" were conducted by European scholars. Some scholars proposed that green supply chain can be deemed as logistics structure that ensures the production and distribution of products on a global scale in an environmentally friendly manner. In order to achieve this, companies must invest in the design and planning optimization of logistics structure, and take into account the balance between profit making and environmental impact[1]. Others scholars defined green supply chain or sustainable network as a method of operation management and optimization to reduce the environmental impact of products throughout their life cycle from raw materials to final products[2].

Compared with the theoretical discussions in other countries, "green supply chain" is more clearly defined in China by legislations. An example would be the Green Finance Regulations of Shenzhen Special Economic Zone, in which green supply chain refers to the integration of the concepts of environmental protection and resource conservation in the whole process from product design to the raw material procurement, production, transportation, storage, sales, use and scrapping disposal by an enterprise, to make the economic activities of the enterprise coordinated with the environmental protection from upstream to downstream.

The concept of Green Supply Chain Management (GSCM), according to Western scholars, aims to help companies integrate different individuals, companies and supply chains from different countries in an environmentally friendly way[3]. It can also be understood as the incorporation of environmental thinking into supply chain management, including product design, procurement and selection of raw materials, production process, delivery of final products to consumers, and recycling[4]. From the perspective of management standard, green supply chain management often requires companies to (1) increase environmental requirements internally through cooperation among their departments, externally through upstream suppliers and consumers’ demand; (2) consider not only traditional standards (e.g., cost, quality, reliability, etc.) for suppliers selection, but also environmental factors; and (3) collaborate with customers to strive for cleaner production, etc.

Just like in the foreign countries, the definition of "green supply chain management" in China is mostly found in theoretical analysis by academics. Most scholars believed that green supply chain management is an important way to achieve the "carbon peaking and carbon neutrality goals", which utilizes the market to adjust and aims to reduce the impact of products on the environment throughout their life cycle, requires products to meet the requirements of energy conservation and emission reduction from their procurement, processing, production, packaging, storage, trading, transportation, to recycling. Meanwhile, by actively guiding upstream and downstream enterprises to participate in green supply chain management, carbon emission reduction can be achieved in all aspects and ecological environment will be ultimately improved.

In 2017, the National Standardization Management Committee promulgated the national standard Green Manufacturing - Green Supply Chain Management in Manufacturing Enterprises-Guidelines (hereinafter referred to as the "Guidelines"). While the Guidelines are applicable only to manufacturing companies, it is still a considerable reference for understanding the purpose and scope of green supply chain management. According to the Guidelines, the purpose of green supply chain management is to integrate the concepts of green manufacturing, product life cycle management and the extended producers responsibility into the supply chain management system of companies, identify the green attributes of products at all stages of their life cycle, and effectively manage the green attributes of the products/raw materials in collaboration with suppliers, manufacturers, sellers, customers and other entities in the supply chain to reduce resource and energy consumption, environmental pollution and achieve sustainable development.

Similarly, according to the Guidelines, the scope of "green supply chain management" includes.

(A) from the perspective of the product cycle, green supply chain management covers the entire life cycle, encompassing design, material selection, procurement, processing, transportation, storage, use and final disposal; and

(B) from the perspective of the subjects involved, green supply chain management involves suppliers, manufacturers, distributors, logisticians, and end users.

In addition to academic research on the concepts of "green supply chain" and "green supply chain management", both China and western countries have been popularizing green supply chain management in their respective jurisdictions by formulating relevant laws, regulations and policies in this regard, to guide enterprises, to reduce emissions throughout their supply chain and product life cycle when making economic growth. Below we will introduce the main legislation guidance on green supply chain management in, respectively, the EU and Germany , and main policy guidance in China.

2.1 EU

The EU's legislative promotion of green supply chain is mainly reflected in the Proposal for a Directive on Corporate Sustainability Due Diligence (the "Due Diligence Proposal"), which has not yet entered into force. The Due Diligence Proposal was adopted by the European Commission on 23 February 2022 and will subsequently be submitted to the European Parliament and the EU Council for approval. Once the Due Diligence Proposal is approved, EU Member States will have two years to incorporate it into their respective national laws and to file their relevant legal texts to the European Commission. The purpose of the Due Diligence Proposal is to promote sustainable corporate behavior and responsible corporate governance, as well as to integrate human rights and environmental considerations into corporate operation and governance.

In terms of environmental protection, the Due Diligence Proposal guides companies to conduct their green supply chain management by requiring large-scale EU companies in specific sectors and non-EU companies with a large turnover in the EU to carry out environmental due diligence on their own operations, subsidiaries, value chains, and established business relationships[5], requires companies to formulate due diligence policies and regulates the company's due diligence processes and measures, code of conduct and investigation procedures. Companies are required to publish a statement on their environmental performance for the previous year by 30 April in each year.

The Due Diligence Proposal also imposes individual duties applicable to the directors of EU companies. These duties include conducting and overseeing the implementation of due diligence processes, and incorporating environmental due diligence into corporate strategies. In carrying out their duties, directors are required to consider the impact of their decisions on climate change and the environment.

The Due Diligence Proposal also stipulates administrative penalties (monetary penalties linked to the company's turnover) and civil liability for damages in the event that a company fails to meet the requirements for sustainable development in terms of environmental protection.

2.2 Germany

As a member of the EU, Germany has been at the forefront of green supply chain management legislation in both the EU and the world. Germany has already adopted the Supply Chain Due Diligence Act (the "Supply Chain Act"), which will come into force on 1 January 2023. The Supply Chain Act requires German companies to analyze and report on the compliance with relevant human rights and environmental standards in their supply chains in order to ensure that the companies meet basic requirements in this regard within their supply chain.

Echoing the EU approach in environmental protection, the Supply Chain Act also requires German companies with a certain scale to conduct due diligence on their own operations and their direct suppliers to ensure that they meet certain legal requirements and standards of environmental protection. It also requires the companies to carry out necessary compliance measures, such as developing an environmental due diligence system and supplier code of conduct, conducting training, drafting contracts for sustainability requirements, establishing complaint mechanisms, preparing annual compliance reports, etc., to urge the companies to conduct green supply chain management.

Violation of the Supply Chain Act may have adverse implications to German companies, including being imposed with fines in an amount of up to EUR 800,000 (or, for companies with an annual turnover of more than EUR 400 million, up to 2% of their annual global turnover as fines).

2.3 China

Unlike the EU and Germany, China does not currently have any unified legislation on green supply chains. Instead, the guidance from the government is mainly reflected in a series of policy guidelines. As early as 2016, the Ministry of Industry and Information Technology released the Industrial Green Development Plan (2016-2020), which explicitly stipulates that " taking the core supply chain enterprises as the starting point, carrying out pilot demonstrations, implementing green procurement, promoting an extended producer responsibility system, and cultivating 100 green supply chain enterprises for demonstration purposes in information, communication, automobile, home appliance, textile and other industries. Later that year, the Ministry of Industry and Information Technology issued the Notice on the Development of Green Manufacturing System, indicating that green factories, green products, green parks and green supply chains shall be treated as the main contents of the green manufacturing system, and proposing the development principles, contents and procedures hereof, which provides a policy ground for green supply chains.

Recently, in February 2021, the State Council issued the Guiding Opinions on Accelerating the Establishment and Improvement of a Green, Low-carbon and Recycling Economic System, which further emphasizes the development of green supply chains, encourages corporates to carry out green design, select green materials, implement green procurement, create green manufacturing processes, implement green packaging, carry out green transportation, and recycle waste products, so as to achieve environmental protection throughout the product cycle. This Guiding Opinions also regulates to select 100 highly motivated and influential enterprises with major leading effect to carry out green supply chain pilot projects to explore the establishment of a green supply chain system. Industry associations are also encouraged hereunder to increasingly greenify industry supply chains by formulating the industry standards, providing advisory services and imposing industry self-regulation.

Under the guidance of these policies, the Chinese government has also carried out many pilot projects and initiatives related to green supply chain, such as selecting model enterprises on green supply chain management, launching green manufacturing system integration projects to support the "green supply chain system establishment" project, and initiating supply chain innovation and application pilot projects at both city and corporate levels by the Ministry of Industry and Information Technology. At the local level, Shanghai, Shenzhen, Tianjin, Dongguan and other places, have carried out tailor-made pilot projects on green supply chain management by combining government and corporate efforts, and issued many local implementation plans and working guidelines on green supply chain management.

It can be seen through our above analysis that green supply chain management in both EU and Germany are developed to be mature, both jurisdictions have introduced this concept into the legislations at a higher level with specific obligations and clear guidance to the companies hereunder. While, China's efforts in promoting green supply chain management are still constrained at the governmental policy level, which may have limited binding effect and mandatory force and band the content itself is relatively general and broad.

This, however, does not mean that green supply chain management is of less importance to the Chinese enterprises. Previously, we worked on a case in which a Chinese company failed to identify the environmental issues of its major supplier due to its poor management of supply chain. After the supplier was ordered by the government to stop production due to the environmental issues, the Chinese company's supply of raw materials was interrupted and it suffered huge economic losses therefrom. If such Chinese company paid more attention to green supply chain management and could identify the suppliers’ environmental issues in advance, it might have sufficient time to adjust the supply plan, and effectively avoid supply interruption arising from such environmental issues.

Please note that the EU Due Diligence Proposal and the German Supply Chain Act are also of reference value to the companies outside of the EU or Germany due to their extraterritorial effects. Hence, the Chinese companies with long-standing export business with the EU or Germany, in some specific situations, may potentially be affected. We recommend that these Chinese companies seek professional legal advice on whether or not their operations and business need to comply with the EU Due Diligence Proposal and the German Supply Chain Act, and conduct a comprehensive review of and due diligence on their business if necessary.

Learning about the green supply chain management concept and legislation/policy guidance is one thing, but what really lingers in the minds of our readers is probably how their own enterprises can carry out green supply chain management.

Considering suppliers are the most important parties involved in green supply chain management, how to well-manage them and  make them provide high-quality products while also exert their initiative of emission reduction to balance profit making and environment benefits, will be an important topic in the course of future enterprise management. Therefore, we believe that, in addition to carrying out carbon asset management, energy saving, and emission reduction by enterprises themselves, supplier management will also be key to green supply chain management.

Below we will offer some practical advice on green supply chain management from the perspective of supplier management for your reference.

3.1 Establishing Rules

Nothing can be accomplished without norms or standards. The first step in supplier management is establishing relevant management rules, such as green procurement standards and rules, supplier codes of conduct, supply chain emission reduction rules, and other rules and regulations on environmental protection and emission reduction. Such management rules can set out clear guidelines and milestones for suppliers to implement specific emission reduction measures and meet relevant targets, so that the suppliers’ emission reduction practice can be followed by rules.

The emission reduction targets and measures as stipulated in these rules should be as specific, quantifiable and practical as possible. They should be linked with the carbon footprint of the entire life cycle of the supplied products, so as to facilitate subsequent performance assessment and audit.

The rules written on paper are never sufficient as it is the implementation of the rules on the practical level that really transforms them into existing practices. In addition to requiring suppliers to comply with rules and regulations, enterprises need to conduct internal training sessions on emission reduction, energy conservation and supplier management for their management and staff, and implement the rules and regulations in the subsequent steps, such as due diligence, graded management, supplier assessment and contract management mentioned below. Meanwhile, rules and their implementation plan should also be updated from time to time according to the changing emission reduction requirements and economic benefits of the enterprises to achieve dynamic management alongside observing planned milestones.

3.2 Due Diligence

To conduct supplier management, the enterprise shall also know both themselves and suppliers well. For example, enterprises shall know their own emission reduction and management needs and be familiar with the emission reduction situation of their suppliers. Enterprises shall identity the issues of suppliers and request the suppliers to timely rectify those issues according to the prescribed management rules and regulations.

Enterprises may engage professional lawyers to conduct due diligence on the supplier's current environmental, health and safety (EHS) situation, and other aspects that may have impact on the supply relationship, or the enterprises focus on. They can also require their suppliers to track and disclose greenhouse gas emissions from various processes throughout the life cycle of the supplied products, such as from raw material procurement, production, packaging, transportation, sales, after-sales and to recycling, so as to know (1) whether the supplier has any significant environmental risks that may have impact on the enterprise's own production, operation, supply, or the performance of the supply contract, including but not limited to any emission reduction or environment protection obligations that the supplier fails to perform; (2) the steps in the suppliers operation and the products life cycle that have most carbon footprint or generate the most greenhouse gas (e.g., CO2), and in which the emission reduction opportunities can be exploited.

For the problems identified during the due diligence, an analysis on potential risks should be conducted by the enterprises. For non-compliant environmental issues that may have impact on the supply relationship or the performance of the supply agreement, enterprises may require suppliers to rectify as soon as possible and agree upon specific rectification requirements in their agreements, so as to improve the overall environmental protection and emission reduction practice of suppliers and form closed-loop management in this regard.

3.3 Classification Management

According to the environmental compliance of suppliers and the importance of supply, enterprises can carry out classification management on suppliers, which allows more focus to be given where necessary. Specifically, this can be achieved by:

(a) Classifying and marking suppliers that are critical to enterprises’ production and operation, or have a high risks of environmental non-compliance as "red", e.g., suppliers whose disruption of supply would cause the enterprise to shut down or face huge losses; suppliers whose products or services cannot be easily replaced, once their supply has been cut off, the enterprise is unable to maintain production in the short term by finding alternatives; and suppliers with environmental or operational risk of shutdown.

(b) Classifying and marking suppliers that are moderately important to the enterprises’ production and operation or have moderate risks of environmental non-compliance risks as "yellow", e.g., suppliers whose products or services are important to the production of the enterprise, though, if their supply were cut off, they could be replaced in a short term by finding alternative parties, and will not cause shutdown of the enterprise; suppliers whose current environmental non-compliance risks will result in the supply agreements not being fully and adequately performed, but will not result in their own shutdown, etc.

(c) Classifying and marking suppliers that are not important to enterprises’ production and operation or have low risks of environmental non-compliance as "green", e.g., suppliers whose products or services do not affect the production of the enterprise, or are less important to the production of the enterprise and can be easily replaced, so that when a cut-off of supply occurs, the enterprise can continue production by finding alternatives in a short-term or with no alternatives at all; suppliers whose current environmental compliance risks will not affect the performance of the supply agreement, etc.

For suppliers classified marked as "red", enterprises should formulate contingency plans and deploy preventive measures in advance in case of a cut-off of supply occurs. If necessary, the enterprises should adjust supply plans to find alternative suppliers or methods to replace the current supply source as soon as possible. For suppliers classified and marked as "yellow", enterprises should implement stricter management measures and more frequent environmental compliance investigations, audits and assessments. For suppliers classified and marked as "green", only normal management measures and attention should be given in enterprises daily operations.

3.4 Periodic Assessment

Enterprises need to pay attention to the fact that supplier management is not done overnight, nor is it done once and for all after the suppliers are required to comply with the environmental protection and emission reduction rules and regulations in the contract. The management should be a long-term, continuous process with regularly updated requirements.

Therefore, in addition to formulating rules, regulations, and contractual provisions, enterprises should also regularly track, audit and assess the emission reduction practices of suppliers in accordance with the requirements of such rules and regulations. The assessment results can link to the reward and punishment system, so that the relevant rules and regulations and the corresponding reward and punishment system can be effectively and practically implemented. In order to facilitate this, we also recommend enterprises stipulate in the rules, regulations, or corresponding contracts requiring the suppliers to cooperate with the regular tracking, auditing and assessment carried out by the enterprises, including but not limited to providing relevant information, places and personnel.

3.5 Contract Management

In order to make the supplier's environmental protection and emission reduction rules and regulations legally binding on the suppliers, for new suppliers, the enterprise can add these rules and regulations to the corresponding framework supply agreement as contract terms or annexes, requiring the new suppliers to sign and comply with them together with the supply agreement; for existing suppliers, enterprises can consider adding these rules and regulations to the template purchase order, requiring existing suppliers to comply with these rules and regulations when signing and performing the supply obligations agreed under the new orders.

In addition to incorporating rules and regulations into the supply agreements or orders, enterprises can also consider adding specific reward and penalty mechanisms related to environment protection and emission reduction of suppliers in the contracts or orders to motivate suppliers to implement relevant measures and comply with the corresponding rules and regulations. For example, suppliers who meet the emission reduction targets or requirements will be entitled with incentive policies, such as being granted with awards, having higher ratings or scores in bidding or supplier selection, etc.; suppliers who violate the rules or do not meet the targets or requirements will be subject to disciplinary measures, such as being restrictive in bidding or supplier selection, paying liquidated damages, etc. The above mechanism can also be stipulated in the rules and regulations, and enclosing those rules and regulations to the contract or order to become legally binding on the suppliers.

3.6 Communication and Training

Enterprises should establish a long-lasting and effective communication mechanism with suppliers. This communication mechanism may include environmental compliance and green supply chain training or seminars for suppliers, etc. in addition to regular tracking, auditing, assessment as mentioned above and regular work communication.

Through such communication and information exchange, enterprises can timely understand the problems and difficulties that may arise in the suppliers’ efforts of emission reduction, assist them in setting up or adjusting reasonable carbon reduction targets and strategies, and enhance the suppliers’ carbon management capabilities and awareness. At the same time, such communication can also improve the brand reputation of the enterprise, strengthen the trust relationship between the enterprise and the suppliers, and realize the win-win situation of green supply chain management for both parties.

It should be noted that different enterprises operate different products and businesses, and the situation of suppliers is not completely the same. Therefore, in addition to our above suggestions, enterprises need to take into account their own situation when implementing green supply chain management procedures or practices, and engage professional lawyers, if necessary, to formulate a tailor-made green supply chain management system.

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https://www.sciencedirect.com/science/article/abs/pii/B9780444542984500106.

[2] Green supply chain toward sustainable industry development. (2015-02-06) [2015-02-06].

https://www.sciencedirect.com/science/article/pii/B9780127999685000129.

[3] Mapping and Assessing Green Entrepreneurial Performance: Evidence from a Vertically Integrated Organic Beverages Supply Chain.(2021-01-20) [2021- 01-20]. https://doi.org/10.1177/2393957520983722.

[4] Green supply-chain management: A state-of-the-art literature review. (2007-02-28) [2007-02-28]. https://doi.org/10.1111/j.1468-2370.2007.00202.x.

[5] European Commission. Proposal for a Directive on Corporate Sustainability Due Diligence. (2022-02-23) [2022-08-15] https://ec.europa.eu/info/ business-economy-euro/doing-business-eu/corporate-sustainability-due-diligence_en#documents.

特别声明：

以上内容属于作者个人观点，不代表其所在机构立场，亦不应当被视为出具任何形式的法律意见或建议。