Most products are part of complex and increasingly international value chains. A recent study from the McKinsey Global Institute (MGI) showed that the value of globally traded goods grew from 4.4 to 17.8 trillion dollars from 1980 to 2012; 55 percent of these traded goods are typical value chain goods: primary resources and intermediate products. These values are expected to grow up to three times by 2025. The sustainability of a product depends strongly on the weakest link in its value chain. To enhance sustainability of products, companies and organizations need to find ways to motivate and communicate with their suppliers, and to verify the chain of custody of the materials and intermediate products they use. Different policy instruments to enhance the sustainability of value chains have been developed in the public sector, in the private sector and also in public-private combinations like co-regulation initiatives.
This publication describes several examples of policy instruments that improve the sustainability of value chains. For private organizations it looks into the possibility of combining the use of policy instruments and sustainability certification to manage value chain sustainability. The main part of this publication discusses the potential of co-regulation (combination of public policy instruments with private control mechanisms) for global value chains such as food, forestry and bioenergy. The case of co-regulation for sustainability of biofuels consumed in the European Union is assessed in detail.
Co-regulation makes use of the strengths of both public regulation and private control mechanisms. Strengths of public regulation are its democratic legitimacy, its applicability and the enforceability within a national jurisdiction among others. Private control mechanisms such as certification take less time to implement and are more innovative in nature. Strengths of certification are its flexibility and its possibility to be applied across national boundaries. While the combination of private certification in public regulation has the potential to combine the strength of both regulatory areas, there are also risks attached to the process. Lack of clarity and guidance during the implementation of co-regulation may end up in some weak control mechanisms combined with lenient regulation, resulting in high environmental or socio-economic concerns. Contradictory demands by different governments on private control mechanisms may increase implementation costs. Furthermore, if the dynamics of private control mechanisms are not fully understood, then co-regulation may not be efficient or it may be used in a way that endangers its neutrality and credibility (e.g. for protectionist purposes). The risks involved in co-regulation, make it evident that careful design, implementation and constant monitoring of such processes are needed to secure their effectiveness.
This publication concludes with recommendations to policy makers, certification schemes and companies for the design and implementation of future co-regulation frameworks for value chain sustainability.