Raw materials strategy
Why you need a theory of change for your critical raw materials
Environmental, Social, and Governance (ESG) factors are increasingly influencing corporate decision-making. Whereas companies significantly invested in identifying ESG risks within their supply chains, mitigation strategies often fall short. A theory of change can help create a coherent response that is impactful, transparent and measurable.
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Critical raw materials: Complexity demands a comprehensive response
Many companies focus on risk analysis and initial mitigation measures, such as launching a project or implementing a specific standard. However, the challenges in sourcing raw materials are often complex and interconnected. For instance, child labor in Madagascar’s mica production is driven by both exploitative practices and extreme poverty in the region. Tackling such issues requires more than isolated actions; it necessitates comprehensive responses that involve adjustments to a company's due diligence management system, direct supplier engagement, and involvement in addressing systemic risks locally.
A theory of change: Charting the path to sustainable sourcing
A theory of change (ToC) is the cornerstone of a strategy, it offers a structured and measurable approach to addressing ESG risks. A ToC outlines the pathway from identifying a risk to achieving a desired positive outcome. For a comprehensive response, a good theory of change considers all the tools at a company's disposal. It creates a smart mix of standards and certifications, audits and beyond audit approaches, and on-site projects to address systemic challenges.
5 steps to building a robust theory of change
Developing a ToC for critical raw materials involves several key steps:
Situational Analysis: This includes a risk assessment, stakeholder engagement, and potentially on-site visits. Understanding the context is crucial for defining the scope and target groups of your intervention.
Setting the Scope: Clearly define your responsibility and specify which risks and rightsholder concerns you are going to address – and what is outside the scope of your approach.
Objective, Outcomes & Outputs: Define the desired objective (i.e., positive description of the future), outcomes (i.e., results for the target group) and the outputs (i.e., services and activities that you are conducting).
Monitoring Framework: Establish a system to track progress towards your outcomes and outputs and adjust strategies as needed.
Roadmap & Responsibilities: Set up a roadmap and define specific responsibilities.
Putting theory into action
Let's illustrate this with a real-world example. We collaborated with a leading automotive manufacturer to create a ToC for a battery raw material. Our situational analysis consisted of literature review, extensive stakeholder meetings and an on-site visit. Based on this analysis, we defined the target groups and the change that was required for each target group. The resulting strategy focused on three key areas:
Internal Management System: Selecting a relevant standard and sensitising the purchasing team
Supplier Engagement: Implementing a “beyond audit” programme to strengthen direct suppliers’ due diligence systems.
Systemic Change: Collaborating with peers, NGOs and local authorities to address root causes of environmental damages and human rights abuses in the mining region.
A monitoring framework with output and outcome indicators allows our client to not only communicate progress but also the positive impact caused by its intervention.
Benefits of a ToC approach
A ToC offers several advantages for companies navigating the complexities of ESG risks in critical raw materials:
Comprehensive Response: It ensures a holistic approach that can be communicated to internal and external stakeholders.
Measurable Impact: A robust monitoring framework allows to measure impact and demonstrate progress towards sustainability goals.
Transparency & Accountability: A transparent ToC builds trust with stakeholders and fosters accountability throughout the supply chain.
Long-Term Improvement: A solid plan with clear milestones helps outline how a company is becoming part of the solution.
Conclusion: Moving beyond isolated initiatives
The growing recognition of ESG risks necessitates a shift from disconnected projects to comprehensive responses. A theory of change empowers companies to address the complexities of critical raw materials sourcing, fostering measurable progress towards a more sustainable future. By embracing this framework, companies can demonstrate their commitment to responsible sourcing, build trust with stakeholders, and contribute to a more ethical and sustainable global supply chain.
Ready to take action? Contact us to learn how we can help you develop a robust theory of change for your critical raw materials sourcing strategy.
