GM gets serious about de-forestation and tires

This article was first published in the July edition of our monthly Tire industry Intelligence report

It was accompanied by a series of other articles on sustainable natural rubber and how the tire industry can do more to limit deforestation in the Mekong basin and elsewhere.

GM gets serious about de-forestation and tires

In May and then again at an event in Montréal, Canada in June, vehicle maker GM set out its vision for eliminating de-forestation due to the creation of natural rubber plantations.

We spoke with David Tulauskas, GM’s director of sustainability about this vision and where it is likely to lead.

In short, GM has recognised that there is a risk that some people might seek to cut down high carbon-stock trees to replace them with rubber trees. As part of its global responsibilities, GM wants to discourage this behaviour and is working with its tire suppliers over the mid-term to ensure that none of the rubber used in GM’s tires comes from plantations created through destruction of high carbon-stock trees.

Furthermore, GM is seeking to highlight this risk to its fellow automakers and encourage them down the same path. 

At present – and deliberately – there is no clear definition of what ‘sustainable’ natural rubber means, nor is there any firm timescale for these changes, but the direction of travel is very clear, and there will be definitions in future and target dates.

For example, there might be an expectation that by the end of this year, many of GM’s tire suppliers should have published a statement committing to zero de-forestation in their NR purchasing programs.

GM does not want to work alone in this. The company wants to be a catalyst for large-scale changes in the global tire industry and its NR supply base.

Within a year or two, GM expects to see significant progress from its suppliers. 

Of the tire makers we spoke to, only Michelin was fully up to speed with these developments, having a clear sustainable NR purchasing policy and developing tools to trace and identify the origin of much of the NR it uses. Others are still in catch-up mode. And they are working hard to catch up.

Since we published this story in our July issue, things have moved on.

Sustainable NR initiatives develop

First, Continental has issued a clear statement from Nikolai Setzer, head of the tire business, saying, “a special project for analysing sustainability in the delivery chain of natural rubber is in preparation.” Meanwhile we spoke to Pirelli who is on board with similar projects. Bridgestone is also seeking a way forward to demonstrate its commitment.

Meanwhile, the supply side has also been working hard. A way forward is developing with consensus support from many stakeholders in the industry.

Olam International is not especially well known in the tire industry, but it is the biggest supplier of food crops in the world, and has a strong position in rubber supply. Ashish Govil, head of global rubber activities at Olam, has developed a working paper that looks at the areas of rubber growing and categorises each area in terms of the risk that the land has recently changed use from high carbon-stock forest to rubber. Low risk areas have a low threshold for accreditation. Areas where the risk of deforestation is high, have a much higher threshold for external accreditation and compliance.

This system is designed to deliver compliance and a reliable paper trail, without a large increase in costs of production.

According to Olam, most of the top tire makers have agreed that this looks like a positive way forward, but no-one is taking the lead.

We urge tire makers and especially GM to take this project seriously, as it has support from all parts of the supply chain and is designed by the private sector to give maximum impact with minimum cost.

Buying power brings capacity to effect big changes

As the third-largest car maker in the world, GM has a purchasing budget of around $90,000mn each year. Tulauskas said this means GM has the opportunity to have a significant impact on upstream supply chains.

The umbrella word ‘Sustainability’ covers many aspects of business. One of these is de-forestation. Of all the $90bn GM spends each year, there are very few products – except tires – where de-forestation is a risk in the supply chain. GM has been working with Civil Society including organisation such as WWF, who have highlighted these concerns.

As a result, GM is working with tire suppliers to ensure all its tires are made using natural rubber that is sustainable.

As Tulauskas said, “When we want to move fast we will do it unilaterally and do it ourselves. But when we want to move far and have a significant impact, then we have to work together [with our suppliers]”

Not only that, but GM is working with other auto makers to transfer this vision to them, so that it will become increasingly difficult to sell tires to OE customers without appropriate safeguards and traceability in place. 

Tulauskas said, “We are sharing this very much in an open book manner. We are sharing it within AIAG (Automotive Industry Action Group). We are sharing it in the trade associations and through day-to-day interactions that we have with other vehicle makers at a variety of topics. We are using every opportunity to help other automakers share our thoughts; what we have achieved and answer any questions they might have. There are a number of automakers who are very interested in what we are doing and are learning a lot more about it every day.”

Collaborative process

GM’s initial announcement said, “we are only going to source natural rubber that is sustainable into the future.” Tulauskas said, “We deliberately did not come up with specific requirements.”

He added, “We will come up with requirements in collaboration with our major tire manufacturers that define what sustainable natural rubber is. We want to work with other vehicle makers to define what that is. We do not want, nor do our suppliers want, [many] different sets of requirements that attempt to define sustainable natural rubber.”

For GM, the bottom line is that its suppliers develop systems that ensure the following

• Zero deforestation; 
• Fully ethical and responsible business practices; 
• Zero human rights issues.

Tulauskas noted that these three requirements are critical for the industry in order to minimise any risks associated with de-forestation.

GM said in a statement that it has been working with four tire makers: Bridgestone, Michelin, Goodyear and Continental. 

He said, “They are all in different places on their journey. Of course, Michelin is among the leaders. They are the first to establish their own purchasing requirements and a natural rubber sourcing policy. But that’s okay. Everybody has to start somewhere.”

Timescale

Tulauskas noted that there will be issues around traceability, given the lack of transparency in the supply chain and also the large number of smallholders and farmers involved in rubber production. He said, “We will not in the short-term be able to achieve full transparency and traceability of natural rubber but if we don’t start now we will never get there.”

Nevertheless, he said that GM expects these issues to be resolved in the future. “By having those bigger bolder goals, we are certainly going to make progress more quickly. “

He referred to the SNR-i programme developed by the International Rubber Study Group (IRSG). He praised the initiative for pioneering the issues of sustainability among all the stakeholders, but added, “There is a lot of great learning out there, but we really felt that for GM, it was not moving fast enough and we could gain more momentum if we sent a strong customer signal and worked to get the other automakers to work together to come up with an auto industry solution.”

Although no timescale is cast in stone yet, Tulauskas said it would not be realistic to demand that all tire suppliers have a fully traceable and transparent supply chain in place by 2020.

However, he added that perhaps one of the first requirements would be for GM to only buy tires from those suppliers who have a formal policy on de-forestation issues. That could be introduced as early as the end of 2017.

He also confirmed that it is impossible to turn back time where high-carbon stock trees have been cut down and rubber planted. However, he noted that those rubber trees would take seven years to reach maturity and perhaps that is a good time scale to aim for. So that seven years from now, every tire maker has in place a full traceability programme to identify the source of its materials.

He said, “if we said today that in seven years’ time, you need to be able to prove that the rubber used in the tires you make did not come from a source that was the result of deforestation; that is the sort of timeframe we are talking about.”

How will this happen?

Broadly speaking, the vehicle industry works closely with its suppliers. Those suppliers are very conscious of the requirements of their big customers. There is close dialogue between customer and supplier around many of the factors in the buying process: technology, price, innovation, credit conditions; delivery schedules and so on. Sustainability becomes one part of that. As Tulauskas said, “There will be the sustainability requirements. And these will be built into the contracts that they bid on. If they are not able to meet the requirements, they won’t be able to bid for the business. This is not going to happen tomorrow or 2018. It is going to take a long time to achieve a full goal. We are looking at a phased in approach.

Our view

 Our view is that the tire industry is ill-prepared for any scrutiny of this issue. It is nearly 18 months since the IRSG held a major meeting at which Civil Society indicated a clear intention to push the tire industry toward more sustainable business practices, especially with respect to de-forestation issues around NR.

Unfortunately, the SNR-i is too little and too late, but it performed a critical role in raising awareness among tire makers and NR producers. Without the strong efforts put in by he IRSG we would not have first raised awareness within the industry, and second would not have identified the main stumbling blocks to success.

Up to now, the NR-producing governments represented by the Association of Natural Rubber Producing Countries (ANRPC), and supported through International Tripartite Rubber Council (ITRC), have made it clear that it they are not, as a group, prepared to take any responsibility for sustainability.

The IRSG initiative bent over backwards to bring them on board, but as GM notes, that route is taking too long. The ANRPC is meeting in Vietnam later this month. We urge them to get on board with this new initiative developed by Olam and supported by all the main tire makers. distribution companies and others.

For the time being, NR prices are relatively low. Most of us expect that situation to continue for 7-10 years as there is structural over-capacity on the supply side.

Due to this over-supply – and the fact that the plantation policies within many ANRPC governments respond to the price today; not the price likely to pertain in a decade's time – few of us expect significant planting activity in the coming 5 years.

This gives the industry a breathing space of five to seven years before pressure on NR supplies starts to build again. That will inevitably translate to pressure on thigh carbon-stock forests through private logging and NR production activities.

As an industry, we have a chance to set up smallholder-focussed activities that bring rewards to the smallholders and give reliable data on specific smallholdings, even down to individual trees.

That chance is being brought into sharp focus by GM and possibly other vehicle makers.

The way I see it, only Michelin and Pirelli are taking this seriously. Continental's recent announcement is a positive sign. None of the other tire makers was prepared to respond positively to our questions, even though this should have been high on their agenda for over 12 months.

Some off-the-record comments suggest there has been progress behind the scenes, but Global Witness suggests that, apart from Michelin, no tire makers have engaged in any serious way.

This is not something that will go away. If the industry does not step up voluntarily, legislators, or civil society will force the industry to react.

Furthermore, the idea of sustainably-sourced tires can become a differentiator. There is no Chinese tire maker that I know of where this subject is even on the agenda. But Giti, Sailun, Linglong and others are seeking OEM contracts. Today they are getting those contracts but only on the cheapest cars.

It is relatively easy to design a tire to meet low-end OEM technical requirements. Those newcomers to the OEM business will find it much harder to comply with the sustainable NR criterion that GM wants to write into its contracts. If the premium tire makers want to erect barriers against the low-cost competition, this might be one way to force the newcomers to adopt a more responsible position on de-forestation.

Our monthly Tire industry Intelligence report looks at deep issues in the tire industry such as this, and offers insight, analysis and explanation about how the industry is changing. This is a short extract of a much longer series of articles published in our July issue. The current issuecurrent issuecurrent issuecurrent issuecurrent issue looks at more up-to-the-minute topics affecting the world's tire makers.