Supply Chain Sustainability A Practical Guide for Continuous Improvement Second Edition ii Supply Chain Sustainability The United Nations Global Compact is a call to companies everywhere to voluntarily align their operations with ten universally accepted principles in the areas of human rights, labor, environment and anti-corruption, and to take action in support of United Nations goals and issues. The UN Global Compact is a leadership platform for the development, implementation and disclosure of responsible corporate practices and policies. Launched in 2000, it is the largest corporate sustainability initiative in the world, with over 8,000 companies and 4,000 non-business signatories based in 160 countries. www.unglobalcompact.org BSR works with its global network of more than 250 member companies to build a just and sustainable world. From its offices in Asia, Europe and North and South America, BSR develops sustainable business strategies and solutions through consulting, research and cross-sector collaboration. Visit www.bsr.org for more information about BSR’s more than 20 years of leadership in sustainability. Disclaimer The inclusion of company examples in this publication is intended strictly for learning purposes and does not constitute an endorsement of the individual companies. Copyright The material in this publication is copyrighted. The UN Global Compact encourages the dissemination of the content for educational purposes. Content from this publication may be used freely without prior permission, provided that clear attribution is given to UN Global Compact and BSR and that content is not used for commercial purposes. © 2015, UN Global Compact Office and BSR UN Global Compact revision project team: Anita Househam and Elena Bombis. The revision of this guide was also made possible thanks to the input of the UN Global Compact Advisory Group on Supply Chain Sustainability with special contribution from its ad hoc Task Force and the UN Global Compact staff. The original guide was written by Cody Sisco, Blythe Chorn and Peder Michael Pruzan-Jorgensen, with significant editorial input from Cecilie Hultmann, the UN Global Compact Office staff, BSR staff and the UN Global Compact Advisory Group members in 2010, also listed on Page 4. Innovation Norway, Nokia and Ford offered their generous support for the development of this guidance in 2010. Designer of the revised guide: Tannaz Fassihi 1 Contents Foreword  2 Georg Kell, Executive Director, UN Global Compact Office Aron Cramer, President and CEO, BSR Executive Summary Practical Steps to Supply Chain Sustainability  5 1. Introduction 7 2. Getting Started on Supply Chain Sustainability 15 Developing the Business Case Understanding the Landscape Establishing a Vision 3. Establishing Sustainability Expectations for the Supply Chain  23 Overview of Engaging Supply Chain Management Professionals Overview of Supplier Code of Conduct Adopting or Writing a Supplier Code of Conduct Using the Supplier Code of Conduct 4. Determining the Scope  29 Supply Chain Mapping Supply Chain Prioritization 5. Engaging with Suppliers  37 Selecting Communications Channels Monitoring and Evaluation Remediation and Capability Building Engaging with Sub-Tier Suppliers 6. Determining Roles & Responsibilities  51 Internal Alignment Governance and Oversight: Executive Leadership and the Board of Directors Cross-functional Coordination among Business Managers Implementation by Supply Chain Management Professionals 7. Industry Collaboration & Multi-Stakeholder Partnerships 59 The Context for Industry Collaboration Opportunities and Risks of Industry Collaboration Multi-Stakeholder Partnerships 8. Establishing Goals & Tracking and Communicating Performance 67 The Process of Goal Setting Goals for Impact Goals for Supplier Performance Goals for Internal Performance Measurement Processes and Practices Communicating Progress and Reporting Acknowledgements72 2 Supply Chain Sustainability Foreword Since the original launch of Supply Chain Sustainability: A Practical Guide to Continu- ous Improvement in 2010, companies have continued to extend their commitment to responsible business practices to their value chains, from subsidiary to suppli- ers. The business case for supply chain sustainability has evolved significantly. An increasing amount of companies have realized the crucial importance of incorporating sustainability requirements into their supply chain programme in order to secure their own brand value, manage legal, regulatory and reputational risks as well as foster product innovation and explore new markets. Moreover, businesses consider the many rewards supply chain sustainability can deliver in terms of creating more inclusive markets and the contribution they can make to advance sustainable development in the spirit of the United Nations’ missions. As the UN is expected to adopt the Sustainable Development Goals, business has an enormous opportunity to step up and take a broader view of their role in society, explore how they can do more to support their suppliers on corporate sustainability and use their value chains as a source of increasing their positive impact on people and the environment. A large number of initiatives, standards and resources have been developed in the recent years to complement and/or build on the mission of the UN Global Compact. The Guiding Principles on Business and Human Rights, endorsed by the United Nations Human Rights Council in 2011, have provided further detail on the corporate responsibility to respect human rights, which is part of the UN Global Compact Principle 1 and how businesses can know and show that they are meeting it, both within their company and in the supply chain. In the mean- time, the UN Global Compact’s Advisory Group on Supply Chain Sustainability, which was formed on the occasion of the original development of this guide in 2010, continues to maintain a leading role within the the UN Global Compact to support its overall strategy on this issue and contribute to the development of specific guidance on various issues. This second edition of Supply Chain Sustainability: A Practical Guide to Continuous Improvement, developed in collaboration with BSR and the UN Global Compact’s Advisory Group on Supply Chain Sustainability, is aimed at reflecting the new and emerging trends in this area since its original launch in 2010 as well as ensuring the inclusion of and alignment with relevant standards and initiatives. Featuring numerous updated and new examples of good corporate practice, the guide remains a valuable tool to provide companies with practical guidance on how to develop a sustainable supply chain programme based on the values and principles of the UN Global Compact and assists businesses in setting priorities for action that will lead to continuous performance improvement. We hope this publication will continue to further the work of companies in col- laborating with their suppliers to deliver tangible and lasting benefits to busi- ness, the environment and societies everywhere. Georg Kell Executive Director UN Global Compact 3 Supply chains continue to be one of the most important levers for business to create positive impact in the world, with an estimated 80% of global trade pass- ing through supply chains. By working together, buyers and suppliers in global supply chains and networks can advance human rights including labor rights, climate resilience, environmental protection, inclusive economic growth and ethical business practices. Since the original guide Supply Chain Sustainability: A Practical Guide for Continuous Improvement was launched in 2010, supply chain sustainability has become main- stream for businesses and there have been significant promising developments. The UN Guiding Principles on Business and Human Rights have clarified busi- ness’ responsibility for human rights in their own operations and supply chains. We have seen advances in the way companies work with their suppliers, moving from focusing heavily on auditing towards using new technologies and collabora- tive efforts to engage suppliers and workers in a more equitable approach to find joint solutions. We have seen increasing levels of transparency from companies, publishing lists of factories, openly reporting on the social and environmental performance of their supply chains and promoting transparency to their suppli- ers. We have also seen unprecedented amounts of collaboration among business- es and stakeholders in efforts to ensure that commodities, such as wood, cotton and fish, are traceable and sustainable. BSR continues to work with our global network of 275 member companies and their supply chain partners around the world to develop, support and implement supply chain sustainability towards a just and sustainable world. We are proud to be a part of the launch of this revised guide on the fifteenth anniversary of the UN Global Compact Ten Principles. The original version of this guide has helped businesses of all sizes around the world to understand what supply chain sustainability means and how to imple- ment practices in their own business, industry and geographic contexts. The revisions made in this updated version reflect the advancements in the field; reinforce the core practices that are accepted minimum standards; and underline the needed areas for improvement. We hope that this guide continues to make a significant contribution to advance fair and sustainable working conditions and environmental protection and per- formance for entire industries, geographies and market segments by: • Extending sustainability to small and medium-sized enterprises • Creating better connections to firms in developing countries on key social and environmental issues • Supporting good governance and business ethics as a key pillar of well-functioning markets. BSR is very proud to have partnered with the UN Global Compact and we look forward to continuing to support it and its business participants around the world to make the vision of the UN Global Compact an even more powerful reality. Aron Cramer President and CEO BSR 4 Supply Chain Sustainability United Nations Global Compact Advisory Group on Supply Chain Sustainability In 2010, the UN Global Compact established an Advisory Group of UN Global Compact participants and stakehold- ers to guide its work on supply chain sustainability. The role of the Advisory Group is to provide input to the overall strategy and work done by the UN Global Compact on the issue of supply chain sustainability and to ensure that the guidance material developed is robust and addresses the needs of business. In addition to this guide, the Advisory Group has set up task forces to develop various tools and resources aimed at helping businesses to integrate the UN Global Compact Ten Principles into supply chain relationships. The advisory group is chaired by Mr. Mads Øvlisen, Special Advisor to the Global Compact on supply chain sustain- ability and a former member of the UN Global Compact Board. We would like to thank Mr. Øvlisen and all of the members of the Advisory Group for their ongoing support to the supply chain sustainability workstream and the re- vision of this resource (members with an asterisk * have been part of an internal Task Force devoted to the in-depth revision of this version of the guide): ■■ *Ms. Renata Yourievna Frolova, Head of Responsible Procurement, A.P. Moller Maersk (Denmark) ■■ Ms. Samantha Prates, Head of External Logistic and MRO Purchasing, ArcelorMittal (Luxembourg) ■■ Mr. Jonathan Drimmer, Vice-President and Deputy General Counsel, Barrick Gold (Canada) ■■ Ms. Aysun Sayin, Sustainability Director, Boyner Holding (Turkey) ■■ *Ms. Tara Norton, Director – Advisory Services, BSR (Global) ■■ *Mr. Hugh Jones, Managing Director Advisory, Carbon Trust (Global) ■■ Mr. Juan Antonio Espinosa, Procurement Director, Planning & Control, CEMEX (Mexico) ■■ Mr. Unni Nair, Supply Chain Sustainability Programme Manager, Cisco Systems (USA) ■■ Ms. Nancy Gillis, Senior Manager – Sustainable Supply Chain, Procurement and Supplier Management, EY (Global) ■■ Ms. Maria Jose Trogolo, Senior Strategic Partnership, Fairtrade International (Global) ■■ Ms. Mary Wroten, Global Purchasing Sr. Manager – Supply Chain Sustainability, Ford Motor Company (USA) ■■ Mr. Indalecio Perez Diaz del Rio, Compliance Manager, Inditex (Spain) ■■ Mr. Ankush Patel, Vice-President and Head of Strategic Business Practice for Sustainability, Infosys Technologies (India) ■■ Ms. Beroz Gazdar, Vice President - Infrastructure Development Sector, Mahindra & Mahindra Limited (India) ■■ Mr. Andy York, Ethical Trading Manager, N Brown Group (UK) ■■ Ms. Hilary Parsons, Public Affairs Manager, Supply Chain, Nestle S.A. (Switzerland) ■■ Mr. Justin Hughes, Managing Consultant, PA Consulting Group (Global) ■■ Dr. Marcia Balisciano, Director of Corporate Responsibility, RELX Group (UK) ■■ Mr. Gustavo Pérez Berlanga, Vice President – CSR, Restaurantes Toks (Mexico) ■■ Ms. Sanda Ojiambo, Head of Corporate Sustainability, Safaricom (Kenya) ■■ *Ms. Jo Webb, Head of Stakeholder Relations, Sedex (UK) ■■ Ms. Jane Hwang, Chief Operating Officer, Social Accountability International (SAI) (Global) ■■ Ms. Rachelle Jackson, Director Sustainability & Innovation, Arche Advisors (USA) ■■ Mr. Ola Ree, Head of Supply Chain Sustainability, Telenor Group (Norway) ■■ *Ms. Monica Bowen-Schrire, Senior Advisor, Corporate Sustainability & Environment, Vattenfall (Sweden) ■■ Dr. Gerhard Prätorius, Head of Coordination CSR and Sustainability, Volkswagen AG (Germany) Additionally, we would like to thank the following organizations, who were also part of the Advisory Group in 2010 and supported the development of the original guide:  et Norske Veritas (Norway); DiGi Telecommunications Sdn Bhd (Malaysia); Esquel Group of Companies (China); Global D Compact Network Spain (Spain); Global Social Compliance Programme (GSCP) (Global); Grupo Pão de Açucar – Companhia Brasileira de Distribução (Brazil); Hewlett-Packard (USA); Hitachi Ltd. (Japan); Hyundai Motor Company (Republic of Korea); IKEA (Sweden); Innovation Norway (Norway); Integrated Contract and Supply Solutions – ISCS (United Arab Emirates); Philips Electronics N.V. (Netherlands); Nokia Corporation (Finland); STR Responsible Sourcing (USA); Takeda Pharmaceuti- cal Company Limited (Japan); Tata Council for Community Initiatives (TCCI) (India); UBS AG (Switzerland); Unilever (UK). 5 Executive Summary: Practical Steps to Supply Chain Sustainability Supply chain sustainability is increasingly recog- This guide is intended Why is Supply Chain for companies with nized as a key component of corporate sustain- Sustainability important? significant sourcing ability. In addition to being the right thing to do, managing the social, environmental and eco- Supply chains are the engines for today’s global activities that are nomic impacts of supply chains and combating economy, serving to deliver goods and services interested in learning corruption makes good business sense. However, around the world, connecting businesses and the how to incorporate supply chains consist of continuously evolv- individuals who work for them across geographic, sustainability into ing markets and relationships. To navigate this industry, cultural and regulatory boundaries. their supply chain complex terrain, we offer a few baseline defini- Supply chain sustainability provides that management strate- tions and practical steps that companies can take companies will continue to meet their needs gies and practices. toward progress, using the United Nations Global in the future, in economic, social, ethical and Compact principles as the basis to work toward environmental terms. It ensures compliance with supply chain sustainability. laws and regulations as well as adherence to and support of international principles for sustain- able business conduct. In addition, companies What is Supply Chain Sustainability? are increasingly taking actions that result in bet- Supply chain sustainability is the management ter social, economic and environmental impacts of environmental, social and economic impacts because society expects this and because there and the encouragement of good governance are business benefits in doing so. practices, throughout the lifecycles of goods By managing and seeking to improve envi- and services. The objective of supply chain ronmental, social and economic performance sustainability is to create, protect and grow and good governance throughout supply chains, long-term environmental, social and economic companies act in their own interest, the interests value for all stakeholders involved in bringing of their stakeholders and the interests of society products and services to market. By integrating at large. By implementing supply chain sustain- the UN Global Compact Ten Principles into sup- ability programmes, companies engage with ply chain relationships, companies can advance both direct and sub-tier suppliers, mainstream- corporate sustainability and promote broader ing values and actions down to raw material sustainable development objectives. producers and maximizing the overall social, environmental and ethical impact. What steps can my company take? This guide outlines practical steps companies can take to achieve supply chain sustainability and presents examples to inspire action. The recommended steps summarized below are based on the UN Global Compact Management Model, which is a flexible framework for continuous improvement regarding the mainstreaming of the UN Global Compact into strategies and operations. The steps below and throughout the guide are not linear. Rather, they represent complementary actions that companies can take in order to achieve more sustainable supply chains. In addition, there are three principles for successful supply chain sustain- ability management – governance, transparency and engagement – that are essential to every step of the model. COMMIT DEFINE and IMPLEMENT COMMIT ■■ Develop the business case by understanding the ■ Communicate expectations and engage with ASSESS landscape and business drivers. (Chapter 2) suppliers to improve performance. (Chapter 5) ■■ Establish a vision and objectives for supply chain ■ Ensure alignment and follow up internally. sustainability. (Chapter 2) (Chapter 6) COMMUNICATE ■■ Establish sustainability expectations for the ■ Enter into collaboration and partnerships. supply chain. (Chapter 3) (Chapter 7) DEFINE ASSESS MEASURE and COMMUNICATE MEASURE ■ Determine the scope of efforts focusing primar- ■ Track performance against goals and be IMPLEMENT ily on areas where there is the greatest actual transparent and report on progress. (Chapter 8) and potential risk of adverse impact on people, environment and governance. (Chapter 4) 6 Supply Chain Sustainability 7 1. Introduction Purpose and Target Audience sustainability is defined as a company’s This guide focuses on This guide is intended to help companies of delivery of long term value creation in upstream business all sizes, both those who are new to and those financial, social, environmental and ethical partners, i.e. relation- experienced in supply chain sustainability, to terms. This definition encompasses the role of ships with suppli- apply the UN Global Compact Ten Principles business in addressing environmental, social ers, rather than with throughout their supply chains and to integrate (human rights and labour) and corporate distributors, consumer sustainability into their business strategies. It is governance issues, as covered by the UN Global use of products or end designed for individuals with oversight of and Compact’s Ten Principles. of life issues. A focus input on corporate sustainability, procurement “Supply chain sustainability” is the on downstream im- and supply chain priorities and practices. management of environmental, social and pacts of supply chains Case studies and examples throughout the economic impacts, and the encouragement may be addressed in guide provide an overview of how companies of good governance practices throughout the future by the UN have implemented supply chain sustainability the lifecycles of goods and services. Global Compact Office. programmes. Advanced practices are highlight- The objective of supply chain sustainabil- ed in gray boxes entitled “On the Horizon”. ity is to create, protect and grow long-term In addition, this guide environmental, social and economic value for focuses on the ques- Supply Chain Sustainability Defined all stakeholders involved in bringing products tion of whom compa- In today’s globalized economy, outsourcing and services to market. Through supply chain nies buy from and how business operations doesn’t mean outsourcing sustainability, companies protect the long-term they source products, responsibilities or risks—or that a company’s viability of their business and secure a social rather than what they responsibility ends once a product is sold. license to operate. buy. In April 2014, The Leading companies understand that they have UN Global Compact a role to play throughout the lifecycle of their For the purposes of this document, supply and BSR developed products and services. Supply chain sustain- chain management professionals are defined A Guide to Traceability: ability management is key to maintaining the as that group of individuals within a company A Practical Approach integrity of a brand, ensuring business continu- that have the most direct contact with suppliers to Advance Sustain- ity and managing operational costs. It is also an and are in charge of the acquisition of direct ability in Global Supply important aspect of the implementation of the and indirect goods and services from external Chains. Traceability UN Global Compact principles. sources. We use this expression in the broad- is a useful tool that est sense, synonymous with other commonly provides information Working Definitions used terms, such as “procurement,” “buying,” on the components of For the purposes of this guide, corporate “sourcing” and “purchasing.” products, parts and materials and helps verify certain sustain- Environmental, Social and Economic Impacts ability claims associ- Exist Throughout Every Stage of Supply Chains.1 ated with products and commodities. rtation Transpo More resources on traceability and other Material input At every stage in the related topics may Recycling lifecycle of specific be the future focus of products there are so- cial and environmental attention from the UN Extraction Global Compact Office. impacts, or externali- ties, on the environ- https://www. END OF LIFE manufacturing ment and on people. unglobalcompact.org/ In addition, gover- library/791 Environment nance, or the account- Disposal ability of organizations to their stakeholders for their conduct, is important at every stage throughout the Use distribution supply chain. 1 From BSR. 8 Supply Chain Sustainability About Supply Chain Sustainability & the United Nations Global Compact The UN Global Compact encourages participants to engage with suppliers about respect for the Ten Principles and to advance sustainable development objectives as part of their commit- ment to the UN Global Compact, and, thereby, to spread good corporate sustainability practices throughout the global business community. As the table below outlines, the Ten Principles are intricately tied to sustainability in supply chains. The Ten Principles of the Global Compact and Supply Chain Sustainability The Ten Principles Relationship to Supply Chain Sustainability Human Rights Companies have a responsibility to respect human rights. The baseline responsibility is not to infringe on the rights of others and address any Principle 1: Businesses should adverse impacts that occur. The Guiding Principles on Business and support and respect the Human Rights (the Guiding Principles), endorsed by the UN Human Rights Council in June 2011, provide a globally authoritative standard protection of internationally for how companies can meet this responsibility. The Guiding Principles proclaimed human rights; and state that companies should have in place policies and processes appropriate to their size and circumstances, including a process of Principle 2: make sure continuous human rights due diligence, to “know and show” that they that they are not complicit respect human rights. The Guiding Principles provide conceptual in human rights abuses. clarity and content to the corporate responsibility to respect human rights described in Principle 1 and 2 of the UN Global Compact. In other words, the corporate responsibility to respect human rights in Labour Principle 1 of the UN Global Compact is the same one described in the Guiding Principles.1 It should also be noted that the Guiding Principles Principle 3: Businesses should include labour rights in the sphere of human rights for workers. uphold the freedom of as- Therefore, the responsibility to respect human rights also applies to Principles 1 to 6 of the UN Global Compact. sociation and the effective recognition of the right to Additionally, business can go beyond addressing harm to human rights collective bargaining; by taking steps to support and promote the realization of human rights through core business activities, strategic social investment, philan- Principle 4: the elimination of thropy, public policy engagement, advocacy partnerships as well as collective actions, and there are good business reasons to do so. They all forms of forced and com- should also establish operational-level grievance mechanisms as a key pulsory labour; support tool to provide access to remedy for the rights-holders. Principle 5: the effective aboli- Labour conditions in offices, in factories, on farms and at natural tion of child labour; and resource extraction sites such as mines often fall significantly below international standards and national regulatory requirements and can Principle 6: the elimination of lead to serious human rights abuses. In these contexts, businesses discrimination in respect of should respect international labour standards within their supply chains, including by ensuring that suppliers respect the rights of employment and occupation. freedom of association and the right to collective bargaining, abolishing forced and child labour and eliminating discrimination. In addition, workers in many countries may be vulnerable to other human rights abuses, including unsafe or hazardous work, excessive work hours, unpaid wages, degrading treatment by employers and inhibited movement. In order to avoid complicity in abuses, busi- nesses should seek to ensure that they do not cause or contribute to the infringement on the rights of workers and that such infringements are not directly linked to their operations, products or services through their business relationships, including with respect to the right to freedom of movement, freedom from inhumane treatment, the right to equal pay for equal work and the right to rest and leisure. The rights of all peoples to work in safe and healthy working conditions and to have access to social protection measures are critically important as well. 1 For more information about the relationship between the UN Global Compact’s Human Rights Principles and the Guiding Principles, please read The UN Guiding Principles on Business and Human Rights: Relationship to UN Global Compact Commitments (UN Global Compact, OHCHR, updated June 2014), available at https://www.unglobalcompact.org/docs/issues_doc/human_rights/Resources/GPs_GC%20note.pdf. 9 Environment Environmental impacts from supply chains are often severe, par- ticularly where environmental regulations are lax, price pressures Principle 7: Businesses are significant and natural resources are (or are perceived to be) should support a precaution- abundant. These impacts can include toxic waste, water pollution, loss of biodiversity, deforestation, long term damage to ecosystems, water ary approach to environmen- scarcity, hazardous air emissions as well as high greenhouse gas tal challenges; emissions and energy use. Companies should engage with suppliers to address environmental impacts, by applying the precautionary ap- Principle 8: undertake initia- proach, promoting greater environmental responsibility and the usage tives to promote greater of clean technologies. environmental responsibility; and Principle 9: encourage the development and diffusion of environmentally friendly technologies. Anti-Corruption The significant corruption risks in the supply chain include procure- ment fraud and third parties who engage in corrupt practices involving Principle 10: Businesses governments. The direct costs of this corruption are considerable, should work against corrup- including product quality, but often are dwarfed by indirect costs related to management time and resources dealing with issues such as legal tion in all its forms, including liability and damage to a company’s reputation. Companies that engage extortion and bribery. their supply chains through meaningful anti-corruption programmes can improve product quality, reduce fraud and related costs, enhance their reputations for honest business, improve the environment for business and create a more sustainable platform for future growth. An approach to the post-2015 development agenda in global supply chains In 2000, the United Nations established the Millennium Development Goals (MDGs), a set of eight globally agreed goals that range from eradicating poverty to promoting gen- der equality. Following the expiration of the MDGs in 2015, a series of consultations in- volving governments, private sectors, civil society and other stakeholders have led to the identification of priority areas of focus for the Post-2015 development agenda. The UN Global Compact has played a critical role of conveying the voice of responsible business to this global process and illustrating how corporate sustainability can effectively con- tribute to sustainable development.2 Managing the social, environmental and economic impacts of supply chains is a key component for sustainable development and a means for businesses to scale up their sustainability practices. The implementation of sustain- able supply chain policies and practices offers a significant opportunity for a company to contribute to the advancement of sustainable development, including inclusive growth, social equity and progress, and environmental protection. 2 For more information about the role of the UN Global Compact in the Post-2015 consultations, please read the note The UN Post-2015 Process and How the Global Com- pact Fits In (UN Global Compact, 2014), available at https://www.unglobalcompact.org/docs/issues_doc/development/UN_Post2015_Process_Global_Compact.pdf. 10 Supply Chain Sustainability SPECIAL INITIATIVES OF THE UN GLOBAL COMPACT AND SUPPLY CHAIN SUSTAINABILITY The UN Global Compact has developed several initiatives, either alone or in partnership with other organizations, to build on the Ten Principles in relation to specific issues or to the rights of an underrepresented category of stakeholders. The issues and actions set by the special initiatives are relevant both to the company’s activities and its supply chain. The Women’s Empowerment Principles (WEPs). The Children’s Rights and Business Principles (CRBPs). The CRBPs Co-developed by the UN Global Compact and UN are the result of the collaboration between UNICEF, the UN Global Women, the WEPs are a set of Principles for business Compact and Save the Children. They are the first comprehensive set of offering guidance on how to empower women in the principles to guide companies on the full range of actions they can take workplace, marketplace and community. Principle 5 to respect and support children’s rights, both within their business and of the WEPs asks companies to expand relationships throughout their supply chains. Principle 2 of the CRBPs requires busi- with women-owned/managed businesses, including nesses not to employ or use children in any type of child labour and to en- small businesses and women entrepreneurs. sure that age-verification mechanisms are also used in the supply chain. www.weprinciples.org/ www.childrenandbusiness.org/ Caring for Climate (C4C). Caring for Climate is the UN Global Compact, Child Labour Platform. An initiative coordinated by UN Environment Programme and the secretariat of the UN Framework the UN Global Compact and the International Labour Convention on Climate Change’s initiative to advance the role of busi- Organization, the Child Labour Platform is a multi- ness in addressing climate change. It provides a framework for business sector, multistakeholder forum for sharing experi- leaders to implement practical climate change solutions and help shape ences and lessons learned in eliminating child labour, public policy. C4C signatories commit to continuously improve energy ef- particularly in the supply chain. ficiency and usage, reduce the carbon footprint of products, services and http://www.ilo.org/ipec/Action/CSR/clp/lang--en processes, and build capacity to adapt to climate change in their opera- /index.htm tions and the supply chain. www.caringforclimate.org CEO Water Mandate (CWM). Launched by the Food and Agriculture Business Principles (FAB). The FAB Principles UN Secretary-General, the CEO Water Mandate is are the first set of global voluntary business principles for the food and designed to assist companies in the development, agriculture sector. implementation and disclosure of water sustain- They provide agreed global language on what constitutes sustainability in ability policies and practices. It seeks to make a food and agriculture on critical issues ranging from food security, health positive impact with respect to the emerging global and nutrition to human rights, good governance and environmental stew- water crisis by mobilizing a critical mass of business ardship, as well as ensuring economic viability across the entire value leaders to advance water sustainability solutions chain. throughout business operations and the supply chain https://www.unglobalcompact.org/Issues/Environment/food_agriculture_ – in partnership with the UN, civil society organiza- business_principles.html tions, governments and other stakeholders. www.ceowatermandate.org Business for Peace (B4P). B4P supports compa- nies in implementing responsible business practices Business for the Rule of Law (B4ROL). The B4ROL initiative seeks to that are aligned with the UN Global Compact prin- engage the business community to support the rule of law, as a comple- ciples throughout their business and supply chains in ment to not substitute for, government action. It includes, among other conflict-affected/high-risk areas and catalyzes col- things, a Framework which aims to provide guidance and support dialogue laborative action to advance peace in the workplace, on how companies from around the world are able to take voluntary marketplace, local communities and along their action to support the rule of law in their business operations and relation- supply chain. This bottom-up, grassroots approach ships, while reinforcing business respect for the UN Global Compact’s Ten creates and maintains dialogues and working groups Principles and support for broader UN goals throughout its own business where companies and other stakeholders can share operations and supply chain relationships. experiences and identify the factors critical to ad- https://www.unglobalcompact.org/Issues/human_rights/business_for_the_ vancing sustainable peace along their supply chains rule_of_law.html within the country. https://www.unglobalcompact.org/Issues/conflict_ prevention/index.html 11 12 Supply Chain Sustainability UN GLOBAL COMPACT SUSTAINABLE SUPPLY CHAIN RESOURCES Supply Chain Sustainability: An Online Assessment and Learning Tool An interactive tool for customers to measure progress in implementing a holistic sustain- able supply chain approach, assess gaps and share challenges and successes. Produced in collaboration with BSR. http://supply-chain-self-assessment.unglobalcompact.org/ Sustainable Supply Chains: Resources & Practices This portal provides information on initiatives, resources and tools to assist companies in developing more sustainable supply chains, as well as case examples of company practices. www.supply-chain.unglobalcompact.org Human Rights and Labour Working Group Good Practice Notes on Supply Chains A series of Good Practice Notes on how companies can partner with suppliers, govern- ments and civil society to promote human rights in supply chains. http://supply-chain.unglobalcompact.org/ Embedding Human Rights in Business Practice – Case Studies Series A collection of case studies about efforts by companies to integrate human rights prin- ciples into their practices and supply chains. Case Studies on ANZ, Ford, Telenor Group and Total include a focus on supply chain management. Environmental Stewardship Resource A strategic policy framework for environmental management and sustainability, including strategies and guidance for supply chain implementation. Fighting Corruption in the Supply Chain: A Guide for Customers and Suppliers Practical guidance and tools for both customers and suppliers to engage in the fight against corruption. A product of the UN Global Compact 10th Principle Working Group. Stand Together Against Corruption Developed by the Anti-Corruption Task Force of the Advisory Group on Supply Chain Sus- tainability, this resource provides short and practical guidance to companies on managing anti-corruption in the supply chain. A Guide to Traceability: A Practical Approach to Advance Sustainability in Global Supply Chains The guide presents practical steps for implementing traceability programmes within com- panies, features case studies, and maps relevant stakeholders, resources and sustainability issues related to key commodities. A product of the Traceability Task Force of the Advisory Group on Supply Chain Sustainability. Webinar Series on Supply Chain Sustainability A series of online events focused on the most pressing issues around supply chain sustain- ability. The presentation slides and video recordings from past webinars are available on the UN Global Compact website following the event. All resources can be accessed at: www.unglobalcompact.org/what-is-gc/our-work/ supply-chain 13 How to Use This Guide This guide describes a holistic approach to Chapter 8 provides recommendations on supply chain sustainability that can help com- goal setting and metrics to track internal and panies identify key issues and considerations supplier performance in meeting companies’ for a supply chain sustainability approach supply chain sustainability expectations. that is aligned with the ten principles of the They also explore the importance of public UN Global Compact. reporting. We begin in Chapter 2 by exploring the ratio- We welcome comments on the content of nales and business drivers for supply chain this guide and other deliverables as we seek sustainability. We also discuss the importance to constantly improve the availability and of understanding the internal and external alignment of supply chain sustainability landscape and of establishing a company-spe- tools for companies. cific vision for supply chain sustainability. In Chapter 3, we provide advice on designing a policy for sustainable procurement and a related supplier code of conduct that builds UN Global Compact from the UN Global Compact Ten Principles and BSR Partnership and other recognized international standards, on Supply Chain as well as how to put these policies to use. Sustainability Chapter 4 describes the key factors in deter- Since 2010, UN Global Compact and BSR mining the scope of a supply chain sustain- have collaborated on several projects ability programme, such as mapping of the to develop strategic guidance materials supply chain and prioritization. for business on the implementation of the Ten Principles in supply chain pro- Chapter 5 outlines steps for engaging with grammes and operations. This guide is a suppliers on supply chain sustainability. It result of this coordinated effort. includes approaches for communicating with suppliers, monitoring performance, build- Additionally, the UN Global Compact ing supplier capacity as well as leadership and BSR have developed the Quick activities in building suppliers’ sustainability Self-Assessment and Learning Tool for management systems. companies to check anonymously their current level of supply chain sustain- Chapters 6 provides practical guidance on ability implementation against suggested internal responsibilities and performance global guidance and to learn how to management for supply chain sustainability. make progress over time in implement- It outlines concepts of internal alignment ing a holistic approach. as well as the suggested roles for executive management and supply chain management This interactive tool was released in 2011 professionals. and will be updated following the launch of the revised guide. Chapter 7 describes how collaboration and multi-stakeholder partnerships, includ- ing with governments, can help extend the impact of supply chain sustainability pro- grammes and some of the opportunities and risks associated with this. 14 Supply Chain Sustainability “Business is often taking the initiative to move things forward. Focusing only on the business case underplays the value that business is and should be providing in society and with regards to development.” – Mads Øvlisen, Chair of the UN Global Compact Advisory Group on Supply Chain Sustainability. 15 2. Getting Started on Supply Chain Sustainability The first steps in developing a supply chain sustainability programme are to evaluate the busi- Developing the Business Case ness case for action and understand the internal There are many compelling reasons for taking ac- and external landscape. These efforts will help tion to improve social and environmental impacts identify the highest priority supply chain issues throughout the supply chain. Many companies for the company, evaluate risks and opportunities are driven by their corporate values and culture to and build the internal support to move forward. address sustainability issues. For these companies, In addition, companies are motivated to act by the fact that supply chain sustainability is the expectations that they identify and address the right thing to do and is a driver of social develop- impacts on people and the environment linked ment and environmental protection helps create to their supply chain, whether or not these pose internal buy-in and commitment. risks to the companies themselves. As an exam- Having a strong business case helps a company ple, the corporate responsibility to respect human to further build internal buy-in for their sustain- rights requires companies to avoid causing or able supply chain objectives. Many companies contributing to adverse human rights impacts and also identify specific business drivers for sup- to seek to prevent or mitigate any adverse human ply chain sustainability. The business case for a rights impact that is directly linked to their opera- particular company depends on a variety of issues tions, products or services through their business including industry sector, supply chain footprint, relationships. This responsibility applies at any stakeholder expectations, business strategy and level of the value chain. Best practices require organizational culture. Supply chain sustainabili- companies to address risks of adverse impacts ty management practices that respond to multiple in the supply chain from the perspective of the drivers can maximize the value to business. rights-holders, rather than limiting the scope of The most common business drivers for supply their policies and procedures to only cover those chain sustainability are depicted in the figure risks that are paramount to the business. below. building the business case for supply chain sustainability 3 Business Drivers for Supply Chain Sustainability Sustainability-related risks Sustainability- Sustainability- driven advantaged ■■ Maintain social license to operate productivity growth ■■ Meet existing and emerging legal and reporting requirements ■■ Reduce cost of ■■ Meet evolving ■■ Minimize business disruption material inputs, energy, customer and business from environmental, social and transportation partner requirements economic impacts ■■ Increase labour ■■ Innovate for chang- ■■ Protect company’s reputation productivity ing market and brand value; meet investors’ and ■■ Create efficiency stakeholders’ expectations across supply chains Governance, Management, Transparency 3 See Value Driver Model (2013, UN Global Compact LEAD, PRI), available at https://www.unglobalcompact.org/docs/issues_doc/Financial_markets/ Value_Driver_Model/VDM_Report.pdf. 16 Supply Chain Sustainability Meeting Business SUSTAINABILITY-RELATED RISKS Westpac, an Australian bank, recognizes the Objectives through Companies can protect themselves from importance of engaging closely with suppliers Supply Chain potential supply chain interruptions or in order to address social, ethical and environ- Sustainability delays associated with suppliers’ practices mental impacts within the supply chain, protect with regards to human rights, labour stan- the company’s reputation and brand and Example of Sustain- dards, environment and anti-corruption by ensure a growing source of value creation and ability-Related Risk ensuring suppliers have effective compli- innovation. Westpac manages these risks and Management: Partner- ance programmes and robust management opportunities through a defined sustainable ing with suppliers to en- systems covering all the areas of the UN supply chain management practice. sure minimum standards Global Compact Ten Principles. For compa- in management prac- nies who have single sources for key inputs, tices, such as hiring age, managing risks is also critical to ensuring contracts with workers, continued access to those resources. SUSTAINABILITY-DRIVEN PRODUCTIVITY health and safety condi- Increasingly, customer and investor A focus on sustainability-driven productivity tions, etc. expectations and overall society are driving in the supply chain can reduce a company’s companies toward more responsible supply procurement costs while also reducing the Example of Sustain- chain management. Strong management of environmental footprint of the supply chain, ability-Driven social and environmental issues helps com- such as energy, water and use of natural and Productivity Initia- panies avoid and address adverse impacts to synthetic materials. This may also reduce tives: Reducing costs stakeholders, which can in turn help ensure the harm to worker health and safety and without negatively im- that companies maintain their social license improve worker motivation, productivity pacting operations, such to operate by taking into consideration risks and cost efficiency. as shipping products to surrounding communities. Effectively via ocean freight rather managing social and environmental risks Other benefits include: than via air cargo when can also help companies avoid potentially practicable. costly operational delays from conflicts with • Increased understanding of key processes Example of Growth local communities and can help compa- in the supply chain, including natural from Sustainability- nies avoid reputational risks. Furthermore, resource management and extraction, logis- Advantaged Products: companies now face a growing expectation tics and manufacturing and enables better Sourcing raw materials to disclose information related to their sup- management and stewardship of resources with social and environ- ply chain as well as an emergence of legal • More efficiently designed processes and mental impacts explic- requirements. In accordance with existing systems which reduce required inputs and itly considered, such legislation, some companies have been lower costs. as biologically-based required to prove the country of origin of plastics that emit rela- imported timber (e.g. EU Timber Regulation, Productivity and efficiency initiatives re- tively fewer greenhouse EUTR), report on the use of certain minerals quire a full understanding of the different gases throughout their that originate from conflict-affected coun- steps of the supply chain and the key social lifecycle. tries (e.g. Section 1502 of the Dodd-Frank and environmental impacts and cost driv- Act) or to report on their efforts to eradicate ers. By addressing the root causes of issues slavery and human trafficking in their sup- through strong communication capabilities, ply chain (e.g. California Transparency in in-depth understanding of business driv- Supply Chains Act of 2010). ers and sustainability trends and shared Finally, companies use supply chain assessments and priorities for improvement, sustainability to ensure that their suppliers companies can drive improvements and can adapt to anticipated strengthening of derive the benefits. environmental regulations (e.g. restrictions of hazardous substances regulations) and ex- tended product responsibility legislation, to In 2009, Montepaschi Group, a financial reduce potential future liability and to cre- institution in Italy, launched its Sustainable ate a fairer, more sustainable environment Supply Chain programme as a key component to operate in. Additionally, end consumers’ of its overall CSR strategy. The company demand can be driven by the choice to buy found that the implementation of the com- products containing ethically sourced ma- pany’s Supply Chain Sustainability Guidelines terials (e.g. paper from certified sustainable contributed to the positive advancement of forestry, fair trade labels). a broad Cost Optimization Plan. This Plan 17 achieved savings in 2014 of approx. EUR 148 million compared to the 2013 baseline. It “The purchasing power of a involved the entire cost base and impacted service models and supplier selection, focus- corporation can become a ing particularly on real estate, where actions were implemented to optimize the use of unique driver for bringing spaces and reduce energy consumption, generating 20% of savings; ICT, simplifying about positive change in the software and hardware architecture through an open collaboration with suppli- society. Companies must ers, generating 21% of savings; logistics and security areas, actions focused on ef- use this power to achieve ficiency improvement processes to achieve a “paperless” office and optimizing service a purpose and make their contracts in a sustainable manner generat- ing 14% savings. supply chain a vehicle for inclusive growth. In SUSTAINABILITY-ADVANTAGED a developing economy GROWTH Collaboration with suppliers on sustain- like India, the bulk of the ability issues can foster product innovation. Companies embarking on such initiatives workforce is employed in the have added new features and performance characteristics to existing products and unorganized sector which even generated new products. For example, sustainable products may result in reduced often constitutes the last mile negative environmental impacts compared to traditional products or have of the supply chain. If this improved end of life collection and disposal options. It is also possible for the sustain- workforce is exposed to the ability of products to be a differentiating factor and to lead to increased sales for advantages of good and clean some companies. business practices, it would In 2012, Stora Enso, a global provider of make a great impact on their renewable solutions in packaging, biomateri- lives and on the wellbeing of als, wood and paper, renewed and endorsed its “Policy for Sustainable Sourcing of Wood the nation.” and Fibre, and Land Management” to ensure that all of the roundwood, chips, sawdust and externally purchased pulp supplied to – Anand Mahindra – Vice Chairman the company’s mills comes from sustainable & Managing Director, Mahindra & Mahindra Limited sources. By using forest certification and traceability systems, Stora Enso checks that the wood has been harvested in compliance with the relevant national and EU legislation and in accordance with their own policy. In 2014 certified fibre accounted for 78% of all the fibre used by the company. 18 Supply Chain Sustainability Labour Understanding the Landscape • I s the company sourcing directly or Recruitment in Beyond identifying business drivers, it is also through third parties? How many third par- the Supply Chain important to understand the internal and ex- ties (a large or a small quantity)? In addition to looking ternal landscape of supply chain sustainability • In which sector/countries directly linked at their product supply including the approaches of peer companies, with the company’s operations are the chain, companies have the expectations of stakeholders and opportu- main risks of adverse impact on people, started to recognize nities to partner with others (explored more in environment or governance most present? that service-providing Chapter 8). E.g. are there any geopolitical issues? workforces such as • What is the company’s visibility beyond di- labour recruiters and INITIAL RISK ANALYSIS rect suppliers and how can it be improved? moneylenders, can carry In order for companies to ensure that the sus- several sustainability tainable supply chain approach they establish risks for both inter- is relevant to their particular industry, geog- In consideration of the large size and nal and international raphy, risk profile and operational context, it global reach of the supply base, Ford Motor migrant workers. Human is imperative that they understand the supply Company, an American automaker, has trafficking and forced chain upfront. As a first step of their supply decided to focus its training and assessment labour are among the chain due diligence, companies need to form efforts in countries that pose the highest main issues associated an initial understanding of the most salient risk for sub-standard working conditions. with unethical practices risks and potential opportunities in their own Every year, Ford conducts a risk analysis to of recruitment agencies. supply chain and how those may impact busi- consider external data, including input from Since the initial develop- ness resilience. Getting a handle on this data external stakeholders, and then compares it ment of a supply chain and understanding the dynamics that exist in with the supplier footprint. Internal data in- programme and strat- complex global chains will help to determine clude: 1) Annual spend, 2) Supplier Location, egy, companies should what the priorities are, and what the best 3) Commodities being supplied, and 4) train- also take into account engagement methods might be. ing and assessment history. The high-prior- labour supply chains and As part of this process, companies need to ity country list combined with prior training address issues arising seek input from internal colleagues across dif- and assessment history and engagement from exploitative recruit- ferent functions, as well as from external re- with regional buying community is used to ing and hiring practices. sources, to identify problematic areas within prioritize the company’s global training and the supply chain, including those that are assessment efforts. environmentally sensitive, targeted by NGOs/ government as high risk or that have limited supply due to unique cultivation. Benchmarking This initial risk analysis should, at a mini- against Peer Companies mum, answer the following questions: Peer companies may have already begun ad- dressing supply chain sustainability. Bench- • What are you sourcing and from where? marking against peers, customers, suppliers • What are your key products and services? and even companies from other sectors may What is generally known about key risks provide a more sophisticated understand- and impacts in those products and services? ing of the business value as well as ideas to UN Global Compact Annual Implementation Survey Results Related to Supply Chain Sustainability Since 2007, the UN Global Compact has conducted an annual survey of its participants, including questions related to supply chain sustainability practices. The UN Global Compact Corporate Sustainability Report4 presents key findings of the Annual Implementation Survey Results, where the implementation of corporate sustainability in the supply chain has been consistently identified as one of the most challenging areas for UN Global Compact partici- pants. In particular, the surveys found that although companies are increasingly setting sustainability standards for their suppliers, they are failing to implement and measure actions that hold suppliers to those standards. Overall, the trend shows that large companies lead the way in demanding greater commitment from their suppliers. 4 The UN Global Compact Corporate Sustainability Report is available at: https://www.unglobalcompact.org/docs/about_the_gc/Global_Corporate_Sustainability_Report2013.pdf. 19 incorporate into the design of the company’s Engaging stakeholders early and regularly The Importance supply chain sustainability programme. in the process of designing a programme of Investors and Companies should seek to understand peers’: can help companies identify relevant stan- Customers as dards and approaches to sustainable supply Stakeholders in • Business case for supply chain chain management.5 Some stakeholders are Supply Chain sustainability knowledgeable about, and sometimes even in- Sustainability • Understanding of human rights, labour, en- volved in the development of, different codes Customers and in- vironment and governance risks, opportu- of conduct and certifications for suppliers. vestors are increas- nities and impacts and the resulting supply Examples include the Kimberley Process for ingly expecting that chain focus jewelry, Forest Stewardship Council Certifica- companies under- • Internal structure for managing supply tion for wood and paper products and the stand and manage chain sustainability SA8000 for responsible labour practices across impacts in their • Codes of conduct, and the topics included industries. They can help evaluate the cred- supply chains. • Use of their code of conduct ibility of different options and identify which • Approach and programmes to engage might be relevant inputs for the company’s Investors want to with suppliers programme. ensure that com- • Metrics to evaluate the success of their Emerging risks and opportunities in sup- panies are aware of programme ply chains. From customers and employees and are mitigating • Reporting practices to activists and NGOs, stakeholders are often key risks affecting the first to identify emerging environmental, their supply chains. In addition, suppliers themselves can often social, governance and economic impacts in In addition, they are provide examples of good practices and can the supply chain. Companies who engage interested to know communicate their needs to customers. Some early and regularly with stakeholders have how companies are industries have established joint codes of con- the opportunity to take a proactive approach creating value from duct (see Chapter 3) and undertake aspects to these issues and to partner with stakehold- supply chain sustain- of collaborative supplier engagement, such ers rather than discovering the issues through ability. as cooperation to conduct audits and train- a public campaign. Early identification of Consumers and ing. Collaborative approaches and industry issues through stakeholder engagement can business customers initiatives are covered in detail in Chapter also help companies take early leadership in are also encour- 8. This information is critical to help avoid comparison to peers. aging companies “re-inventing the wheel” of supply chain to more closely sustainability. manage their supply In developing its initial code of conduct, Understanding the chains. In particu- Westpac consulted its Community Con- Expectations of Stakeholders lar, some consumers sultative Council, suppliers and NGOs. The are seeking more Companies should also invest in identifying company included feedback from organiza- sustainable prod- and understanding the expectations of their tions such as the Australian Conservation ucts, while business stakeholders including potentially impacted Foundation, Australian Consumers’ Associa- customers may individuals and groups, national and local tion, Australian Council of Social Security, include supply chain governments, workers’, migrant workers’ Finance Sector Union and Human Rights and sustainability in and employers’ organizations and trade Equal Opportunity Commission. The Code was their supplier selec- unions, nongovernmental organizations enhanced in 2014 to reflect developments tion criteria. (NGOs), advocacy and activist organizations, and lessons learned in Westpac’s own values academic and issue experts, community and and practices, including carbon management, specific stakeholder groups, such as women, agribusiness, accessibility and flexibility children, older and/or disabled workers, practices and indigenous inclusion. The Bank indigenous groups and minorities as well as recognizes that the Code needs to remain rel- suppliers themselves. evant and current, and evolve with in consul- Moreover, companies can also benefit tation with key stakeholders as best practice from seeking input from customers and becomes the normal expected standard. investors. Customer and investor demand is a primary driver for many supply chain sustainability programmes and insights from these stakeholders can help shape programmes and ensure that they create the maximum return for the company. 5 For a human rights approach on this topic, see Stakeholder Engagement in Human Rights Due Diligence (October 2014, Global Compact Network Germany, Twentyfifty) available at http://www.global- compact.de/sites/default/files/stakeholderengagement_in_humanrightsduediligence_e_141030_screen.pdf. 20 Supply Chain Sustainability Establishing a Vision companies, a vision will also include more Having a clear vision and objectives for a com- ambitious targets and a longer-term outlook. pany’s sustainable supply chain programme Based on the business motivations and will provide direction for its strategy and help objectives, the company can craft a vision to define its company’s commitment. A vision statement that reflects what is considered long- will be a helpful yardstick in evaluating the term success for a programme. Some examples success of the programme and to identify areas of company vision statements are on the next for continued improvement. page. The vision for the company may change It is important that the development of the over time. An initial vision will help to frame company’s vision and objectives are champi- how the company will build a strategy ini- oned from the top. This is critical to ensure the tially. As the company becomes aware of issues success of the programme. Moreover, to ensure and begins to understand and gain experience, support from company leaders, it is important it may become necessary to “re-set” the vision. that executives and senior managers from all parts of the business related to the sup- ply chain should be consulted in this process Since its origins, Grupo Arcor, a food prod- and have a say in the development of the ucts and confectionary business based in company’s vision. Companies should consider Argentina, has developed a business model how they can include representatives from where economic progress is linked to social supply management, corporate sustainability, development and the preservation of natural design, marketing, logistics, quality assurance, resources. Over the years the company has compliance, legal, human resources, finance deepened this commitment, developing a risk and strategy, diversity and inclusion, en- Sustainability Policy and Strategy to man- vironment and health and safety functions in age risks and opportunities and promote creating the vision, as each of these functions innovative business practices across the will have a role to play in the implementation value chain, creating economic, social and of the sustainable supply chain programme. environmental value for all actors involved. For smaller companies, it is equally important The specific strategy for sustainable sourcing that leaders agree on the vision for sustainable focuses on: supply chains. ■■ Aligning procurement and sourcing policy The output of the process should be a and practices with the company’s sustain- statement of vision and commitment that is ability requirements; anchored in the company’s values and ethics. ■■ Addressing key sustainability challenges, It is also important to define specific objec- such as sustainable agriculture, prevention of tives and potential barriers or risk events child labour and sustainable paper sourcing; affecting their achievement. What is the ■■ Creating inclusive market opportunities for company hoping to achieve through a supply enterprises in vulnerable conditions while chain programme? What are some long-term expanding sourcing options; outcomes the company wants to work toward? ■■ Training key stakeholders on main How will a sustainable supply chain support sustainability issues. the company’s business strategy? Objectives As part of Grupo Arcor’s broader Sustainabil- can cover a wide range, including: strategic ity Policy and Strategy, the initiatives carried business goals (e.g. creating long-term value out in the supply chain have been crucial for for the company), operational business goals projecting a sustainable business with long- (e.g. saving cost by reducing wasted energy and term vision. materials), goals to improve the company’s reputation (e.g. wanting to change stakeholder opinions of the company), and compliance- based goals (e.g. ensuring activities meet all applicable laws and regulations). At a minimum, a supply chain vision should state the company’s commitment to operate in line with internationally recognized human and labour rights, and with relevant environmental standards. However, for most 21 Supply Chain Sustainability Vision Statements L’Oreal “We are committed to building strong and lasting relationships with our customers and our suppliers, founded on trust and mutual benefit. We do business with integrity: we respect the laws of the countries in which we operate and adhere to good corporate governance practices….We are mindful of our impact on the natural environment….We are committed to the respect of human rights. We want to help end the exploitation of children in the workplace and the use of forced labour…We actively seek out and favour business partners who share our values and our ethical commitments.” Nokia “At Nokia, we work hard to anticipate risk, demonstrate company values, enhance our governance practices, increase employee satisfaction, and look after the environment and communities where we do business. We expect the companies in our supplier network to take a similar ethical business approach and to demonstrate progress and achievements in these areas as well as in educating and overseeing the prac- tices of their own suppliers. Our aim is to ensure that environmental, ethical and health and safety issues, as well as labour practices, are not separate add-on features, but are embedded within all our sourcing processes, including supplier selection and relationship devel- opment.” 22 Supply Chain Sustainability 23 3. Establishing Sustainability Expectations for the Supply Chain As the company begins to solidify its vision to company. Some companies have dedicated for supply chain sustainability, an important staff to overseeing its correct use, while oth- next step is to translate expectations into ers assign implementation duties to person- a clear set of guidelines that will provide nel whose core responsibilities lie in other direction to suppliers and internal colleagues. functions such as sourcing, quality assurance At a minimum, the company should expect or production engineering. suppliers to comply with national laws and to take proactive measures to avoid environ- Overview of Supplier Code mental and social harm.6 The expectations on of Conduct suppliers should be appropriate to their size Codes of conduct are critical to establishing and circumstances. They should also enable and managing expectations for both customers the company to be satisfied that its prod- and suppliers. They create a shared foundation ucts, operations and services are not directly for sustainability from which supply chain linked to adverse impacts caused by the sup- management professionals, suppliers and plier. This may require, for example, more other actors can make informed decisions. formal reporting requirements for suppliers For many companies, a supplier code of engaged in higher-risk activities. conduct is seen as a natural extension of corporate values statements to apply to an increasingly important part of the business Overview of Engaging Supply Chain and as an affirmation of existing expectations Management Professionals7 rather than a new set of requirements. As It is critical for any business implementing such, the supplier code of conduct should be sustainable supply chain practices to start endorsed by the highest level executive in the thinking about their own internal approach company by making a public statement of to supply chain management professionals approval of either the document and/or the and related functions. importance of the company’s supply chain This involves first and foremost ensuring sustainability programme. buy-in from the highest level executive in When developing supplier codes of conduct, the company, and then creating a sustain- there are a number of international standards able procurement policy and appropriate due that should also be consulted and referenced. diligence processes, engaging all supply chain These are outlined in the sections below. management professionals and related staff to understand and implement the policies Adopting or Writing and processes. Ideally, the policy will cover a Supplier Code of Conduct buying/procurement ethics and describe The UN Global Compact Ten Principles out- how supply chain management profession- line each of the areas that need to be covered als within the company should be engaged for a supplier code of conduct to be consid- to ensure respect of the UN Global Compact ered comprehensive. During the external principles. It will also be in alignment with landscape review outlined in Chapter 2, many the supplier code of conduct, as described in companies will find that other companies the section below. in their industry have already created joint Finally, depending on how large and com- codes of conduct. These codes are designed plicated the company structure is, it may be to minimize the burden on suppliers by helpful to establish internal policies and pro- reducing the number of standards with which cedures to explain how the supplier code of they must demonstrate compliance. They conduct should be implemented by staff and are also intended to streamline the process systems of accountability. The effectiveness of of conducting joint audits of suppliers and the code depends on successful enforcement to reduce the effort required of companies to mechanisms, which can vary from company design their own codes. 6 Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework (Office of the High Commis- sioner for Human Rights, OHCHR, 2011), available at http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf. 7 See definition on pg. 7. 24 Supply Chain Sustainability However, there is a risk that joint codes do For the procedural elements of the code not address all the issue areas of the Global relating to social impacts, companies should Compact, or will not meet specific concerns refer to the UN Guiding Principles on Busi- for the business. In this case, businesses ness and Human Rights, which outline the should still adhere to the joint code, but be policies and processes that all companies, ready to supplement it with specific policies including suppliers, should have in place to address those uncovered risks. There is also to ensure that they respect human rights a risk that adoption of industry codes will be (including labour rights). the end rather than the beginning of the road For the social substantive elements of the to improved supply chain sustainability, so code, companies should refer to the UN Dec- it is important that there is internal commit- laration of Human Rights, the International ment and resources to integrate the code into Covenants on Civil and Political and Economic, supplier relationships. Social and Cultural Rights, the International If there are no joint codes that are compre- Labour Organization’s (ILO) Declaration on hensive for a certain industry, or a company Fundamental Principles and Rights at Work as determines that they are not appropriate for well as the Tripartite declaration of principles their supply chain, there are several princi- concerning multinational enterprises and ples and initiatives that apply to supply chain social policy (ILO MNE Declaration), which management that should be referenced. establish common expectations on a broad Topics and References to Consider in Writing and Adopting a Supplier Code of Conduct* Potential Sources Sample Policy Areas that Align with the UN Global Compact Ten Principles to Reference: Human Rights and Labour Environment United Nations Global Compact 1. Forced labour 20. Material toxicity and chemicals Universal Declaration of Human Rights 2. Child labour 21. Raw material use UN Guiding Principles on Business and Human 3. Working hours 22. Recyclability and end of life of products Rights 4. Wages and benefits 23. Greenhouse gas emissions ILO Declaration on Fundamental Principles and 5. Humane treatment 24. Energy use Rights at Work 6. Nondiscrimination and equality 25. Water use and waste water treatment ILO Tripartite declaration of principles concern- 7. Freedom of association and 26. Air pollution ing multinational enaterprises and social policy collective bargaining 27. Biodiversity (ILO MNE Declaration) 8. Occupational health and safety 28. Deforestation ILO International Labour Standards on Occupa- 9. Emergency preparedness tional Safety and Health 10. Occupational injury and illness Women’s Empowerment Principles Anti-Corruption 11. Fire safety 29. Conflict of interest Children’s Rights and Business Principles 12. Building structure and integrity 30. Gifts, meals and entertainment OECD Guidelines for Multinational Enterprises 13. Industrial hygiene 31. Bribery and kickbacks The Rio Declaration on Environment and 14. Leave entitlements 32. Accounting and business records Development 15. Freedom of speech 33. Protecting information United Nations Convention Against Corruption 16. Human trafficking 34. Fair competition 17. Privacy ISO 14001 35. Reporting misconduct 18. Minority rights ISO 26000 19. Rights of specific stakeholder SA8000 groups: indigenous people, women, children, older work- OHSAS 18001 ers, workers with disabilities, migrant workers * This list does not represent a comprehensive record of all existing issues under human rights, labour, environment and anti-corruption standards. Companies may need to consider additional areas depending on the circumstances. 25 range of issues concerning work, employment, ance, compliance, legal, human resources, social security, social policy and human rights. finance risk and strategy, diversity and inclu- Companies should also include anti-discrimi- sion, environment and health and safety nation policies to promote equal opportunity 5. Consult with the cross functional teams, in for women, young, older and migrant workers, particular supply chain management profes- and minority and indigenous groups work- sionals ing in the supply chain and establish bench- 6. It is strongly encouraged to consider a re- marks to evaluate their effectiveness as well quirement that suppliers cascade these expec- as develop specific provisions to protect these tations to their supply base to ensure they are vulnerable categories of workers. applied throughout the whole supply chain Environmental topics that are most 7. Consider consulting external credible relevant will vary by industry, which makes written or online sources, when available, or dialogue and collaboration critical to identify- refer to the external expertise of recognized ing which issues are most important to cover professionals in the code of conduct. The UN Global Com- 8. Include clear expectations for informed pact’s three Environmental Principles – to workplaces support a precautionary approach to environ- 9. Include clear expectations around griev- mental challenges, undertake initiatives to ance mechanisms promote greater environmental responsibility and encourage the development and diffu- sion of environmentally friendly technologies Though products are increasingly delivered – should form a central part of a company’s online, print publications are still a significant code of conduct. part of RELX Group’s business, and the com- With regard to anti-corruption practices,8 it pany purchases a large amount of paper. The is important to review the relevant legislation company’s challenge was to better understand both at national and international level for the sustainability of the paper it uses. To ensure compliance and include in the code common suppliers meet the ethical standards RELX corruption scenarios, so that suppliers can Group set for its own behavior, the company identify risks and are prepared to respond began its Socially Responsible Supplier (SRS) appropriately. It is also important to regularly programme in 2003. The cornerstone is the assess the content of the code to determine RELX Group Supplier Code of Conduct, which whether updating and further interpretation incorporates the ten principles of the UN Global is needed. Compact. Suppliers are asked to sign and prominently post the Code in their workplaces. Key steps in development of a code include: It also helps suppliers spread best practice 1. Gain commitment from Board of Directors through their own supply chain by requiring and high-level executive management. subcontractors to enter into a written commit- 2. Consult with stakeholders, including civil ment that they will uphold the Supplier Code. society, suppliers and peers RELX Group conducts an annual survey asking 3. Base expectations on existing international suppliers to communicate their performance on norms of behavior rather than inventing new all elements of the Code and the ten principles, standards to avoid undermining international not only on key environmental issues but also law and prevent conflicting expectations for on ensuring they do not use child and involun- suppliers with multiple buyers tary labour, avoid workplace discrimination and 4. Draft the code with the involvement and promote freedom of association. This data is support of key company managers from cross complemented by information gathered through functional teams that are critical for getting PREPS, a shared industry resource for paper buy-in for effective implementation and sustainability. PREPS fosters positive engage- enforcement, including supply management, ment with paper suppliers and RELX Group is a design, marketing, logistics, quality assur- founding member. 8 For detailed discussion of anti-corruption in the supply chain, including model language for a code of conduct, refer to the Global Compact publication Fighting Corruption in the Supply Chain: A Guide for Customers and Suppliers (UN Global Compact, 2010), available at http://supply-chain.un- globalcompact.org/ and Stand Together Against Corruption (UN Global Compact, 2013), available at https://www.unglobalcompact.org/docs/issues_doc/ supply_chain/StandTogether.pdf. 26 Supply Chain Sustainability Using the Supplier Code of Conduct Levi Strauss & Co. was the first multinational In order to meet the company’s goals for company to establish Global Sourcing and supply chain sustainability, the code should Operating Guidelines, which outline the com- be used as the foundation for setting internal pany’s commitment to responsible business and external expectations and as a framework practices everywhere it conducts business. for action and engagement with suppliers and These guidelines include two parts: (1) Country other stakeholders. Assessment Guidelines, which help assess po- A new code needs to be shared throughout tential opportunities associated with conduct- the company to raise awareness of the stan- ing business in specific countries and (2) the dards it describes. Supply chain management Sustainability Guidebook (originally known as professionals will need to gain familiarity the company’s Terms of Engagement or TOE), with the elements of the code in order to com- which help to identify business partners who municate it to existing and new suppliers and follow workplace standards and business prac- to detail how the company intends to work tices that are consistent with the company’s with them to ensure compliance and continu- values. The Sustainability Guidebook applies ous improvement. The code should mirror the to all suppliers and is periodically updated to company’s procurement policy, which covers follow the progress of their standards. In 2014, the suppliers’ performance. Possible avenues updates included guidelines on migrant work- of dissemination include internal websites ers and fire safety and building integrity. and ongoing trainings particularly to ensure new staff are aware of expectations and regu- lar communications from senior management The Electronic Industry Citizenship Coali- to reinforce the importance of the code. tion (EICC), an industry association of more Companies often take a variety of ap- than 100 of the leading companies in the proaches to communicating codes to suppliers information and communications technology including: industries, established a single supply chain • A special, one-time communication. code of conduct that provides a united voice This approach is often most effective for customer expectations, streamlines the when the communication comes from oversight of supply chain conditions for both the highest level executive in the com- suppliers and customers and allows both to pany such as the CEO or Chief Procure- focus on changing social and environmental ment Officer. conditions. Each member company in the EICC • Inclusion of the code at first points of has committed to adopting the code of conduct contact with suppliers. Companies are and implementing it in their supply chain. The including the code at the very start of EICC has worked to close the gaps between new relationships with suppliers by post- its code of conduct and the Guiding Principles ing it on their websites and including on Business and Human Rights and, as a result, it in Requests for Proposals/Quotations. has added key issues to its provisions, includ- This helps to raise awareness among ing freedom of association, non-discrimination, potential suppliers of the importance peaceful assembly and other key issues. sustainability will play in their relation- ship with the company. • Integration of the code into supplier Developed by the International Trade Centre contracts. Many companies also choose (ITC), Standards Map is a global publicly-avail- to integrate the code into supplier con- able online platform which provides compre- tracts, or in some cases purchase orders, hensive information on voluntary sustainability by asking their suppliers to commit in standards covering a variety issues, from contracts to complying with the expecta- labour rights to environmental criteria. The tions set out in the code. platform enables users to explore and compare • Review of the code at a regularly more than 175 sustainability standards, identify scheduled business meeting. Link- opportunities for product diversification and ing the introduction of the code to an new niche markets, and visualize standards established business process and having requirements and scope. The main objective is supply chain management professionals to strengthen the capacity of producers, export- present the information will demonstrate ers, policymakers and buyers to participate in the strength of the connection between more sustainable production and trade. business and sustainability performance. 27 It can also be useful to have supply chain sustainability representatives partici- pate in these meetings if there will be interactions between those individuals and suppliers in the future as part of the engagement and evaluation process. • Annual supplier acknowledgement of supplier code of conduct. Suppli- ers annually renew their commitments (online or in written form) to endorse customers’ expectations with regard to sustainability. Telenor, a global provider of telecommuni- cations services from Norway, implements its code of conduct through agreements on responsible business conduct with suppliers. These agreements require suppliers not only to commit to the code, but also to allow monitor- ing and sanctions for non-compliance. Telenor also requires suppliers to cascade the com- pany’s code of conduct requirements to their suppliers and reserves the right to monitor any tier in the supply chain. 28 Supply Chain Sustainability 29 4. Determining the Scope the mines from which these minerals are An important step in designing a sustainable sourced are several steps away from Voda- supply chain programme is to determine the fone in the supply chain. Since the company its scope. Given the scale and complexity of does not manufacture any products or pur- most companies’ supply chains, it is important chase metals directly, it works closely with to choose areas of the supply chain to focus on suppliers and industry initiatives to ensure where a sustainable supply chain programme that products sold or the electronic equip- is likely to have the most impact. ment that is bought and used in its opera- The objective of this chapter is to provide tions do not contain conflict minerals. guidance on how to identify which suppliers a company should engage with first and to what extent, noting that programme boundaries Pig iron, a key ingredient in steel produc- tend to change over time as companies become tion, is one of several products flagged by more sophisticated and capable to manage the U.S. Department of Labor as posing a supply chain sustainability. potential human rights concern, primarily When developing a supplier programme, because of its historic use of forced labour. best practice requires companies to look at In response to these concerns, Ford Motor their supply chain as a whole, including Company has taken steps to mitigate the suppliers beyond their first tiers (the sub-tier use of human trafficking within the produc- suppliers), and to identify the areas where sus- tion of pig iron. In 2014, Ford reached out tainability challenges are most likely to occur. globally and sought assurances from its To do so, there are two general steps. steel suppliers that forced labour was not employed anywhere in its value chain. This 1. Supply Chain Mapping: Companies should included an intensive mapping of five to six ensure that there is the foundational knowl- tiers of suppliers (including importers, ex- edge within the company of who and where porters and trading companies) and requests the suppliers are in the supply chain and, for additional details regarding its Tier 1 particularly, to understand as much as possible suppliers’ systems for safeguarding human about their extended supply chain beyond the rights throughout operations. The review first tier. did not reveal any issues within Ford’s steel 2. Supply Chain Prioritization: Companies supply chain. The company plans to begin should then identify areas where the risk of similar efforts for other commodities in adverse impact on human rights, environ- future years. ment and governance is the most significant. This prioritization will then allow companies to take the appropriate actions with different In the development of Telenor Group’s suppliers. responsible supply chain programme, Tele- nor formally did not exclude any tier of the supply chain from the start. Further, Telenor Vodafone, a UK-based multinational tele- also defined “suppliers” to include any kind communications company, conducts due of contractual partner, except customers. diligence process in line with the OECD Due The practical scoping of this on an opera- Diligence Guidance for Responsible Supply tional level is carried out through supply Chains of Minerals from Conflict-Affected chain risk assessment and prioritization and High-Risk Areas to identify in the supply within practical efforts. chain the use of minerals that directly or indirectly finance or benefit armed groups in conflict regions, commonly referred to as “conflict minerals”. Both the smelters and 30 Supply Chain Sustainability Sample Supply Supply Chain Mapping products sourced from regions that are com- Chain Risk Events Companies should start by mapping their monly recognized for sustainability issues for a Food Com- supply chain to have an understanding of or suppliers whose nature of the business pany* where their suppliers are capturing that data activity is usually associated with a set of Child Labour: in a common system and attempting to un- common sustainability risks. Additionally, Allegations of child la- derstand the relationships further down the companies can identify their largest catego- bour on farms in supply supply chain. In some instances, regulation ries of procurement spend and categories chain surface. will compel companies to be able to map that are critical to business operations in their supply chains to identify their impacts terms of little or no availability of alterna- Working Hours & further down the chain. tive options and impact of supply chain Wages: To do this, it is often easiest to start with disruption. Workers in food pro- a picture of the generic supply chain for the For each area identified, companies cessing plants strike industry or product/s that the company is sell- should trace the flow of materials and infor- due to low wages and ing and fill in gaps. A generic product supply mation. The whole supply chain should be unpaid overtime wages. chain is illustrated in the figure below. considered for this exercise — going back Corruption: In some industries, many companies cite to raw materials and original suppliers. No A supplier’s manage- that it is difficult to be able to map their assumptions should be made — it is impor- ment misuses revenues supply chain much below the first tier. tant to understand the relationships and or royalties for corrupt However, it is possible to conduct this map- transactions as they actually exist. Category purposes. ping through shared data systems, category managers and suppliers can provide useful manager / buyer knowledge and by asking information. In some cases, agents or whole- Food Safety: suppliers. salers may play key roles. Processing plants fail to Companies with very large supply chains However a company manages this activ- properly clean machin- may use different filters to decide which ity, at the end, they should have a map ery and unintended and areas to map first. In order to ensure they showing where and how the inputs, raw potentially hazardous address the most problematic sections, best materials, and products and services that substances end up in practice would require businesses to start they buy are flowing around the world. product. looking at general high-risk areas, such as Indigenous People: Farming is undertaken on land that is sacred or otherwise essential generic supply chain stages from to lives or livelihoods a retailer perspective of indigenous people, mainly women, who Supply Chain are often the primary gatekeepers of natural resources and land and have little negotiation Raw Consumer Manufacturing/ Transportation/ Materials Packaging Retail Use/ End power. Processing Storage of Life Pollution: Processing plants fail to properly treat water effluents and are not in compliance with local regulations. * This list is provided for illustrative purposes. It is not intended to be comprehensive. 31 “We live in an increasingly resource aware and resource constrained world. We need to live within our means and not borrow from the future. To build a sustainable tomorrow we need to make our supply chain sustainable today. In fact, I firmly believe that increased sustainability in the supply chain reduces risks and increases profits for all organizations and stakeholders.” – Kris Gopalakrishnan, CEO and Co-Founder of Infosys 32 Supply Chain Sustainability Supply Chain Prioritization Companies should first assess where are the With a good understanding of the supply biggest risks to human rights, labour, the envi- chain map, companies can then identify ronment and ethics in the company’s supply and prioritize where the most problematic chain. The severity and potential irremediabil- areas lie, and should focus on the areas that ity of risks to stakeholders should be the driving present the greatest risk of adverse impact on factor in prioritizing critical elements of the people, environment and government accord- supply chain, particularly in the area of human ing to the country, sector, activity or type of rights. Severe risks or risks that may be irreme- relationship with the supplier. It is very likely diable should be “red flags” in a prioritization. that the key areas that need addressing are Additionally, other criteria can be consid- not in the first tier supply chain. For some ered, including but not limited to: industries, the highest risks may lie in the specific service they use; for others, it may be • Business Risk: What are the risks in the a country where they source one of their raw company’s supply chain that could impact materials. For example, electronics compa- ability to do business and meet the vision nies are beginning to focus on minerals that set forth for supply chain sustainability? are extracted from regions affected by social • Risk to Economic Development: What conflict and where human rights violations are the risks for exclusion of small- and are present. medium-sized enterprises (SMEs) when To identify the priorities in the supply introducing code demands, monitoring and chain, companies should gather informa- auditing schemes? tion on environmental, social or governance issues and identify priority areas where risk Both societal and business risk can be of adverse impact on people, environment influenced by: and governance is most severe. Actual and • Country/area: Which countries or areas potential risk areas can be evaluated based do the company’s suppliers operate in, on the country, sector, nature of the busi- and which of those countries/areas may be ness activity or type of relationship with the higher risk because of weak rule of law, supplier. Some of the recommended tools and prevalence of child or forced labour and resources to identify risks can be found in the other human rights abuse, high levels of textbox below. corruption, conflict, etc.? • Supplier reputation and ownership: What is the past record of performance, previous audit results, reputation of suppli- ers and what links, if any, do they have to Tools and resources governments? • Spend/leverage: Which suppliers does the Geographic risks: • International Trade Union Con- company have the highest spend with, • World Bank Worldwide federation website and reports including direct and indirect spend? For Governance Indicator • Human Rights Watch website which suppliers does the business repre- • Amnesty International Commodity-specific risks: sent either a major or a small part of their Country Reports • Industry & issue-specific re- business? Which suppliers does the com- • US Department of State ports from various international pany potentially have the most leverage Country Reports research institutions (e.g. US with? This issue is particularly relevant to • Human Development Index Dept’ of Labor, Human Rights determining what the company can do in • Economic Freedom Index Watch, Oxfam, Anti-Slavery response to identified risk. • Corruption Perceptions Index International) • Category: Which suppliers, including sup- • Office of the High Commissioner • The Human Rights and pliers for products and processes, are most for Human Rights website Business Dilemma Forum business critical for the company? • Business and Human Rights • Tier: Which suppliers sell to the company Resource Centre Supplier performance: directly, and which are sub-tier suppliers? • Guardian Sustainable Hub • Supplier self-assessment • Nature of transaction: Does the transac- • Freedom House website • Audit results tion contribute to increased or decreased transparency and accountability for condi- tions in the supply chain? For example, sub-contracted labour, brokers, agents and 33 In 2010, Maersk, a global shipping and en- middlemen may lead to gaps in knowledge, ergy conglomerate, developed the Respon- awareness and influence. sible Procurement programme including over 100,000 supplier participants. To find There are two main steps to assessing risk a broad and efficient way to gain transpar- and impact in the supply chain: ency over its supply chain, Maersk chose at first to focus its attention on top spend 1.Identifying Risk Events. Events, such as suppliers, strategic suppliers in high-risk underpayment of wages at a factory in the countries and suppliers delivering products company’s supply chain, have a negative and services produced in an operational impact on workers and create risk for the context that requires attention. Four years business. Companies should draw on the after the development of its Responsible expertise of internal staff and external Procurement programme, the company has stakeholders to identify social, environmen- decided to adjust its focus on suppliers of tal, economic and governance risks that services and products that have or may have have the most severe impact on society. Risk a high risk of negative impact on people and assessment should also involve meaning- environment, with assessments of social ful consultation with potentially affected and environmental practices being made groups of stakeholders, paying special atten- before a contract is signed. Three factors tion to groups that may be at risk of height- contributed to this change: 1) the company ened vulnerability due to marginalization, gained a clear overview of where the issues including children, women, persons with and risks lie, 2) requests from Maersk’s disabilities, migrant workers, ethnic minori- buyers for clarity around which suppliers’ ties, indigenous groups and the elderly. practices must be assessed, and 3) desire to Internally- and externally-driven events that align with the provisions of the UN Guiding may not only be against the law, but also Principles on Business and Human Rights. affect the achievement of the company’s sustainable supply chain and business objectives must be identified. Risks to the business can include business continuity, regulatory, reputational, market acceptance and customer requirements risks. Supply Chain 2. Assessing the Likelihood and Severity of Sustainability Risks: Risk Events. Risk events should be analyzed to understand their likelihood and potential impact on people, environment and gover- nance. This will determine how they should be managed under the company’s supply chain sustainability programme. Many companies find it helpful to plot each Risk likelihood risk event on a grid, where the two axes are “Risk Likelihood” and “Risk Impact/Severity on People, Environment and Governance,” as in the mapping to the right. The perspective of the stakeholders or affected groups should be taken into account when evaluating the “Risk Impact/Severity on People, Environ- ment and Governance” and setting priorities for action. In evaluating human rights risks, risks to stakeholders should determine the severity rating rather than merely the mag- Risk Impact/Severity on People, nitude of the risk to the company. Environment and Governance The company can use the placement of events on the grid to help determine the rela- tive priority of the issues and the efforts and course of action needed to address them. 34 Supply Chain Sustainability Companies should be mindful that these two ability related risks and opportunities for steps of mapping and prioritization may not each category of the supply chain, based on be completed within a short timeframe, espe- desk research, as well as input from internal cially not when conducted for the first time. experts, users and the respective category Allocation of appropriate resources, both purchase teams. ArcelorMittal has found internally and externally, will help perform that mapping risks in a method that is both this task in a more efficient timeframe and robust, but also simple and aligned with establish a framework that can be replicated the organization’s core risk management to evaluate additional risk areas. approach, is essential to crystallize the key priorities to be addressed. The com- pany chose a 2 x 2 matrix (Impact x Likeli- ArcelorMittal, a mining company based in hood) for each purchase category and held Luxembourg, has a USD 50 billion supply workshops with participants from the wider chain extending from basic raw materials internal workgroups to discuss the chal- like iron ore to sophisticated downstream lenges as well as opportunities in each of products and services. The company has these categories. This process will need to mapped out the most significant sustain- be repeated on a regular basis to ensure the risk map remains up to date. Epson, a Japanese technology hardware and equipment company, has organized its suppli- ers by control level. Suppliers are categorized into five levels depending on their impact on the company’s CSR initiatives and ability to sustain production. Supplier control levels Control Guidelines Level Level 1 Low impact on CSR & compliance, no impact on production Level 2 Some impact on CSR & compliance, no impact on production Level 3 Some impact on CSR & compliance, indirect impact on production Level 4 Some impact on CSR & compliance, direct impact on production Alternative supplier available Some impact on CSR & compliance, direct impact on production Level 5 Alternative supplier not available, major problems maintaining pro- duction 35 36 Supply Chain Sustainability 37 5. Engaging with Suppliers Once companies have identified the scope of mechanisms described in this chapter are fo- their programme and priority areas for action, cused on raising awareness and encouraging the next step requires engaging with suppliers suppliers to integrate and drive sustainability to address the most severe sustainability is- into their business, setting expectations, ongo- sues in the supply chain. The goal of engaging ing monitoring and partnering with suppliers with suppliers is to develop a shared mindset to overcome barriers to improvement. about sustainability issues, to build supplier The figure below shows the steps that ownership of their sustainability vision, should be taken by companies across a wide strategy and performance and to work more range of industries to continuously engage closely with suppliers with shared priorities. with suppliers on supply chain sustainability. This chapter explains different ways that Each has specific purposes and drives continu- companies can engage with and strengthen ous improvement. These steps can be fol- their influence on suppliers to address lowed to effectively address issues in the first sustainability issues that are linked to the tier as well as with sub-tier suppliers. company’s operations, products or services through supply chain relationships. The Supplier Engagement & Continuous Improvement Expectation Setting Monitoring, Evaluation, Adopt code of conduct. Accountability Expectation Communicate about your and Learning Setting sustainability expectations to Monitor and assess the ef- suppliers. Incorporate expec- fectiveness of programme tations, including the code of and its impact on people, conduct, into contracts. Es- environment and governance. tablish clear benchmarks and Learn from experiences and incentives for consistently increase accountability to Monitoring, strong performance. different stakeholders. Evaluation, Risk & Impact Accountability Assessment Risk & Impact Assessment Training & Capacity and Learning Map and segment the supply Building – Partnerships chain. Determine the scope Collaborate with others to of efforts focusing primarily build supplier ownership and on areas where there is the understanding to remediate greatest actual and poten- instances of non-compliance, tial risk of adverse impact as well as invest in manage- on people, environment and ment capabilities for continu- Training & Sustainability governance. ous improvements. Support Capacity Building – Assessment suppliers to address the root Performance Sustainability Assessment Partnerships Performance causes of poor sustainability performance. Assess the sustainability performance of suppliers, Remediation using different processes for different needs (e.g., busi- Collaborate with suppli- ness relationship potential/ ers to address issues of Remediation actual risk, impact on people, poor performance. Define environment and gover- and incentivize continuous nance). It can include self- improvement. assessments, audits, worker surveys, etc. 38 Supply Chain Sustainability Selecting Communications Using existing customer-supplier Channels communications. The first step to improving sustainability in Every company has some existing processes or the supply chain is to raise awareness of your methods to communicate with suppliers. These company’s expectations for sustainability per- can vary from very basic to very sophisticated formance. Many companies use their codes of approaches. Often these communications are conduct to do so (as described in Chapter 3) led by supply chain management profession- and/ or include requirements to address and als and focus on the business aspects of the prevent sustainability issues in appropriate relationship. contract provisions. In many cases, binding The company should consider how to requirements for suppliers in codes of con- regularly incorporate sustainability expecta- duct or contract provisions also require sup- tions and dialogue into these communications pliers to implement the same criteria vis-à-vis to help build shared mindset, reinforce key their own suppliers. Some companies may messages and provide the opportunity for require suppliers to sign binding agreements feedback. This approach has the benefit of with sub-contractors/sub-suppliers. providing a dialogue platform where the sup- In addition, there are two additional com- plier can in turn raise issues of constraints or munication methods to consider: tensions created by the company’s demands (such as short lead times or many changes to order specifications). Having the right parties around the table can help identify ways to meet both the business and sustainability requirements. Creating Incentives for Strong Sustainability Performance In order to power sustainability and trans- Many companies starting out in supply chain sustainability are focused parency in its supply chain, Mahou San on addressing situations when supplier performance on sustainability Miguel, a Spanish food and beverage com- issues is poor. However, often suppliers are more motivated by incen- pany, developed a Supplier Portal to collect tives for strong performance than by negative consequences. information about suppliers, including their As the supply chain sustainability programme evolves, an increasing alignment with the company’s CSR policies. number of companies consider establishing clear benchmarks and re- This open channel offers useful informa- wards for consistently strong performance. Incentives could include: tion to suppliers and allows the company to carry out an objective selection of them. • Reducing the number of audits conducted Mahou San Miguel also developed a Train- • Establishing a preferred supplier programme ing programme to help suppliers build their awareness about CSR, adding value to the • Increasing business business. • Providing recognition and awards • Allowing participation in strategic buyer/supplier planning meetings Adding sustainability to the • Sharing costs for sustainability improvements agenda of supply chain forums. • Providing assistance for capability building By participating in supplier forums and talking about sustainability expectations in the industry, the company can help identify organizations that share its issues and priori- To help suppliers meet higher standards for health and safety and ties. These discussions, which can include encourage them to invest in safer working environments, Levi Strauss suppliers, but also peers, partners, policymak- & Co. partnered with the International Finance Corporation (IFC) ers and a broad range of other stakeholders, to offer reduced loan financing to those suppliers with the strongest allow the company to share details about its sustainability performance based on the company’s Terms of Engage- priorities and expectations and learn from ment. Levi Strauss offers direct financial incentive for suppliers to others about their approaches. These forums improve environment and social standards through IFC’s $500 million can also provide an important opportunity to Global Trade Supplier Finance program. This program provides short- get feedback on the company’s programme term finance to emerging-market suppliers and small- and mid-sized and identify areas for improvement, as well exporters. as to build support for addressing systemic challenges that require a shared response. 39 As their supply chain sustainability pro- Monitoring and Evaluations gramme evolves, companies can use these A monitoring system provides information on forums to also recognize suppliers for their how well suppliers are peforming on sustain- strong sustainability performance. ability practices as well as specifically the degree to which they are complying with the codes a company has put in place. Monitor- As the first step in the development of its ing systems can be effective in establishing ethical procurement programme in 2006, Fuji baseline measurements and assessing recent Xerox Co., Ltd., a Japanese imaging technol- and current performance relative to a code’s/ ogy company, conducted an “ethical procure- company’s requirements. Understanding how ment study sessions” with its nine key suppli- the supply chain performs against these base ers’ executives. The study sessions included a criteria is a crucial element and a core part five-day study meeting in Shenzhen, China with of a company’s commitment to continuous approximately 50 participants, including the improvement. However, compliance-based executives of the suppliers, their factory presi- approaches to monitoring have resulted in dents in Shenzhen area and Fuji Xerox of Shen- concerns about costs, disruptions to produc- zhen executives. The suppliers’ study group tion of suppliers, doubts about the accuracy was critical to the successful launch of the of the information and potential risks to company’s ethical procurement programme. safety of workers. Companies should carefully In 2014, based on its successful experience consider what approaches to use and with in China, the company organized a seminar which suppliers in order to get reliable infor- with its suppliers in Hai Pong, Vietnam before mation and avoid over-reliance on compliance distributing the self-assessment questionnaire. audits. The goal of monitoring systems should Ongoing communication is maintained with key be to understand whether issues are being suppliers in Hai Phong to identify Vietnam’s addressed over time, and whether the supply unique sustainability risks and issues. chain programme and actions committed to by suppliers are having the desired effects. In 2009 and 2012, the Coca-Cola Company, Supplier self-assessments a food and beverage company based in the Many companies invite suppliers to self-assess United States, brought a group of top global their sustainability performance as an initial suppliers to its Global Supplier Summit to screen in selecting new suppliers or as part of a participate with Coca-Cola’s senior man- risk assessment for identifying which suppliers agement in a discussion about the need for may require closer attention. Self-assessments business to embed sustainability as a critical can provide companies with useful informa- element of growth plans. Rather than setting tion and also increase suppliers’ understanding top-down directives, the company sought of customers’ expectations. Many companies suppliers’ strategic counsel in ensuring long- also find that self-assessments are a good start- term mutual success in improving sustain- ing point to cover a significant portion of the ability in the supply chain. Following the first supplier base in a relatively short time frame Summit in 2009, Coca-Cola received nearly and at relatively lower cost than audits. 200 proposals from suppliers, including It should be noted that, if used as a stand- ideas and strategies related to sustainable alone method, self-assessments could lead to packaging, logistics, sustainable agriculture, inaccurate data if the company has no other water stewardship and portfolio innovation. verification process in place. Reliable self- In 2013, building on the previous Global assessments depend on trust, a suppliers’ com- Supplier Summits, the company launched a petency to gather information from disparate Supplier Awards programme in conjunction parts of their organizations and clear commu- with a global gathering held to engage sup- nications so that they understand what is being pliers on sustainability, innovation and other asked and how their information will be used. strategic long-term objectives. The company For example, the problem of double books is now gives awards to suppliers for Innova- sometimes due to suppliers’ concern that their tion, Sustainability, Quality, Value and an poor performance will result in immediate loss overall Supplier of the Year Award. of business. 40 Supply Chain Sustainability Hewlett-Packard (HP), a large informa- Audits Protecting tion technology company and member of the Traditionally, audits have been used as on-site Workers Who Electronic Industry Citizenship Coalition evaluations of supplier performance against Participate in (EICC), requests that suppliers identified as a company’s policies and expectations. They the Monitoring medium- or high-risk complete an electronic can include management systems assessments, Process self-assessment questionnaire to identify po- which gather information on the strength of tential social and environmental responsibil- suppliers’ sustainability systems to manage ■■ Workers who partici- ity performance risks. HP reviews the results minimum requirements. Auditing is mainly pate in the monitoring of the self-assessments and provides feed- used for compliance purposes, to measure process should be pro- back to suppliers. Suppliers then create and and then address labor standards within sup- tected from retaliation. implement an improvement plan, if required. ply chains. In order to enforce their codes of In addition to helping HP evaluate risk, self- conduct, companies have developed their own ■■ Workers should assessments have been shown to help HP ‘monitoring’ mechanisms. There are several be assured that they suppliers become more familiar with HP’s audit protocols in place in certain industries can speak freely and expectations of what it means to conform to that can be leveraged. For example, the Global information that they HP’s EICC Code of Conduct. HP uses three Social Compliance Programme has gathered provide will not be types of monitoring to further understand audit process best practices in a set of refer- attributed to them as and influence supplier SER performance: ence tools that companies can adopt or can individuals. 1) Audits: Annual audits are performed against use as a benchmark for their own system. ■■ Workers should be HP’s EICC Code of Conduct and follow-up provided means to audits are conducted when nonconformances Effective and appropriate auditing can communicate in their are found. Suppliers are also encouraged to meet a series of needs, including: native language, when commission independent audits. possible. 2) Assessments: Targeted assessments are 1. As part of the due diligence process, when conducted to supplement HP’s comprehensive screening new or potential suppliers to audits, focusing on specific risk areas identify whether they meet the buying including: company’s minimum standards as a basis • Vulnerable workers, such as student, for approving or rejecting a new supplier. dispatch and foreign migrant workers 2. Establishing baseline information on • Health and safety, including fire safety and working social, ethical and environmental emergency preparedness conditions in an individual supplier and in • Supplier SER management system maturity the broader supply base. • Supplier environmental performance. 3. Establishing a starting point for discussion 3) KPI program: Final assembly suppliers are with suppliers about current sustainability required to provide data on working hours, issues and necessary and appropriate cor- student workers, core labor rights, critical rective actions. health and safety issues and greenhouse gas 4. As a proactive tool to drive continuous emissions. Suppliers track data on a weekly improvement at a supplier that a company basis and submit monthly. Such frequent has a long-term business relationship with. monitoring helps HP to quickly identify and 5. Monitoring progress over time – regular correct problems. and consistent audits are a way of checking whether improvements in performance are being made or have been made over time at scale across large supply chains. Audits can be a useful tool for identifying problems but, if used alone, do not neces- sarily create the change necessary to ensure sustainable improvement to practices. Leading companies are increasingly focusing on a two-track process, integrating the important diagnostic aspect of audit where due diligence of supplier performance is needed, with a growing emphasis on programmes that move beyond monitoring for more strategic suppli- 41 ers, enabling and supporting change at local level, with one process informing the other on an ongoing basis. components Audits can be conducted by the company of an audit9 staff, a secondary party, which is a body with Planning a trading relationship with the site, such as Development of a strategy, including time- a retailer, brand, vendor or agent, or by an line, objectives, nature and extent of the independent third-party, such as an auditing audit that will be performed. firm, an NGO, a trade union, or even a group of these stakeholders. The questions of when, Preparation why and how to engage external auditors Gathering information on potential issues should be driven by the overall supply chain affecting workers and the surrounding risk management objectives. Both external and community. internal auditors offer distinct advantages and Opening Meeting there is no standard “right way.” In fact, best Presentation of the purpose of the audit practice is to use a combination of both. to supplier’s management and workers In deciding whether to rely on external and planning of the audit schedule. auditors or to develop and maintain internal capacity for auditing, consider what type and Facility Tour level of expertise is needed to assess perfor- Visual inspection of facility to identify mance against company policies, such as obvious noncompliances. environment or health and safety expertise and regional presence and capacity. Indi- Records Review Checking employee files, timecards, vidual qualifications are also important and health and safety records, etc. have an impact on the integrity and quality of the audit results. Some companies opt Management Interview to hire specialized third-party auditors to Discussion of management systems, conduct focused thematic assessments. Com- wages paid, working hours, etc. panies with substantial audit requirements should carefully consider the cost, feasibility Workers Interviews and effectiveness of internal versus external With a representative sample of employ- investments. Finally, companies should be ees regarding working conditions. mindful of how suppliers will perceive and be Additional Interviews (optional) affected by audits and how critical they are to As a growing practice in some sectors, the business. stakeholder interviews with trade unions In the event that audits are conducted and NGOs may also be conducted in order by an external party, the company should to improve the quality of information. receive a detailed report of the audit find- ings in order to make an informed decision Pre-closing meeting concerning one of its suppliers and discuss an Audit team reviews the elements gathered appropriate corrective action plan. during the audit. Effective audits are driven by a variety of Closing meeting and summary of findings factors including: Communicate the findings to the supplier • Preparation and knowledge of factory, management. country, sector, workers and community prior to visit Reporting • Maintaining independence from manage- Report the findings to the company. ment for credibility with workers • Selecting a random sample of workers – in- cluding all types of workers, including any 9 This list of components is based on Sedex Members Ethical Trade Audit (SMETA) vulnerable groups such as young workers, Best Practice Guidance, (2012), available at http://www.sedexglobal.com/wp-content/ contract, migrant and female workers – uploads/2012/07/SMETA-Best-Practice-Guidance-4-Pillar-4_0-L.pdf. during all parts of assessments • The experience and auditing expertise 42 Supply Chain Sustainability of the auditor, including language and L’Oréal, a French cosmetics company, cultural skills and knowledge of local issues informs suppliers of the company’s expecta- and industry specific challenges tions through an “Ethical Commitment Let- • The extent to which an audit incorporates ter”. This letter requires suppliers to comply an assessment of both systems for managing with the ILO’s Core Conventions as well as performance as well as levels of perfor- local labour laws. Certain environmental mance, as well as an analysis of root causes standards relating to hazardous emissions of noncompliance. and contaminations are also included. All • Holding informal conversations with work- subcontractors are audited on these require- ers during times and in locations where ments wherever they operate, as are all they are comfortable and secure suppliers of raw materials, packaging and • Gathering enough information to ensure all promotional-items suppliers located in understanding of factory conditions “at risk” countries. Other suppliers are au- • Documenting information and assessment dited on a case-by-case basis, as necessary. of workers’ credibility Audits are based on SA8000 standard and • Validating information from workers with carried out by a specialized, independent other sources third party in the local language. 834 social • Always being aware of the need to protect audits were carried out in 2014, amounting workers’ confidentiality and safety to a total of 6,129 since 2006. Over the past decade, Nike, a footwear and On the Horizon: apparel company, launched a Manufacturing Index to evaluate new and continuing sup- Beyond the Workplace - pliers on four equally weighted criteria: cost, quality, on-time delivery and sustainability. Indirect Impacts on Human Rights - To measure sustainability, Nike developed a Sustainable Manufacturing and Sourcing In- The scope of the Guiding Principles on Business and Human Rights dex (SMSI) that scores on compliance as well covers human rights impacts caused both directly and indirectly by as continuous improvement in energy, water, a company’s own activities, and, therefore, organizations should waste, health & safety, working conditions, be aware of potential and actual impacts within their own organi- human resources management practices and zations and in the communities in which they operate. Companies lean manufacturing adoption. Nike has com- should initially consider focusing on stakeholder engagement on hu- mitted to source 100 percent from contract man rights impacts rather than auditing within local communities. factories rated bronze or better on the SMSI, reflecting a standard that adheres to the com- pany’s Code of Conduct and Code Leadership SMETA – Social audits such as SMETA – Sedex Members Ethical Standards. Trade Audit, an open source methodology derived from a compilation of auditing best practices, include a focus on labour rights (human rights in the workplace), management systems and guidance around grievance mechanisms and freedom of association. SMETA is the most commonly used audit methodology worldwide and is a comprehensive methodology used by many companies to assess a supplier’s current practices including areas for improvement, but also capturing current systems and processes as well as areas where the site goes above and beyond (good examples). This audit methodology can be used as an assessment method for first-party audits, second-party audits as well as third-party audits. Additionally, it gives guidance on the opportunity for an optional perimeter survey and has a section on community benefits, highlight- ing any positive impacts, which can provide additional information to understand local context and support insights into specific impacts on local communities. 43 Supplementing practices As due diligence processes evolve, companies are interested in gathering a wider series of indicators to inform the impact of their programmes. The following tools are some- times implemented into the traditional audit process: 1. Impact Assessment – impact assessment can include a number of Key Performance Indicators which give an overview of the impact of the company’s sustainability pro- gramme. These often include worker turnover, number of accidents, etc. 2. Worker surveys – these tools allow the entire workforce to provide feedback on their experience of the working environment. Survey results are evaluated by a third-party provider and then anonymous results are presented back to the factory manage- ment with areas and recommendations for improvement. These tools allow a larger part of the workforce to be included in the assessment of the site and are an in-depth (however resource-heavy) assessment which can be very effective in finding areas for improvement and engaging the entire workforce. 3. Sustainability Ratings Systems – rating systems provide a detailed score or scores on multiple areas allowing both recognition of good and excellent performance and the setting of meaningful goals that suppliers can strive for. 4. Operational Grievance Mechanisms. Both multinationals and SMEs are dealing with the challenging task of providing effective and adequate access to remedy for their workers and stakeholders. The third pillar of the Guiding Principles on Business and Human Rights states that companies should establish effective operational-level grievance mechanisms to handle complaints by stakeholders and workers for sup- pliers’ adverse impact on people, environment and governance. Suppliers should be encouraged and, where appropriate, required to establish such mechanisms, and the company should have access to information about what grievances are submitted and how they are being resolved. Operational-level grievance mechanisms should serve as an avenue for resolving grievances at the earliest possible opportunity, but also as a feedback mechanism for suppliers to understand their impacts on stakehold- ers. Operational-level grievance mechanisms should comply with the effectiveness criteria outlined in the Guiding Principles on Business and Human Rights (Principle 31). Companies and suppliers may also have the opportunity to access formal grievance mechanisms adopted by industry associations to address sustainability issues arising in a specific sector and geographical area. The Mexican labour advocacy organization Centre for Reflection and Action on Labour Issues (CEREAL) and the National Chamber of the Elec- tronic, Telecommunications and Information Technologies Industry (CANIETI), decided to work together to address highly contentious relations between workers and electronics manufacturers in Mexico. The parties have made progress in mapping and resolving labour grievances and in working to prevent new ones. Since 2007, the established Grievance Escalation Mechanism has helped to solve an average of 800-1000 cases per year and the parties have estimated a decline in the occurrence of cases related to accidents or discrimination. Looking ahead, CEREAL and CANIETI are planning to focus on issues related to living wages, freedom of as- sociation and collective bargaining. 44 Supply Chain Sustainability Remediation and • Defining a roadmap for gradually increasing Capability Building standards and expectations. Supply chain sustainability is an evolving • Internal analysis of how company processes vision, which means that it is critical to have may drive supplier behaviours and whether an approach that defines and incentivizes corrective actions are needed internally to continuous improvement. This approach address adverse impacts. includes both remediation of instances of non-compliance as well as investment in sup- It is important that remediation requirements pliers’ management capabilities. are communicated very clearly to suppliers and that there are established timelines and Remediation can include a number of consequences for not meeting them and/ activities: or continuing performance. Remediation requirements should also be feasible, realis- • Working with suppliers to create a correc- tic and agreed with the supplier. If adverse tive action plan for achieving compliance in impacts are not remedied in spite of efforts to a clearly defined and reasonable time frame. address the issues and repeated notifications, • Encouraging improvements through regular a company may ultimately need to terminate communications with non-compliant the supplier relationship. Companies should suppliers. identify zero-tolerance issues and explain their selection and consequences to suppliers Supporting Suppliers’ Workers’ Empowerment to Assure Quality Working Conditions10 One of the biggest challenges for companies is to verify whether the rights of workers in their supply chain are respected and supported. By establishing programmes that support freedom of associa- tion, companies can empower workers to advocate directly for improvement of their conditions. These programmes not only ensure that the human rights of the workers are respected but create a better working environment that boosts productivity and minimizes risks of operational disruption. Recommended good practices to support workers in the supply chain include: • Implement a support mechanism for workers to communicate concerns and assert human rights, such as operational-level grievance mechanisms, audits, worker-inclusive sustainability committee, etc. • Conduct human rights-focused trainings for suppliers’ workers • Partner with NGOs or other stakeholders to implement worker empowerment initiatives Better Work is a unique partnership between the International Labour Organization and the International Finance Corporation which aims to realize the rights of garment workers and for factories who uphold labour laws and standards to be profitable and productive. The organiza- tion's strategy involves working with major industry stakeholders and smaller factories at a global and local level. Better Work supports the establishment of strong relations between managers and workers who can then take ownership and responsibility for continuously improving working conditions and eventually competitiveness at the factory. Among its achievements, Better Work has ensured that migrant workers in Jordan were covered by the same protection and benefits as their peers, including the right to join a trade union. In 2015, the programme has reached more than one million workers and is present in factories across Bangladesh, Cambodia, Haiti, Indonesia, Jordan, Lesotho, Nicaragua and Vietnam. For more information, read Supporting Worker Empowerment - Including Support for Workers’ Assertion of their Human Rights - in the Supply Chain, the Good Practice 10  Note endorsed by the UN Global Compact Human Rights Working Group, available at https://www.unglobalcompact.org/docs/issues_doc/human_rights/Human_Rights_ Working_Group/WorkerEmpowerment_GPN.pdf. 45 “A sustainable supply chain benefits our business by mitigating risks associated with producing and delivering our products and services to our customers. It also creates opportunities to develop closer ties with suppliers in the long-term interest of the company.” – Erik Engstrom, Chief Executive Officer, RELX Group 46 Supply Chain Sustainability in advance. Terminating the business rela- De Beers, a diamond mining company, tionship should be considered as a last resort, launched its bespoke Best Practice Princi- and companies should take into account cred- ples (BPP) Assurance Programme to address ible assessments of potential adverse impacts social, employment, business, health and of doing so. safety and environment issues throughout If a supplier relationship is critical to a the diamond pipeline. De Beers’ customers company’s operations, either because of the and their significant contractors, who range essential service or product that it provides or from diamond cutters and polishers to jewel- because of the lack of reasonable alternative lery manufacturers to retailers, must comply sources, the company should consider the with the requirements of these Principles. severity of the impact. The more severe the Where an infringement against the require- impact, the more quickly it will need to see ments is raised, the client or contractor is a change before deciding whether to termi- required to submit Corrective Action Plans nate the relationship. If the company decides (CAPs) to address the issue. Evidence is to remain in the relationship, it should be submitted online or the third-party auditor prepared to demonstrate ongoing efforts at will re-visit the site to ensure that CAPs have addressing the issue and to accept the poten- been successfully implemented to close off tial reputational, financial and legal conse- any issues raised. In the event of any mate- quences of maintaining the relationship. The rial or repeated transgressions of the BPPs, tools described in this chapter can be used to De Beers has reserved the ability to termi- increase leverage on these critical suppliers. nate its supply contract with a customer. Some suppliers located in high-risk countries may be challenged by an external environment that reinforces a behavior that Capability Building is non-compliant with the prescriptions of Remediation and monitoring efforts have the code of conduct. In this case, it is recom- proven to be most successful in combination mended to connect the supplier with the with efforts to build suppliers’ management Global Compact Network within its coun- capabilities. Capability building includes a try or other industry associations that can variety of efforts, from training for supplier provide useful resources and a platform to personnel to worker hotlines and resource engage in dialogue with peers and other networks. For example, through a combina- stakeholders. Companies may also want to tion of practical workshops, training and consider intensifying their engagement with in-factory consultations, the International the supplier to build a trusting relationship Labour Organization’s (ILO) Factory Improve- while working towards remediation. ment Programme (FIP) helps factories increase competitiveness, improve working conditions, and strengthen collaboration and communica- tions between managers and workers. Opportunities in Supplier Capability Building In order to address the issue of a fair living wage in the textile industry, H&M, a Swed- Integrating learning and Providing supplier or ish multinational retail-clothing company, capability building into worker trainings has developed the Fair Living Wage Road- auditing process on major areas of map, using a holistic approach that covers H&M, factory owners, factory employees non-compliance and governments. One of the goals is to supplier support factory owners to develop pay capability structures that enable a fair living wage and building train their employees into a skilled work- Providing tools Creating or force that can negotiate and annually review that suppliers supporting a their wages. In parallel, the company can access and learning network reviews how to improve its own purchas- use independently of suppliers ing practices to ensure they cover the true cost of labor, and encourages governments to set a mechanism to annually increase 47 minimum wage levels. H&M aims to scale female workers. HP has brought health up pay structures to cover certain strategic awareness programs using the HERproject supplier factories by 2018 and affect around methodology to 27 supplier sites across 850,000 workers. China, Malaysia, Thailand and Mexico since the programme’s inception in 2007, reach- ing over 55,000 female migrant workers and While some companies restrict their engage- empowering them to take ownership of their ment to monitoring and remediation, there health. are limits to what these processes alone can • Occupational health and safety (OHS) achieve. Monitoring is not always the most training. In 2014, HP partnered with the effective tool for identifying and dealing with International Commission on Occupational the root causes of issues. A growing number Health (ICOH) and Hong Kong University of leading companies in supply chain sustain- to train management from 15 suppliers on ability are shifting from a pass/fail compliance- worker stress prevention, mental health based approach to build supplier ownership awareness, combustible dust prevention through the development of management and Participatory Occupational Safety and systems. A deeper engagement, based on Health Intervention (POSHI). POSHI is an capability building and strategic partnerships, on-site program that engages workers and creates an open channel of communication management in the process of identifying with suppliers to better understand the issues and solving OHS issues. Program partici- they are facing and allow them to incorporate pants reported that the training enhanced sustainability into strategic planning while worker/manager communication. demonstrating continuous improvement on their sustainability performance. CEMEX, a Mexican building materials company, launched its Supplier Sustain- Below are some examples of how companies ability Programme to extend the company’s have taken steps to enable supplier owner- commitments, practices and beliefs to their ship through the development of sustainabil- suppliers and foster a sustainable, reliable ity management systems: network. Since the Supplier Sustainability Programme was created in 2010, more than • incorporate evaluation of management sys- 2,100 suppliers in 24 countries have been in- tems into audit protocols to raise awareness vited to participate. The programme consists • provide training and consulting for suppliers of four key phases: on sustainability management system design •• Surveying suppliers against the company’s • adopt improvement ladders which empha- sustainability and financial standards size a continuous improvement approach to •• Enacting a communication campaign based sustainability management systems develop- on the survey results ment with increasing incentives and reduced •• Reinforcing awareness of specific policies auditing. that incorporate aspects of sustainability including human rights, labor and antitrust, as HP believes that investing in the skills and well as the supplier Code of Conduct, based awareness of workers and supplier manage- on CEMEX’s Code of Ethics and the UN Global ment through capability building is criti- Compact Ten Principles cal to achieving lasting solutions to labor •• Preparing a scorecard to track and incentiv- issues. HP invests in worker development and empowers workers to improve social ize suppliers with a record of strong sustain- and environmental performance at their ability performance. sites by helping them to develop a broad skillset. Since the start of the program, HP has directly reached over 533,200 work- Nestlé India, a food and beverage company, ers and managers in China, South America established a dedicated supplier develop- and Southeast Asia. Examples of capability ment department in 2005 to promote sustain- building programs include: able production and processing of agriculture • Health education through HERproject. commodities like coffee and chicory, achieve Business for Social Responsibility’s (BSR) compliance to local regulatory laws, cost Health Enables Returns (HER) Project savings by localisation of key imports and to provides basic personal health training to create a wider, more flexible supply base. The 48 Supply Chain Sustainability company invests in working with suppliers through training programmes, knowledge Build a More sharing and by providing technical assistance Inclusive Supply Chain to suppliers to close food safety and quality Inclusive sourcing presents an important opportunity for com- gaps and improve suppliers’ management panies to support human rights and increase economic develop- systems and products. As a result of these ment by offering economically disadvantaged groups an equal supplier development efforts, Nestlé India in opportunity to compete for business, enhancing their income the last 5 years has increased local sourc- and improving their business skills. It also makes business ing of materials from 70% to 92% (by value), sense by broadening the vendor pool with loyal and flexible reduced single supplier situations from 26% suppliers, enhancing competitive advantage and providing in- to 14%, developed more than 50 new Indian novation. When engaging with suppliers and sub-tier suppliers, suppliers able to meet Nestlé’s specifications companies should identify and consider opportunities to work and saved $US 10 Million. With these efforts with businesses owned by certain underrepresented stake- many of the Indian suppliers have become holder groups, such as women, minorities, indigenous people, Best Cost Origin Source for supplies to other elderly and disabled workers to promote a more inclusive sup- countries. This initiative has also been repli- ply chain. Some companies do so by partnering with associa- cated in China, Bangladesh, Brazil, Indone- tions or organizations that represent and promote businesses sia, Iran, Malaysia, Russia and South Africa. run by these groups. Engaging with Sub-Tier Suppliers As described above, companies sometimes find that they have significant risk in the suppliers Cisco, a U.S.-based IT company, established the Diversity Busi- who are one or more links away in the supply ness Practices (DBP) Program to increase inclusion and diversity chain. For example, food and agricultural among its global suppliers. The DBP team identifies potential companies have faced significant challenges diversity and inclusion supplier candidates and facilitates relation- with child labour on farms which they rarely ships between them and Cisco representatives. The DBP Program buy from directly. The electronics industry, provides equal access to businesses owned by minorities, women, as well as others, are struggling with mining service disabled and veterans, as well as to companies in histori- in conflict zones for the minerals that go into cally underutilized business zones (HUB zones). Activities within their products. the DBP program include mentoring sessions, a business expo Engaging with sub-tier suppliers may have and workshops. It also offers corporate memberships in and col- additional complications beyond those de- laborations with many domestic and international organizations scribed above, including lack of transparency focusing on minorities and encouraging diversity, such as WECon- in the supply chain and less leverage over the nect International, SupplyNation and the Canadian Aboriginal and sub-tier supplier. To overcome these obstacles, Minority Supplier Council. companies are pursuing a number of strategies including: In 2014-15, as part of its commitment to empowering and invest- ing in women entrepreneurs, Boyner Group, Turkey’s largest • Participation in industry collaborations: fashion retailer, launched the Boyner Group Women Suppliers Collaborating with other companies can in- Academy in partnership with the International Finance Corpora- crease leverage collectively. It can also help tion (IFC). This project aims to raise productivity, performance and companies to share the costs and resources economic opportunities for women-led businesses, which com- required to engage with these suppliers. pose 18% of Boyner Group’s supplier base. This is to be achieved • Engagement in public policy: Many com- through a 12 week training programme for owners and manag- panies also overcome their lack of leverage ers of a first pilot cohort of 25 women-led businesses in Boyner by seeking legal and regulatory redress of Group’s supply chain. The Academy will then train a second and sustainability issues, working with local third cohort, offering IFC Business Edge™ training modules, which governments or their home state either alone have been adapted to specifically address the needs of women or in collaboration with other businesses. entrepreneurs. Through these efforts, the Academy plans to • Supply chain optimization: Individual strengthen the overall ecosystem for women suppliers in Boyner companies can also take steps to shorten Group’s supply chain, focusing on their access to skills, markets their supply chains by grouping smaller and finance. To that end, the Academy has partnered with key suppliers into cooperatives and reducing organizations supporting women’s entrepreneurship in Turkey. middlemen. This can also increase the rev- enue that small suppliers earn. 49 When, through appropriate risk assessment, As part of its Cocoa Plan, Nestlé aims companies identify specific sub-tier suppli- to enable cocoa farmers to run profit- ers who are responsible for adverse impacts able farms, improve social conditions of on people, environment or governance, they cocoa-growing communities and ensure a should take appropriate steps to engage with long term supply of sustainable and good the supplier and address the issue, using the quality cocoa. Child labour on cocoa farms, tools described in this chapter. If this ap- especially in Côte d’Ivoire and Ghana, is a proach is unsuccessful, then the company particular challenge for the whole industry. should take steps to terminate the relation- In 2011, Nestlé decided to partner with the ship, either directly or via intermediaries, or, Fair Labor Association (FLA) to address this if the supplier is critical to the company’s issue. As part of the implementation of its operations, be able to demonstrate efforts Responsible Sourcing Action Plan, Nestlé made in addressing the issue in the same started rolling out a Child Labour Monitoring manner as described in the previous sections and Remediation System (CLMRS) to help of this chapter. identify specific instances of child labour (monitoring) and enable the company to take appropriate measures to address them In 2012, Restaurantes Toks, a Mexican food (remediation). Together with the Internal and beverage company, engaged in a pilot Cocoa Initiative (ICI), Nestlé’s implement- project with their coffee producers in Talquian, ing partner for this project, the company Chiapas by providing training, capacity build- is seeking to create an environment where ing and equipment to the farmers. By building child labour is recognized as a serious and a relationship with and investing in coffee complex issue that can only be addressed farmers in this community, the company by leveraging each tier of the cocoa supply ensured an increase in productivity, better chain (tier-1 suppliers, farmer cooperatives, product quality, tackled the main sustain- farmers, etc.) and through a comprehensive ability issues, including use of child labour, engagement of governments, NGOs and the and improved worker conditions, resulting in local communities themselves. higher salaries for the farmers and a return on investment for the company that nearly tripled its initial investment. Encouraging suppliers to join the Global Compact and Local Networks Companies should encourage their companies have asked suppliers to becoming one of Schneider Electric’s SME suppliers to join and participate join the Global Compact as a condition main suppliers. Schneider Electric has actively in the Global Compact and of being their supplier. An important established a goal to source 60% of the its Local Networks around the world. next step would be to check that the company’s purchases from suppliers Local Networks have a lot of useful supplier remains an active participant who support the Global Compact by resources and strategies for imple- by submitting their annual communica- the end of 2010. By the end of 2009, menting sustainability and the Global tion on progress (COP) to meet Global 33% of the company’s purchases Compact’s Ten Principles. They create Compact requirements. The Global were made with suppliers who had opportunities for multi-stakeholder Compact offers a basic template for signed the Global Compact, and 1,153 engagement and collective action, and submitting the COP, which SMEs with of Schneider Electric’s suppliers had deepen the learning experience of all limited resources have benefitted from. signed the Global Compact. The com- participants through activities and pany’s purchasing teams were trained events to promote action in support Since 2005, Schneider Electric, on the Global Compact Principles to of UN goals. Companies can also save a French electric components and better engage with suppliers on these costs on educating their suppliers on equipment company, has asked its sup- issues. Moreover, it closely monitored sustainability by promoting it collec- pliers and subcontractors to join the which suppliers are in danger of being tively with other companies, for exam- Global Compact. Support of the Global delisted from the Global Compact for ple through the Local Networks. Some Compact is one of the criteria for failure to Communicate on Progress. 50 Supply Chain Sustainability 51 6. Determining Roles & Responsibilities Supply chain sustainability strategies need to Successful implementation of supply chain be integrated and closely coordinated with sustainability programmes requires three levels business strategies that affect supply chains. of internal responsibility as illustrated in the figure below. Internal Alignment One of the most persistent challenges to sup- Governance and Oversight: ply chain sustainability is a tension in many Executive Leadership companies between supply chain management and the Board of Directors professionals’ commercial objectives and their Executive and Board commitment, oversight sustainability objectives and commitment to and support are crucial in setting the correct the UN Global Compact. This tension is mani- tone and direction for supply chain sustain- fested in different objectives for sustainability ability. Executives should clearly articulate the and purchasing staff. Companies can poten- company’s vision and approach to supply chain tially contribute directly to sustainability issues sustainability with concrete milestones and in their supply chain if their own business metrics. Written and oral communication from policies and procedures are not aligned with executives will help align business managers’ their sustainability requirements. Responsibil- and supply chain management professionals’ ity for the successful compliance with the sup- priorities with these milestones and emphasize ply chain programme lies with the company’s the importance of sustainability as a way of internal functions as much as with suppliers. doing business. Executives and the Board of A lack of internal alignment can have Directors should also regularly review prog- negative impacts on suppliers’ supply chain ress against supply chain sustainability goals. sustainability performance, as they may be This senior level oversight will help to hold incentivized to cut corners to comply with the people throughout the company accountable. requests from the company. For example, last Executives should also provide regular internal minute quantity changes can create signifi- updates around the company’s sustainability cant time pressures that erode working condi- priorities, successes and challenges. tions if suppliers are forced to increase worker Executives should also support supply overtime schedules to keep to compressed chain management professionals’ com- timetables. munications with suppliers as appropriate. The Elements of Internal Responsibility for Supply Chain Sustainability Executive Leadership: Commitment, Oversight and Support Supply Chain Management Business Managers: Professionals: Cross-Functional Coordination Implementation 52 Supply Chain Sustainability Executives at suppliers will appreciate the Cross-functional Coordination peer-to-peer interaction, and involvement among Business Managers of the company’s senior leaders will help to Competing requirements from different func- demonstrate the seriousness with which sup- tions internally can negatively impact supply ply chain sustainability is undertaken at the chain sustainability. A wide variety of func- company. As discussed in Chapter 3, execu- tions needs to work together to align their tives can help communicate about the code of business requirements with the supply chain conduct. They can also participate in supplier sustainability objectives that the company has meetings committed to. They should therefore ensure as an incentive for strong performance (see that the company’s requests meet realistic Chapter 5).11 expectations that encourage suppliers to maintain the required level of performance on sustainability. HP’s Supply Chain Responsibility governance system clarifies reporting and responsibility across relevant HP businesses and functions. All HP businesses sponsor and support the Supply Chain Responsibility program through the Supply Chain Board, which meets monthly and reports directly to the HP Executive Council.   11 See: A New Agenda for the Board of Directors: Adoption and Oversight of Corporate Sustainability, which contains inspiration and recommendations for Boards of Directors on adoption and oversight of corporate sustainability (https://www.unglobalcompact.org/library/303). 53 “Nestlé believes that it is only by creating value for society and shareholders at the same time that we can have long term business success. We call this Creating Shared Value. After analysing our value chain we have determined that the areas of greatest potential for joint value optimization with society are water, rural development and nutrition. By working closely with our supply base of 540,000 farmers, we can help them be more productive and emerge from poverty. In return we receive a higher quality end product which benefits the consumer and ultimately our business. We commend this approach to other companies and hope this new guide will help spread best practice.” – Peter Brabeck–Letmathe, Chairman of the Board, Nestlé SA 54 Supply Chain Sustainability In addition to supply chain management embedded in, or available to, every team with professionals, product design, business devel- an impact on the supply chain. opment, legal, human resources/diversity and inclusion, finance risk and strategy, logistics, Grupo Los Grobo, an agribusiness company marketing and sales can all impact supply with operations throughout South America, chain sustainability. Companies should con- has established a supply chain committee led sider how to bring together cross-functional by the company’s CEO and coordinated by representatives, as illustrated in the figure the manager of supplies & outsourcing. Other below, to get a clear picture of impacts and participants include designated representa- where they arise in company decision making. tives of each of the areas of the company that It is important that individual roles and have a strategic relationship with suppliers responsibilities within the business are speci- (outsourcing for commodity production ser- fied so that individuals can assume respon- vices, logistics, agricultural inputs, etc.). This sibility for implementing and meeting the committee is responsible for establishing and vision and milestones set out by executives. setting objectives and goals through the design These objectives should be backed by incen- of a strategic plan. Objectives are checked and, tives and consequences. if necessary, set every year. The results are Sustainable supply chain personnel should analyzed and a new strategic plan is formulat- also provide input to strategic planning pro- ed. One of the latest things to be incorporated cesses in functions throughout the company. in strategic planning is the use of the ONUDI To build sustainability into decision making “supplier development platform”. This commit- processes, sustainability expertise should be tee interacts with more than 5,000 small and medium sized supply companies. Integrating Sustainability across Functions 12 Finance Finance Human Human Resources Resources Legal Legal Supply Supply Management Management Design Design development development Production Production logistics logistics marketing marketing Su s sales sales ta in ab ili ty Sustainability Disconnected structure integrated structure 12 From BSR. 55 The General Counsel of Barrick Gold, a global Selecting Suppliers Relevance of mining company based in Canada, was the During the due diligence process of selecting Sustainability to primary author of the company’s human rights suppliers, companies should include social and Supply Management policy, developed in consultation with a variety environmental management and performance Professionals of internal stakeholders and external experts criteria alongside commercial criteria in the including leaders in the supply chain and sus- process. This will allow supply chain manage- tainability groups. Following the development of “Supply management ment professionals to look at the full picture the policy, legal counsel has assisted colleagues when evaluating suppliers, and in some cases, decisions have a direct in the supply chain function to understand how avoid working with suppliers that bring more impact on business re- human rights fits within supply chain poli- sustainability risk to the company. A standard sults and sustainability. cies, processes and activities. This is part of a practice is to review responses to a supplier comprehensive effort to ensure that each group Therefore, supply man- self-assessment questionnaire (described more within the company understands its actual and fully in Chapter 5), which asks for basic infor- agement professionals potential human rights impact. As a result, sup- mation about policies and practices, and can be have a responsibility to ply chain staff revised its Supplier Code of Eth- used in a risk assessment to prioritize suppli- ics to include a greater focus on human rights raise the issue of the ers for follow up. Audits can also be used as a and the overall Ten Principles of the UN Global development of a sus- due diligence mechanism to screen new and Compact. This culminated in human rights due potential suppliers. tainability programme diligence becoming part of the supply chain’s Environmental and social criteria can also within the organization vendor onboarding standard and human rights be integrated in a request for proposal (RfP) audit protocols being used to evaluate potential with relevant stake- and ask potential suppliers to provide related suppliers. information during the bidding process. A RfP holders, including the can thus link social and environmental criteria establishment of a Implementation by Supply Chain along with quality and financial performance sustainability strategy Management Professionals into a competitive offer. and various enterprise Depending on the structure of the company, the group of individuals with the most direct WORKING WITH EXISTING SUPPLIERS initiatives embedded contact with suppliers, referred to throughout ON CONTINUOUS IMPROVEMENT throughout the sup- this guide as supply chain management profes- Existing suppliers will also need to comply ply chain and a formal sionals, in most cases will have the most re- with the company’s sustainability expecta- written policy between sponsibility for communicating sustainability tions. Depending on the current state of expectations to suppliers and holding suppliers sustainability management systems at any the organization and its accountable for meeting the company’s expec- given supplier, it may require investments supplier companies.” tations. In some cases a dedicated sustainable in people and systems that may take time to procurement manager directly reporting to the translate into improved performance. Supply — Institute for Supply Chief Procurement Officer can be allocated. chain management professionals should take a Management Sustainability performance objectives can continuous improvement approach to sustain- also be embedded into buyers’ performance ability with existing suppliers based on: objectives. Capacity building of procurement staff can be integrated into existing training • Mutual transparency. Companies should programmes. expect that suppliers will openly and honestly share information related to their Supply chain management professionals sustainability performance. In return, have four primary levers for moving the companies should provide clear expectations needle on supply chain sustainability: and guidance as well as advanced notice of 1. Selection of new suppliers with relatively changing policies or practices to suppliers. high sustainability capabilities and practices • Realistic timelines. Companies should care- 2. Working with existing suppliers to set and fully consider what their minimum require- raise expectations and ensure continuous ments are, e.g. legal compliance, and what improvement in performance is a realistic timeline for improvements that 3. Incorporate sustainability considerations go beyond the minimum requirements. In when consolidating purchases and winding identifying appropriate timelines, compa- down product lines nies should take into account the severity 4. Creation and communication of incentive of identified risks – where risks are severe processes to encourage suppliers to proac- or impacts may be irremediable (such as, tively own their sustainability programme. for example, permanent damage to land or 56 Supply Chain Sustainability instances of child labour in the supply chain), suppliers will typically need to demonstrate The Center for Sustainable Procurement that such risks are addressed more quickly. (CSP) is a BSR initiative focused on enabling Collaboration with peers or audit firms is also sourcing, procurement and purchasing profes- important to communicate aligned timelines sionals to make more sustainable procurement and send a consistent message to suppliers. decisions across industries and categories. The • Continuous improvement. Companies can CSP’s mission is to help buyers understand the work with suppliers toward management value of sustainability to procurement and build excellence for sustainability and should define buyer capabilities to make sustainable procure- excellence in this context. Companies can also ment decisions. Established in 2012, the CSP help suppliers develop management capacity conducts research and works with companies to by providing access to resources. develop resources, tools, methods and process- • Partnership. Companies should commit to es to integrate sustainability into the procure- enabling open lines of communication with ment process. suppliers between decision makers of both parties. Customers can work in partnership with suppliers to clearly define roles and Volkswagen Group, a German automaker, for- responsibilities and to create and achieve mulated its “Sustainability in Supplier Relations” mutually agreeable goals. programme in 2006 and has since gradually in- troduced this approach into corporate structures across the Group, as well as into production-relat- Timberland, an American footwear company, has ed purchasing processes. The concept of sustain- changed the way it works with suppliers from a ability in supplier relationships is comprised of compliance-based approach to a more collabora- three main pillars aimed at minimizing and/or tive approach focused on workers. Instead of leav- preventing negative social, environmental and ing a list of violations for factory owners to resolve financial impacts along the supply chain: and then checking back to verify improvements, 1) An early warning system that identifies and mini- the company now works more closely with factory mizes risks along the supply chain. management and their workers to understand the 2) Contractually mandated integration of the sus- root cause of workplace issues in factories. The tainability standards in the procurement process. new approach puts the workers themselves at the 3) Supplier monitoring and development. centre of the process. Workers and their repre- As an integrated part of this programme, both sentatives are now invited to opening and closing procurement staff and suppliers are offered meetings of supplier assessments and workers online and in-person trainings on sustainability are interviewed in groups as part of the assess- topics and suppliers are asked to fill out a self- ment process. In addition, worker code of conduct assessment questionnaire. Additionally, suppliers committees are established, trained and continu- can contact an email address when issues arise, ously involved in upholding the code of conduct. and an “ad-hoc-expert” from the related depart- ment within Volkswagen will offer direct assis- INTEGRATION SUPPORT tance and coaching to meet the requirements. Companies can take many steps to support sup- Information is also made available to suppliers as ply chain management professionals in integrat- a standard step in the procurement process. ing sustainability and overcoming the perceived tension between sustainability and business driv- ers. Many companies begin by providing advice In 2014, Ford Motor Company trained 175 new on sustainability issues such as human rights purchasing employees on Supply Chain Sustain- and environmental impacts in a way that makes ability fundamentals. The company additionally clear links to other business factors, such as risk, provided training to the global Supplier Technical quality, cost, etc. Assistance (STA) team on the fundamentals of its Companies are also experimenting with Human Rights and Working Conditions programme supplier scorecards which present information as these personnel interact with supplier plants on about suppliers’ sustainability performance a regular basis. STA training reached almost 1,400 alongside their business performance to support individuals globally and, by the end of 2015, Ford integrated decision making. Leading companies plans to train the broader Purchasing community. are also placing sustainability personnel within supply management to prevent mixed messages to suppliers. 57 “At Restaurantes Toks, we have the commitment not only to deliver products and services that fulfill and exceed our customers’ expectations, but to contribute in the development of a sustainable supply chain for the benefit of our business, our society and our planet. Sharing success is a must in the process of assuring long term sustainability and growth.” – Federico Bernaldo de Quiros, CEO, Restaurantes Toks 58 Supply Chain Sustainability 59 7. Industry Collaboration and Multi-Stakeholder Partnerships Industry collaboration and multi-stakeholder For suppliers that work with multiple partnerships are important tools for advanc- customers with their own codes, each may ing the company’s supply chain sustainabil- have its own unique approach for supplier ity objectives, particularly for issues that are engagement and monitoring. This can cre- too challenging and complex to tackle alone. ate a significant burden for suppliers that In addition, collaboration can increase the can divert resources from compliance and impact and overall efficiency of supply chain continuous improvement. sustainability efforts by extending the com- pany’s reach and leverage, pooling resources, For this reason, many groups have come reducing duplication and avoiding conflict- together to create a shared code of conduct, ing messages. which participating companies may or may There are risks and opportunities to not be required to adopt, and they work to industry collaboration and multi-stakeholder engage suppliers on the shared code together partnerships that should be considered through joint assessments and auditing. Many early in the development of the company’s of these groups also conduct joint capability programme. building for suppliers. The Context for Gap Inc., an American clothing and acces- Industry Collaboration sories retailer, has executed a large-scale Many leading companies have come to see col- rollout of the Sustainable Apparel Coalition’s laboration as an important element of address- Higg Index 2.0 at the third-party vendors ing the root causes of sustainability issues. In that make its branded apparel. Gap Inc. first addition, collaborative efforts represent a way began working with a targeted group of sev- for smaller companies with fewer resources to en vendors (representing approximately 50 take action and contribute to further supply facilities) in India to benchmark water use chain sustainability. Two primary types of performance. The results quickly highlighted industry collaboration have emerged: those facilities using best water manage- ment practices, which Gap Inc. then shared 1. Best Practice Sharing. These industry col- anonymously with other participating facili- laborations, which can be focused in one ties. With this information, vendors and their industry or across sectors, focus on sharing facilities are able to more clearly understand knowledge about approaches and tools their performance relative to competitors that companies have found to be successful and peers, and learn what measures other in their individual supply chain sustain- facilities are taking or investing in to reduce ability programmes. These groups will their environmental impact. also sometimes create tools together that reflect the direction of their programmes, although typically participants to this type of collaboration are not required to use the tools or to meet any other standards for participation. 2. Joint Standards and Implementation. These collaborations are typically focused within one sector and aim to create con- sistency among companies’ expectations and programmes. As described briefly in Chapter 5, compliance based approaches to supplier monitoring are frequently characterized by inconsistency, duplica- tion and inefficiency among companies. 60 Supply Chain Sustainability Opportunities and Risks Risks of Industry Collaboration There are also some risks to industry collabo- Industry collaboration can create significant ration to consider: efficiencies for suppliers and companies, but it also comes with some risks. The company • Internal commitment. Industry collabo- should consider both as to determine whether ration can be challenging for some com- and on what elements of the programme to panies and could threaten the company’s collaborate with other companies. ability to get internal commitment to supply chain sustainability, particularly if opportunities potential partners in industry collabora- In addition to the benefits that industry col- tion are seen as competitors or at marked- laboration can create for suppliers discussed ly different stages of supply chain sustain- above, the opportunities for companies are ability. To ensure buy-in, the company significant: should get a clear understanding of which companies it will be partnering with and • Leverage with Suppliers. Partnering what their expectations are. with peers on supply chain sustainability • Resource draining. While industry col- can boost the company’s leverage with laborations have the potential to create direct as well as sub-tier suppliers. By col- cost and time efficiencies for participants, laborating with peers, its expectations and they also require investment and may engagement approaches are not only more not always deliver results. For example, aligned, but the company’s voice to direct initiating shared action with partners and sub-tier suppliers will be much louder. and agreeing to common expectations • Credibility with stakeholders. Participat- and engagement processes can be quite ing in industry collaborations can be a time intensive, and these efforts may take demonstration of the company’s aware- significant amounts of time to mature and ness of the challenges in supply chain create substantial impact. sustainability and can help boost cred- • Unwillingness to change course. For ibility with external stakeholders. Indus- collaborative efforts that are more estab- try collaborations can also provide an lished, there is a possibility that internal opportunity to discuss controversial topics colleagues or external partners will be with external stakeholders that the com- unwilling to change approaches to get pany may not be comfortable addressing alignment. one-on-one. • Antitrust. Part of the activities of industry • Resource sharing. The processes outlined collaborations require representatives of in this guide all require resource invest- relevant companies in the same sector to ment, and particularly for smaller com- hold meetings on various issues of com- panies or companies with recent commit- mon interest. Such gatherings may lead to ments, the time and money necessary to inadvertent violations of antitrust laws if implement a strong supply chain sustain- sensitive topics, such as prices and com- ability programme can pose significant mercial strategies, become part of the barriers. Industry collaboration can help discussion. Reading an antitrust statement companies pool their resources and share that includes prohibited subjects of discus- the expenses of establishing standards, en- sion at the beginning of each meeting can gaging with suppliers and engaging with help minimize risks of antitrust liability. external stakeholders. 61 Partial List of Industry Collaborations 13 AIM-Progress AIM-PROGRESS is a forum of consumer goods companies assembled to enable and promote responsible sourcing practices and sustainable production systems. It is a global initiative supported and sponsored by Association des Industries de Marque (AIM) in Europe and the Grocery Manufacturers Association (GMA) in North America. Its key objectives include development of a forum to exchange views regarding responsible sourcing practices and of common evaluation methods to decrease duplicative auditing. Pharmaceutical Supply Chain Initiative The Pharmaceutical Supply Chain Initiative (PSCI) is a group of major pharmaceutical companies who share a vision of better social, economic and environmental outcomes for all those involved in the pharmaceutical supply chain. The PSCI created the Pharmaceutical Industry Principles for Responsible Supply Chain Management. These Principles address five areas of responsible business practices: ethics, labor, health and safety, environment and management systems. Business Social Compliance Initiative (BSCI) The BSCI is a platform for retail, brand, importing and trading companies dedicated to the improvement of working condi- tions in their supply chain worldwide. The organization has created a code of conduct and implements the BSCI Code through a combination of external monitoring and collaborative capacity building activities. Railsponsible Railsponsible is an industry initiative focused on sustainable procurement, with the aim to continuously improve sustainability practices throughout the railway industry supply chain. The initiative is open to all railway operators and companies across the railway industry value chain, along with key industry associations, that share its vision, mission and commitments. Electronics Industry Citizenship Coalition (EICC) The EICC promotes an industry code of conduct and shared implementation resources for global electronics supply chains to improve working and environmental conditions. The EICC conducts joint audits, provides tools to audit compli- ance with the code, offers resources for training for procurement and suppliers, and helps companies report progress. EICC membership is available to electronic manufacturers, software firms, ICT firms and manufacturing service provid- ers, including contracted firms that design, manufacture or provide electronic goods, and as such covers the vast majority of the electronics supply chain. Ethical Trading Initiative ETI is an alliance of companies, trade union organizations and NGOs that are committed to working together to identify and promote good practice in labour code implementation, including monitoring and verifying compliance with code provisions. Global Social Compliance Programme (GSCP) The GSCP is a business-driven programme for companies whose vision is to harmonize existing efforts in order to deliver a shared, global and sustainable approach for the continuous improvement of working and environmental conditions across categories and sectors in the global supply chain. The GSCP offers a global platform to promote knowledge exchange and best practices in order to build comparability and transparency between existing systems. Fair Labor Association FLA is a multi-stakeholder initiative made up of companies, universities and civil society organizations dedicated to improving conditions for workers around the world. Participating brands and suppliers (including apparel, footwear, elec- tronics and agriculture companies) commit to the FLA Workplace Code of Conduct, and the FLA has created a process for workplace assessment, remediation, verification and investigation of third-party complaints to ensure that companies are meeting the code’s standards. ICTI-Care ICTI CARE is the toy industry’s ethical manufacturing programme aimed at ensuring safe and humane workplace envi- ronments for toy factory workers worldwide. To achieve these goals, the group provides education, training and a unified monitoring programme for toy factories. Social Accountability International (SAI) SAI is a multistakeholder, multinational, multi-industry organization of business, labour and NGOs whose mission it to advance the human rights of workers around the world. It carries this out through training, capacity building and the SA8000 workplace standard, which is based on ILO and UN conventions. 13 For information on industry collaborations, partnerships and initiatives, visit the UN Global Compact's portal Sustainable Supply Chains: Resources and Prcatices at https://www.unglobalcompact.org/docs/about_the_gc/Architecture.pdf. 62 Supply Chain Sustainability The Importance De Beers, a diamond mining company with In recent years, more and more stakehold- of Partnerships headquarters in Luxembourg and a presence er groups have demonstrated willingness to to Implement the in locations including London and Johannes- partner with companies. They can assist with Post-2015 Devel- burg, works with other organizations in the understanding the context for sustainability opment Agenda14 industry to address a range of historical chal- challenges, help with designing effective Partnerships can help lenges including conflict diamonds, a lack responses and act as local implementing optimize and scale up of commercial transparency and improving partners. They can also bring a wealth of sustainability efforts working conditions in factories in major cut- information on best practices and learning in the supply chain as ting and polishing centres. Although the Kim- from other companies who have faced simi- well as contribute to berley Process Certification Scheme and the lar issues in the supply chain. In addition, corporate participation World Diamond Council System of Warranties they can bring resources and legitimacy to in the broader multi- were launched in 2003 to address the issue supply chain sustainability efforts. stakeholder efforts of conflict diamonds, no single standard ex- Business can also work with govern- to achieve UN goals. isted to verify full ethical practices through- ments, including local authorities, to This collaboration out the diamond pipeline addressing social, support national and local efforts and requires engagement employment, business, health and safety, and improve capacity to address the root causes and co-investment environmental issues. De Beers saw an op- for sustainability challenges that business by a broader group portunity to establish a benchmark for best experiences in supply chains. of business partners practice not only within the diamond mining and key stakeholders sector, but also through the cutting, polish- to further strengthen ing and jewellery manufacturing pipeline. To Many companies have created cost efficien- the various global this end, De Beers launched the Best Practice cies by undertaking efforts to reduce ac- and local initiatives Principles (BPP) Assurance Programme in cidents and illnesses and improve the overall and platforms that 2005 and made compliance to the standard a health of workers in their supply chains. Levi have been developed. contractual condition of supply to De Beers’ Strauss & Co., a U.S.-based apparel com- Through partnerships customers and a requirement for all entities pany, has implemented a number of worker and the pooling and within the De Beers Group. rights and well-being programmes, such as sharing of resources, health education training programmes at Multi-Stakeholder Partnerships its suppliers’ factories in partnership with these opportunities can be fully realized In addition to collaborating with industry civil society organizations. These programs for the benefit of all. peers, many companies are recognizing the are designed to improve worker well-being There is an increasing value of working with a broader range of and ensure worker rights are respected and number of platforms stakeholders. Chapter 2 described a range of have also helped suppliers achieve savings and initiatives focused groups that could provide input on the com- through increased productivity and reduced on sustainability, or on pany’s supply chain sustainability strategy, absenteeism. Additionally, Levi Strauss & Co. a particular sustain- including national and local governments, includes workplace standards and worker ability challenge, workers’ and employers’ organizations, non- rights as an integral part of all bilateral, re- that companies can governmental organizations, advocacy and gional or multilateral trade negotiations. Levi join, including busi- activist organizations, academic and issue Strauss & Co. publicly advocates for linkage ness sector initiatives, experts, community groups and stakeholder of trade and labor, incorporating key work- Global Compact Local groups, such as women, indigenous people, place standards and worker rights provi- Networks and UN- minorities, elderly and persons with disabili- sions within the context of trade agreements led multistakeholder ties. Many of these groups are knowledgeable through congressional testimony, meetings partnerships such as about sustainability issues and can be useful with senior government officials, trade nego- Sustainable Energy for partners, beyond just sharing perspective tiations and multi-stakeholder initiatives. All or Every Woman and advice, by working closely to address and Every Child. supply chain challenges. For example, enter- ing into multi-stakeholder partnerships with organizations that promote women’s partici- pation in the supply chain can promote their inclusion in the company’s supply chain. For more information, see Architects of a Better World: Building the Post-2015 Business Engagement Architecture (2013), available at https://www. 14 unglobalcompact.org/resources/441. 63 • N Brown Group, a UK-based retail com- Accord on Fire and Building Safety - The pany, was the first medium-sized company to Accord on Fire and Building Safety in Ban- sign the Accord on Fire and Building Safety gladesh (the Accord) is a five year indepen- in Bangladesh as one of the founding par- dent, legally binding agreement between ticipants. The company has been part of the global brands and retailers, NGOs and trade Accord’s Steering Committee, participated in unions. With more than 200 signatories and two delegations to Bangladesh and repre- over 1,500 factories covered by the agree- sented the Accord at a number of events. The ment, the Accord is designed to maintain a company will continue to invest time in the minimum safety standard in the Bangladeshi partnership as it is a concrete example of how garment industry. The aim of the Accord to work together to improve worker safety in is the implementation of a programme for the garment industry in Bangladesh reasonable health and safety measures to ensure a safe and sustainable Bangladeshi • Inditex, a Spanish multinational retail Ready-Made Garment industry over a period company, is a signatory of the Accord on Fire of five years. The Accord was signed on 15 and Building Safety in Bangladesh as part of May 2013, in the aftermath of the Rana Plaza its commitment to open dialogue and ongo- Building collapse that led to the death of ing cooperation. The company was one of the more than 1,100 people and injured more first signatories and participated actively in than 2,000. It is governed by a Steering drafting the Accord. Inditex also served in Committee equally composed by signatory the Accord’s Steering Committee together companies and trade unions with a neutral with other business representatives, NGOs Chair provided by the International Labour and unions. Inditex considers the Accord a Organisation (ILO). The Accord is implement- pioneering agreement to bring about sustain- ed through six key components, including an able improvement in working conditions in independent inspection programme support- Bangladesh’s textile sector. ed by companies in which workers and trade unions are involved. To date, all 1,500-plus factories covered under the Accord have been inspected for fire, electrical and structural safety. In some cases, the Accord has acted immediately where inspections found safety problems which posed imminent danger to workers’ lives. In all factories, the signato- ries and factories are developing and imple- menting Corrective Action Plans to remediate all identified safety hazards. Other integral components of the Accord are a comprehen- sive worker participation programme with workers and factory owners and a safety and health complaints mechanism. 64 Supply Chain Sustainability “At Telenor, we aim to make corporate responsibility an integral part of the way we do business – and we realize that our impact on society also extends to our suppliers and business partners. Managing our supply chain towards responsible business conduct is therefore something we do not compromise within Telenor. We shall not only demonstrate excellent working conditions and environmental management within all our own companies, we also require that all our suppliers meet the standards set down in our Supplier Conduct Principles. We will work towards our goals by driving continuous improvement through systematic engagement with our suppliers.” – Jon Fredrik Baksaas, President & CEO of Telenor 65 Global Compact Local Networks More than 80 Global Compact Local Networks provide on-the-ground support for Global Compact signatories around the world. Networks undertake a variety of activities to do so, including identifying local priorities relating to responsible business practices, raising awareness about local sustainability challenges and opportunities, organiz- ing learning and dialogue events, mobilizing collective action efforts and facilitating partnerships between compa- nies and local stakeholders to contribute to broader sustainable development objectives. Networks also provide assistance to companies in preparing their annual Communication on Progress reports. To advance supply chain sustainability, companies can work through Local Networks in geographies where they have significant numbers of suppliers. Companies can, for instance, encourage suppliers to join the UN Global Compact and participate actively in Local Network events to improve their own sustainability performance. Companies can also support Local Networks by sharing knowledge and expertise, and providing financial support to Local Network activities. Many Local Networks have engaged in activities to advance supply chain sustainability, including: The Global Compact Network Spain has organized several trainings, conferences and roundtables around sup- ply chain sustainability topics. Since 2011, the Network has developed several partnership agreements with large companies aimed at reinforcing their commitment to sustainability and the UN Global Compact Ten Principles throughout their supply chain. This collaboration engaged suppliers of these companies in a number of activities, including: development of in-person and online training sessions, access to a reporting platform to assist in draft- ing and submitting their annual Communication on Progrss (COP) to the UN Global Compact and access to con- sultations with a CSR specialist to address specific issues. Several companies have partnered with the Network on this project and encouraged more than 1,000 suppliers to become participants of the UN Global Compact. In 2009, it also published a guide on implementing the Ten Principles in the company’s supply chain. http://pactomundial.org/wp-content/uploads/2015/03/Cadena_suministro-alternativa-de-gesti%C3%B3n.pdf The Global Compact Network Japan has convened a Working Group on Supply Chain Management in which more than a dozen Japanese companies from different sectors participate. In 2013, the members of the Working Group published a Vision of Desirable CSR Activity in the Supply Chain – a Proposal from the Supply Chain Working Group on how companies can engage more effectively with suppliers and realize the win-win-win potential of sus- tainable supply chain management – for buyers, suppliers and societies. http://www.ungcjn.org/activities/topics/detail.php?id=117 The Global Compact Network Italy and its Sustainable Supply Chain Working Group developed a self-assess- ment questionnaire for suppliers based on the UN Global Compact Ten Principles as well as international agree- ments, conventions and standards. The questionnaire was uploaded to an online platform: the TenP – Sustain- able Supply Chain Self-Assessment Platform, a tool to support companies in self-evaluating their sustainability strategies and practices, tracking their progresses, benchmarking their sustainability performances against peers and sharing the self-assessment results with the TenP Platform Partners being able to monitor who has access to their data. The tool is publicly available on the Italian Network’s website. https://www.tenp.globalcompactnetwork.org/PortaleGCNI/ The Global Compact Network Germany has supported the development of the Sustainability Compass, a one stop shop for companies who wish to align their procurement practices with international sustainability standards. The Sustainability Compass, which is available in German, offers guidance to SMEs on how to identify risks in their supply chain and address them. It also includes best practices by other companies as well as a list of internationally recognized tools and standards. http://kmu.kompass-nachhaltigkeit.de/ 66 Supply Chain Sustainability 67 8. Establishing Goals & Tracking and Communicating Performance While it is important to establish clear roles Goals for Impact for key functions throughout the company, Along with setting goals designed to ad- it is equally important to set comprehensive dress social, environmental and governance performance goals. Explicit objectives for issues in the supply chain, companies have supply chain sustainability will provide indi- the opportunity to have positive impacts on viduals with direction in their tasks and will people, the environment and governance also help the company evaluate the impact through their supply chain. Goals for impact and success of the company’s programme in should be adapted to the risks in the supply progressively addressing sustainability issues chain and be developed to help the company in the supply chain. address such risks. Furthermore, based on the company’s vision for supply chain sustain- ability, objectives for business impact should The Process of Goal Setting be fairly straightforward. These can include Goal setting should be a collaborative process meeting customer and other stakeholder that involves leadership from each of the expectations, reducing costs and expanding functions that will have responsibility for into new markets. meeting established objectives of effectively When setting goals for impact, compa- preventing and addressing adverse social and nies should pay particular attention to how environmental impacts. It is also important specific groups may face different risks or to align sustainable supply chain objectives impacts than others, for example due to with business needs, whenever that is pos- marginalization in society. Companies should sible. Review the company’s business strategy set goals that can track and measure how the and objectives and identify places where the supply chain programme addresses impacts supply chain objectives that the company on specific stakeholders groups, including has defined support the company’s overall women, children, persons with disabilities, business objectives. The company’s executive elderly, minorities and indigenous people. leadership should endorse the goals. The goal-setting process can also be an op- Performance against goals will need to be portunity to identify ways to support human tracked year after year as part of measureable rights and inclusiveness; where applicable, sustainable supply chain objectives. While companies should also set targets for the this seems obvious, it requires companies to inclusion of the relevant stakeholders groups go through the often challenging process of in the supply chain. defining what the desired and realistic goals are and how and when that goal should be met. Defining and tracking progress towards goals demonstrates the value of the work that is done to meet the goal. Although goals are usually designed at a high-level for the entire business, these objec- tives need to be translated into actionable targets for managers across all functions in an integrated and coherent manner. Only in this way can they be rolled out throughout the company. For example, a goal on the number of suppliers that attend sustainability trainings can be translated into a target for individual supply chain management professionals within each sourcing group that manages supplier relationships. Similarly, more micro- level targets that can be rolled up to provide a picture of overall performance against goals. 68 Supply Chain Sustainability Restaurantes Toks operates 130 res- set by the company and adapted to address taurants in 84 cities throughout Mexico, specific risks that may be relevant to particu- providing more than 10,000 jobs and serving lar suppliers or parts of the supply chain. more than 25 million consumers each year. Goals should enable the company to track In an effort to integrate poor rural commu- how successful the supplier is at address- nities into its supply chain, the company has ing relevant risks over time. For example, initiated a project working with a strawberry companies often set goals for the number marmalade production group formed and of suppliers completing corrective action managed by 13 women in Santa Rosa de plans after they’ve been audited (see Chap- Lima in Central Mexico. In 2005, the per ter 5). Companies should also set goals for capita income in Santa Rosa de Lima was performance in specific areas such as human less than $US 60 per month, and the town’s rights, labour, environment, ethics and sup- population was disproportionately female plier management systems of suppliers— the due to high rates of illegal immigration by internal policies, practices and organizational men to the United States. structures that enable suppliers to proactively Restaurantes Toks has incorporated straw- manage for sustainability. berry marmalade supplied by the Santa Rosa de Lima Enterprise into its menus, success- Goals for Internal Performance fully integrating the community into the As described in the preceding chapter, one of company’s supply chain. Before beginning the most persistent obstacles that companies to sell to Restaurantes Toks, the Santa Rosa face in meeting their impact objectives and de Lima Enterprise provided an income of supporting suppliers to meet supplier perfor- $US 2,500 to all the families in the com- mance objectives is the unresolved tension munity. The Santa Rosa de Lima Enterprise between supply chain management profes- now sells more than $US 500,000 worth of sionals’ commercial objectives and their desire strawberry marmalade to Restaurantes Toks to ensure fair working conditions and envi- each year, radically increasing the commu- ronmentally friendly and ethical practices. To nity’s per capita income. Furthermore, Res- support increased attention from supply chain taurantes Toks is working with the company management professionals on sustainability to increase production capacities to enable it issues, companies should consult with leaders to enter additional markets. from supply management and other functions Due to the demonstrable impact of this to set objectives for internal implementation of model on protecting and promoting human supply chain sustainability. and economic rights, Restaurantes Toks Goals for internal performance should pro- has duplicated the approach with 40 other vide guidance on expectations for how sustain- community food and handicraft production ability will be integrated into supply manage- groups. ment decisions. For example, some companies establish goals related to placing a specific percentage of their spend (or volume) with the Goals for Supplier Performance highest performing suppliers, while others As discussed in Chapter 5, there are many emphasize setting goals that make sustain- mechanisms the company can use to track ability a key factor alongside other commercial performance of individual suppliers and and technical criteria, to be used in making encourage supplier ownership. However, it is decisions about supply. Another goal would be important that companies set objectives for the percentage of supply chain management overall supplier performance, which can be professionals receiving training in sustainabil- revised at later dates with supplier input. ity issues. Goals for suppliers should be formulated with inputs from management across func- tions, especially supply chain management, to ensure broad commitment and realistic goals. They should establish objectives for overall supplier performance against the expectations 69 One of the key objectives of Montepaschi Group is to embed the principles of its Sustainable Supply Chain programme within supplier databases its standard sourcing processes. For some years, the Bank has practiced a policy of Fair Factories Clearinghouse (FFC): launched by US footwear and monitoring and continuous improvement of apparel firm Reebok International Ltd., the National Retail Federation, the CSR profiles of firms included in its sup- Retail Council of Canada and World Monitors to create an online global ply chain. It implements product and service database to share factory audit and compliance data. The FFC, a non- procurement strategies under competitive profit organization, offers members an online audit management system economic conditions, ensuring that through- and sharing platform to enable cost effective, well-informed ethical out the related life cycles environmental business transactions and improved workplaces around the globe. impacts are minimised and all potential vio- lations of human rights and workers’ rights Suppliers Ethical Data Exchange (Sedex): Sedex (sedexglobal. as well as rules to prevent corruption and com) works with buyers and suppliers around the world to deliver conflicts of interest are avoided. The objec- improvements in responsible and ethical business practices in global tives that the Montepaschi Group pursues by supply chains. Sedex’s mission is to drive collaboration, increase trans- implementing this policy are: 1) identifying parency and build the capacity that’s needed to raise standards across opportunities to minimize environmental and all tiers of the supply chain. Sedex has over 38,000 members worldwide social impacts in the supply chain; 2) contrib- and offers the world’s largest collaborative platform for managing and uting to reducing operational and compli- sharing ethical supply chain data, along with leading-edge services ance risk and consequences impacts to our which companies use to understand, monitor and manage supply chains reputation; 3) improving the management of risks and improve standards. costs associated with procurement process- es and logistics aspects; 4) promoting the Ecovadis: EcoVadis operates the Supplier Sustainability Ratings growth of suppliers, stimulating innovation in platform, an online system allowing companies to access CSR ratings sustainable products and processes. of suppliers covering 21 indicators and 150 spend categories. Over 120 multi-national companies are using EcoVadis to assess and improve environmental, social and ethical practices of thousands of suppliers Measurement across 110 countries. Processes and Practices In order to evaluate performance against its own supply chain sustainability goals, a company needs to collect and track perfor- tion on the same topics it is captured in a mance data over time. Much of this data, and unified way. Where data is collected about the processes and practices around it, will addressing specific social or environmental also be critical to implementation of aspects risks, or risks to a specific stakeholder group, of the company’s supply chain sustainability it is good practice to involve the relevant programme already covered in this guide. impacted group in defining what data to col- lect and how to collect it. Whenever possible, What data to collect companies should also include collection of Companies will need to collect data on both sex-disaggregated data for analysis, mea- supplier and supply chain management surement and measurement of progress on professionals’ performance. Metrics need inclusive sourcing. to be designed to allow for straightforward evaluation of the company’s progress on its How to collect data goals. Much of this data will likely overlap Data collection can be challenging given the with the data that supply chain management vast number of suppliers that the company professionals will collect as part of evaluat- may be evaluating and the number of sources ing suppliers and that other functions, such that data can originate from. In addition, as Environment, Health and Safety may there are many examples of suppliers that also capture. The company should begin keep double books, coach workers to respond by analyzing the breadth and quality of all falsely to worker interviews during audits, existing metrics and data. As a next step, the bribe inspectors and find other ways to mask company will probably need to spend some the real situation in their company. This time standardizing metrics so that if different makes methods of ensuring the integrity of parts of the company are collecting informa- data critically important to decision making. 70 Supply Chain Sustainability In addition, transparency of supplier infor- mation across functional and organizational Johnson Controls Inc., an American instru- boundaries is often limited, and companies mentation company, has created a Supplier often struggle with a lack of effective commu- Sustainability Rating to quantitatively measure nication and understanding between compa- a supplier’s environmental impact. The ques- nies and their suppliers on the information tionnaire contains questions related to human they need to exchange. Many companies are rights, working conditions, employee safety, exploring information technology platforms energy management, if the supplier is publicly that will enable comprehensive data col- reporting data such as its greenhouse gas emis- lection and management. Cross-functional sions and, specifically, if the supplier is report- business managers can be helpful in aligning ing to the Carbon Disclosure Project. The ques- internal systems and processes. Collabora- tionnaire is completely electronic and resides tion with suppliers may also be useful since on Johnson Controls’ public website so that all they will be inputting data and may be more suppliers have easy access to the questionnaire. inclined to engage with the company’s pro- Once suppliers complete the questionnaire, the gramme if they feel that they’ve had a hand respective Procurement managers are provided in shaping it. As far as possible, companies the results. The managers then determine the should strive to consult with impacted groups ranking of the supplier and, as appropriate, to collect data, so as to understand whether work with the supplier to ensure they are fully interventions are successful in addressing risk compliant with the expectations defined by the from their perspectives. company’s Ethics Policy. Johnson Controls has There are a number of data sharing plat- policies and procedures in place for removing forms that can help collect and manage sup- unethical suppliers from its approved vendor plier information about sustainability perfor- lists if they don’t or won’t comply. mance. These include Sedex, EcoVadis, e-Tasc and Fair Factories Clearinghouse. There are also many information technology companies Timberland, an American footwear company, that provide this type of resource as well. has created a “Green Index” environmental rat- ing system that measures and communicates How to use data critical aspects of environmental performance Finally, the company needs to plan for how in a simple format to inform product design data will be used. Companies must be ready and development. The Green Index rating to share at least some of their data externally, system drives alignment of product design including in the form of public reporting, and development with Timberland’s corporate which will be analyzed more in-depth in the environmental strategy. The company aims to next section. As data is collected over time, reduce impacts in three broad areas: climate, the company’s executive leadership should chemical use and resource consumption. By receive regular updates on progress. Supply providing clear environmental measures in chain management professionals in particu- these areas, product creation teams can choose lar will use much of the data on supplier processes that require less harmful chemicals performance in decision making as described and increase the use of less carbon-intensive in Chapter 3. All communications should be materials, as well as recycled, organic and of a form and frequency that reflects the com- renewable materials. pany’s social and environmental impacts and are accessible to stakeholders. They should also include necessary details for stakehold- ers to evaluate how the company addresses those impacts while being framed in a way that would not put affected stakeholders or personnel at risk or expose commercially sensitive information. 71 Communicating Progress While traditionally sustainability and EXTERNAL And Reporting financial reporting have been kept separate, ASSESSMENT OF Public reporting can be a tool to stimulate it should be noted that integrated reporting SUSTAINABILITY and enhance sustainability and transparency is emerging as a way to combine information REPORTS in the supply chain. It also demonstrates the on the company’s environmental, social and management of environmental and social ethical performance with financial informa- When all data has been impacts and the assurance of good gover- tion. The International Integrated Reporting collected, it is important nance of the supply chain to both internal Framework establishes Guiding Principles and to ensure its credibility and external stakeholders. Content Elements that govern the overall con- before disclosing it to Companies should be prepared to com- tent of an integrated report and explain the the public. External municate publicly on how they address risks fundamental concepts that underpin them. assessment, a review where concerns are raised by or on behalf of In all cases, communication should be of by a credible third party affected stakeholders. Where a company may a form and frequency that is commensurate of the information in the have a high-risk supply chain, for example if it with risks and impacts and be accessible sustainability report, is dependent on sourcing from conflict-affected to the intended audience. As mentioned can strengthen the value areas, companies should report formally on above, communication should be sufficient of the reported data as how supply chain risks are addressed. for stakeholders to evaluate the adequacy of well as drive improve- UN Global Compact signatories are a company’s response to address risks, but ments in corporate sus- furthermore required to publicly commu- should not pose risks to affected stakehold- tainability performance. nicate with stakeholders on an annual basis ers, personnel or legitimate requirements of There are two ways to on their progress in implementing the ten commercial confidentiality. conduct an external principles. This annual communication, assessment: assess- or Communication on Progress (COP), is an ment by stakeholders, important demonstration of the company’s through a stakeholder commitment to the UN Global Compact panel or peer review, and its principles. Depending on the level and third-party assur- of disclosure, each COP is categorized as GC ance providers, spe- Learner, GC Active or GC Advanced. Informa- cialized professionals tion on a number of specific areas beyond such as sustainability those minimum requirements will account service firms, engineer- for a GC Advanced level. ing firms, accountants Beyond the COP, sustainability reporting and consulting firms. is the most common way for companies to When possible, the use communicate progress with stakeholders. of third-party assurance Sustainability Reporting is the practice of providers is recommend- measuring and disclosing, and being ac- ed as the best suited to countable to internal and external stakehold- ensure reliability and ers for organizational performance towards accuracy of the informa- the goal of sustainable development. Sustain- tion reported. ability reporting is a logical last step after Companies reporting at having implemented a supply chain sustain- the GC Advanced level ability approach and, as the process requires not only disclose infor- companies to consider their progress against mation against advanced goals and to be transparent to stakeholders, criteria and best prac- will help to improve it continuously. tices, but also use some Many companies report using the GRI type of external assess- framework, one of the world’s most widely ment for their reports. used standards for sustainability reporting. GRI is one of the recommended reporting languages for UN Global Compact partici- pants to communicate with stakeholders on their progress in implementing the UN Global Compact Ten Principles. The last itera- tion of the GRI framework, the G4, includes Standard Disclosures related to supply chain. 72 Supply Chain Sustainability Acknowledgements A wide range of stakeholders were consulted throughout the revision process of this guide including UN Global Compact staff, UN Global Compact Local Network focal points, UN Agencies, issues experts and civil society and members of BSR staff. We wish to thank the following individuals for taking the time to review and comment on the drafts of this revised version of the guide: Ms. Lene Wendland, Head of Business and Human Rights and Ms. Ragnhild Handagard, Consultant on Business and Human Rights, Office of the High Commissioner for Human Rights (OHCHR); Mr. Michael Rohwer, Project Director, Electronic Industry Citizenship Coalition (EICC); Ms. Beth Jensen, Director of Corporate Responsibility and Ms. Nikki Hodgson, Corporate Responsibility Coordinator; Outdoor Industry Association (OIA); Mr. David Lawrence, Executive Director, AIM-Progress; Ms. Isabel Garro Hernandez, General Director and Ms. Cristina Sanchez Garcia, Project Coordinator, Global Compact Network Spain; Ms. Margherita Macellari, Programme Manager and Analyst, Global Compact Network Italy; Mr. Philip Bleckmann, Economy and Human Rights Advisor, GiZ/Global Compact Network Germany; Mr. Philip Hunter, Program Director, Verité; Mr. Pierre-Francois Thaler, Executive Director and Mr. Simon Gargonne, Senior CSR Analyst, EcoVadis. 73 PHOTO CREDITS: Page 6 © World Bank/Lianqin Wang Page 11 © Hard Rain Picture Library/Mark Edwards Page 21 © Hard Rain Picture Library/ Andi Wijaya, Unep Page 27 © World Bank/Ray Witlin Page 34 © World Bank/Jim Pickerell Page 35 © istockphoto Page 49 © UN Photo/Eskinder Debebe Page 57 © World Bank/Ray Witlin Page 65 © istockphoto The Ten Principles of the United Nations Global Compact Human rights Principle 1 Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2 make sure that they are not complicit in human rights abuses. Labour Principle 3 Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4 the elimination of all forms of forced and compulsory labour; Principle 5 the effective abolition of child labour; and Principle 6 the elimination of discrimination in respect of employment and occupation. Environment Principle 7 Businesses should support a precautionary approach to environmental challenges; Principle 8 undertake initiatives to promote greater environmental responsibility; and Principle 9 encourage the development and diffusion of environmentally friendly technologies. Anti-corruption Principle 10 Businesses should work against corruption in all its forms, including extortion and bribery. Published by the UN Global Compact Contact: info@unglobalcompact.org June 2015