Integrating Sustainability into the Company Supply Chain – Challenges & Tips

BITCI News - May 04, 2016
sedex

In March our Senior CSR Adviser Darina Eades attended the Simplifying Supply Chain Sustainability conference in the Barbican Centre in London, organised by Sedex. These that follow are Darina’s notes of the two-day conference and focus on the key points that stood out for her.

 

DarinaEadesEstablished in 2004, Sedex was set up to ease the burden on suppliers facing multiple audits, questionnaires and certifications; and drive improvements in the ethical performance of global supply chains, by providing an online Responsible Sourcing platform to enable companies to share information on labour standards, health and safety, environmental practices and business ethics, via a self-assessment questionnaire.  Social and environmental audits are then conducted (but not by Sedex) to verify the information.  38,000 businesses from 150 countries are currently using the Sedex platform.

According to Sedex, over the last 12 years:

  1. 200,000 corrective actions in company practice have been identified through audits, impacting 24 million workers.
  2. On average, a supplier audit is shared with three customers.
  3. With issues mostly eradicated in their first tier suppliers, Sedex members are now looking at the second, third and fourth tiers of their supply chains, which is a good thing because most non-compliances are being identified at second and third tiers and beyond. Key supply chain issues include excessive working hours, non-payment of overtime premiums, under-payment of wages, non-payment of social insurance, poor health & safety, lack of worker voice and poor management systems.

Candid learning shared by Sedex members during the March conference included that the audit is only the first step in the process of a cycle of continuous improvement; auditors need to be better trained so as to make better use of the audit process; and audit practice and quality must be improved.

Sedex is now focusing on enabling members to consider a continuous improvement cycle to get beyond the audit, give guidance on how best to carry out corrective actions and to facilitate collaboration of companies.

Key facts mentioned during the conference that stood out for me:

  1. 20 years ago, child labour was a factor in China. It is found in less than 1% of cases now.  There has been an improvement in wages in China in the last 10 years.  The average wage is 30% above the legal minimum wage.
  2. In the mid-90s, forced labour was an issue in Egypt & Jordan. Passports and IDs were withheld, excessive recruitment fees were charged, workers lived in strict conditions.  Both the nature of these violations and the number occurring has reduced in recent years but has not been eradicated.  The likelihood of chemical injuries taking place has been reduced due to social and environmental audits becoming more commonplace.
  3. Sexual harassment and slavery continue to be rampant in the Thai seafood industry. Cleaning contractor scandals have been a reoccurring theme in Australia in the last 18 months.
  4. The 2012 Rana Plaza disaster (where 1129 people were killed) showed the flaws and limitations of audits. The Bangladesh Alliance and Accord are using audits in a more focused way now (ensuring they are conducted professionally by auditors who have had proper training) and the situation has improved. However, it is only a start.
  5. Better and fewer audits are needed overall. While audits are good for finding non-compliances, other mechanisms are needed to identify systemic abuses.  According to Rachel Wilshaw from Oxfam, audits will only ever work whey they’re conducted “in collaboration with government and regulation, employer responsibility and worker voice.  Governments in all countries need to enforce labour laws. Sanctions such as fines and penalties are needed for non-compliances.  Trade unions need to do their job better”. 

 Uncovering Hidden Practices

At the coffee break, I met the Head of HR of a company that supplies fish to seven major UK supermarkets.  For this company, identifying potential risk is something they do on an ongoing basis and they look for indicators that may indicate possible issues such as:

  1. A lot of workers (e.g. 7-10) living at the same address
  2. Consecutive mobile numbers
  3. Wages being paid into the same bank account

Of the seven major supermarkets this company supplies, I was amazed to hear that only one asks for full details of the audit (the day after it is conducted).  Another supermarket only ever asks if there is a problem.  The other five are unconcerned that the audit is conducted at all.  Considering the fishing industry has a reputation for not upholding labour rights, this apparent unconcern by major UK supermarkets is very surprising to me.

Tips for Taking Action

Amanda Lockley, Head of CSR of Matrix APA (a major health & beauty supplier) has been liaising with suppliers in China for 15 years, as part of her role in sourcing and procurement.  According to Amanda, 80% of factories in China provide false information.

According to Aidan McQuade, Director of Anti-Slavery International, 60% of items globally are manufactured in China and 60% of factories globally provide false information.  “Hidden practices are prevalent everywhere” says Aidan.  “H&S, Building Safety, Forced Labour and Slavery are still common.  Forced labour is rampant in the garment & electronics sectors; child labour is still found in the agricultural sector; health & Safety in the garment sector”.

“Businesses have to understand their chains of supply and the possible abuses that are of risk of happening.  If systemic change is to be brought about, businesses have to speak up about human rights, and the consequences of the commercial and economic policies of the countries in which they do business. Companies must work together to identify the issues and address them”.

Amanda says it’s about building strong relationships with suppliers so that the trust is there.  “Explain the business case, the impact on retention, productivity, the ability to build the profits of the business and the benefits of being able to choose your customers!  Tell the factory it’s not about punishment, but about understanding the issues so that they can be fixed.  Assess the country’s regulatory framework and then the supply chain in that country.  Examine complaint procedures and how they are investigated.  Engage with the NGOs”.

“A brand has little leverage further down the supply chain.  Find who you can work with. Businesses need to work collectively, to lobby governments to bring about change.  This has worked in Bangladesh”, says Ian Spaulding of Elevate.  “Audit reports can give clues or possible indications of hidden practices.  Make your goal be to audit for improvement rather than compliance.  Make better use of the big data.  Listen to the workers.  Be clear on your objectives and share information.  Train the personnel in factories.  Bring factories together to share best and worst practices to improve the lives of workers and increase pay”.

The UK Modern Slavery Legislation[1]

Kevin Hyland OBE, is the first UK Independent Anti-Slavery Commissioner.  He says the new Transparency in the Supply Chain clause is innovative because “saying you have no risks in your supply chain could be commercial suicide”.  He is urging companies to identify if there are issues and then to take the appropriate action.  He says the perception is that modern slavery is isolated to certain geographies and industries but it affects everyone.  “Our Modern Slavery Act will actually empower investors and consumers to ask questions.  I know the challenge is time, resource and expertise in companies and it isn’t easy to identify who the champion might be.  Some boards are seeing this as a leadership opportunity, others a box ticking exercise.  I hope companies will see it as an opportunity to create a more resilient supply chain and will collaborate with others to address the issue”.

Interestingly, Kevin Hyland said he tried to get the Eradication of Modern Slavery into the UN Sustainable Development Goals (SDGs) but the UK Government wasn’t interested so Kevin decided to contact the Pope!  The Pope lobbied the UN and got it in – see the SDGs, 8.7.

James Swenson of Thomson Reuters said that as most organisations have some form of third party risk management process in place, this same process could be used to really understand where the risks and vulnerabilities are, further down the supply chain.  In locations where bribery and corruption issues are rife, the same is usually true of modern day slavery and labour practices.  “Due diligence must be an ongoing practice.  Roll out the E-learning modules on anti-bribery, sustainable procurement and money-laundering for suppliers!  Find a way to get to the voice of the employee.  Worker surveys are better than audits, particularly those that use technology where their responses cannot be read by their managers.  In each country, find the company who is taking the lead and seek to work with them e.g. in Nigeria, it’s Diageo”.

Summary

  1. Be clear about your key priorities for your supply chain. What are your objectives, what are you trying to achieve?  It may be to bring about positive change while mitigating a possible risk on the reputation of the brand.
  2. Seek to fully understand the complexities of the context in which your supply chain operates and endeavour to manage those simply. Talk it out with your trusted advisors, learn from other companies who have been doing it longer, borrow ideas and collaborate.
  3. Consider the categories over which your company has the most influence and should there be an issue, think through what would most impact the brand. Focus on specific categories e.g. do you really need to give out USB sticks as corporate gifts?
  4. Explain to suppliers WHY you are asking the questions and what you are going to do with the information. Reassure suppliers it is about identifying the risks that are there and the need to address them. Explain the business case for doing so.  Find a way to the voice of workers and listen to what they are saying.

[1] 2015 UK Modern Slavery Act – companies with a turnover of £36 million or more (operating in any part of the UK, regardless of where they are headquartered) are now required to publish an annual anti-trafficking statement signed by a Company Director.  The Transparency in the Supply Chain clause requires companies to disclose the steps taken to mitigate the risk of human trafficking and modern day slavery in their supply chain. The statement must be available on the company website, linked from the homepage. If a company is taking no steps to prevent human trafficking, they must also issue a statement to this effect.