Tag Archives: due diligence

Towards more due diligence in the supply chain


Background story: The majority of our blog posts deals with CSR topics; we write about the latest developments in this field and try to relate it to a company’s daily business. Our background stories have a different perspective: Here, we explain trends, scientific background and societal implications of corporate sustainability – sometimes with a personal touch.

 

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Due diligence in the supply chain

Our partner EcoVadis recently hosted the Sustain event. EcoVadis unlocks the power of transparency in the supply chain, enabling buyers and suppliers to communicate on the results of a sustainability assessment through a collaborative platform. As such, EcoVadis offers a tool for sustainable procurement management, e.g. including social and environmental criteria within the supply chain. This topic has gained so much momentum over the past few years that it is now the object of legislation.  We try to explain thisphenomenon in this blog article, while describing solutions for companies faced with such issues.

Lack of transparency in the supply chain with outsourced impacts

Outsourcing has been growing for the past two decades. According to Deloitte, “the last two decades have been a significant rise in offshoring to external service providers”[1], though a small portion of companies are bringing some outsourced functions back to their home country. In this sense, the environmental and social impacts of production are now still mainly located in the supply chain level. Some events showed that the risks still exist and that scandals impacted the whole supply chain.

In April 2013, the Rana Plaza building collapsed, leaving more than 1,100 casualties and thousands of people injured in Bangladesh[2]. This building housed five factories for the garment industry. This disaster was covered by the media and shed light on the fact that clients don’t know what happen in their supply chain, and that basic safety rules and laws are not applied there. According to the Guardian, “investigators say several factors contributed to the building’s collapse: it was overloaded with machines and generators, constructed on swampy land, and the owner added floors in violation of the original building plan”.[3]

The same year, Europe was stained by the scandal of horsemeat, where horsemeat was sold as beef, showing the lack of transparency within a globalized supply chain. Many other examples could be found in this sense, but our point here is that there is a need for companies to tackle somehow these issues in their supply chain, for the suppliers’ sakes as well as theirs and their clients. [4]

Legislation as a driver for companies to tackle these issues

After these scandals, governments decided to act and to boost companies. Here are a few developments from the past three years.

Since May 2015, companies responding to certain criteria need to publish a statement on the actions they take to prevent slavery and human trafficking, according to the UK Modern Slavery Act.

In the US, the California Transparency in Supply Chain Act, some companies need to disclose in their websites the company’s actions to prevent such abuses.

France is trying to do the same, the bill on due diligence is still in validation by the government instances[5].

In case of non-compliance, some actions can be taken. In any case, companies will suffer from brand-damage, pressure from stakeholders, potential lawsuits …

These developments show that working conditions can be at risk in the supply chain, and that client companies have the power to investigate and require some practices from their suppliers. How can they tackle such issues?

Due diligence in the supply chain: solutions

First we recommend companies to edict clear requirements and made commitments, in the shape of public policies and statements

Then, companies need to let their suppliers/subcontractors know these requirements, so that they can act accordingly.

Suppliers don’t have the same level of risk according to their location, activity or size. We suggest companies to proceed to a risk-mapping. According to the level of risks, actions can be taken.

For instance, suppliers can be asked to be evaluated on their sustainability management system, for instance through EcoVadis or other sustainability assessments platforms.

For suppliers with high-risk level, we recommend having regular audits there, on sustainability topics, made by third parties, and by some members of the companies.

Then, what is key is collaboration and transparency. It is important that buyers, who are in touch with suppliers on a daily basis, are aware of such requirements, to explain them and pass it over to the suppliers. In this sense, we suggest different tools and approaches: training of buyers, dedicated team to help buyers in this sense; business reviews between suppliers and buyers, supplier scorecard including such topics, …

Reaching to your supplier is one thing. Reaching to the supplier of your supplier is another thing. In this sense, we recommend the use of EcoVadis as it enables to cascade requirements in the supply chain. Indeed, clients have their suppliers rated on their sustainability management system, including on how the suppliers handle their supplier sustainability management. Then, if the suppliers improve their own sustainable procurement practices, companies already reach another level in their supply chain.

Finally, we think that collaboration and knowledge sharing is key to success. We advise companies to train their suppliers, raise awareness through handbooks and code of conduct, organize seminars etc.

Last but not least, partnership with a local NGOs can help address the issues on the field and have more visibility on what is happening in the high-risk zones.

We know that it is hard for companies to reach such levels of the supply chain. However, we hope that this articles gives inspiration to solve such complex issues. If you are interested in solutions and consulting services, please contact us at info@dfge.de or consult our EcoVadis webpage.

Resources:

Article on latest regulations http://www.supplychainbrain.com/content/single-article-page/article/the-emerging-compliance-hot-topic-for-2016-regulations-regarding-trafficked-coerced-labor/

UK Modern Slavery Act: http://www.legislation.gov.uk/ukpga/2015/30/contents/enacted

 California Transparency in Supply Chain Act: http://www.state.gov/documents/organization/164934.pdf

Sources:

[1] P.5, Deloitte’s 2014 Global Outsourcing and Insourcing industry http://www2.deloitte.com/content/dam/Deloitte/us/Documents/strategy/us-2014-global-outsourcing-insourcing-survey-report-123114.pdf

[2] http://www.cleanclothes.org/safety/ranaplaza

[3] http://www.theguardian.com/world/rana-plaza

[4] http://ec.europa.eu/food/food/horsemeat/

[5] https://www.linkedin.com/pulse/mandatory-human-rights-due-diligence-government-1-devoir-poitevin?trk=hp-feed-article-title-share

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Freely chosen employment: a focus of EICC Code of Conduct latest version


Background story: The majority of our blog posts deals with CSR topics; we write about the latest developments in this field and try to relate it to a company’s daily business. Our background stories have a different perspective: Here, we explain trends, scientific background and societal implications of corporate sustainability – sometimes with a personal touch.

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The EICC Code of Conduct – 5.1 version was released in January 2016 to include stringent requirements on the fight against forced and bonded labor.

A sectorial initiative to tackle CSR issues

The EICC is a nonprofit coalition of electronics companies comprised of more than 100 electronics companies with combined annual revenue of over $3 trillion, directly employing more than 5.5 million people. The companies are committed to supporting the rights and wellbeing of workers and communities worldwide affected by the global electronics supply chain.[1]

To do so, a Code of Conduct was set up, and the coalition provides training and assessment tools regarding environmental, social and ethical responsibilities.

The Code of Conduct was launched in 2004, and has been adapted and changed to match the evolution of these themes. The version 5.1 has been released on the 1st of January 2016 and will come into force from the 1st of April 2016.

Change in freely chosen employment section

The only change from version 5.0 released in November 2014 to the version 5.1 of January 2016 focuses on freely chosen employment (section A,1).

The version 5.0 states that “workers shall not be required to pay employers or agents recruitment fees or other aggregate fees in excess of one month’s salary. All fees charged to workers must be disclosed and fees in excess of one month’s salary must be returned to the worker.”, whereas the 2016 version reads that “workers shall not be required to pay employers’ or agents’ recruitment fees or other related fees for their employment. If any such fees are found to have been paid by workers, such fees shall be repaid to the worker.”

This means that the requirements are strengthening. Before, there was a limit which is no longer tolerated. Our understanding is that a common practice of forced labor is indeed that employees have to pay a fee to be employed, either to the employer or to a recruiting agent. However, they usually cannot afford it right away, so they remain in debt to the employer or recruiting agent, so they have to keep working in the company at least to be able to pay this employment fee.

This more stringent requirement can be explained in a larger context where forced labor is still existing. For instance, the NGO Verité’s two-year study of labor conditions in electronics manufacturing in Malaysia found that “one in three foreign workers surveyed in Malaysian electronics was in a condition of forced labor.”[2]

Tackling forced labor issues

There are different ways to tackle this existing issue:

  • Risk-mapping to identify where cases are most likely to happen
  • Action plans accordingly
  • Actions can feature:
    • Specific HR procedures preventing unreasonable restrictions on entering or existing the facilities, forbidding employment fees, prohibiting the confiscation of immigrant documents
    • Training of HR population in this sense
    • Whistle blowing system to detect and treat such cases
    • Audits to check the status of such actions

For more information, please contact us at info@dfge.de or read the EICC Code of conduct: http://www.eiccoalition.org/media/docs/EICCCodeofConduct5_1_English.pdf

[1] http://www.eiccoalition.org/about/

[2] http://www.verite.org/research/electronicsmalaysia

image source: https://pixabay.com/en/document-agreement-documents-sign-428334/