ethical supply chain, supply chain, CSR, corporate social responsibility

Can Your Business Answer These Questions Around ESG Issues and CSR?

  • Can you identify all your suppliers in the supply chain?
  • Can you confidently confirm that none of them are engaged in activities such as child or forced labor, or human rights abuses?
  • Are any suppliers on government watchlists or under sanctions?
  • Are all suppliers in compliance with existing due diligence laws?  
  • Are your consumers making buying decisions based on environmental, social and governance (ESG) issues, corporate social responsibility (CSR) or other ethical issues?

A recent Quality Digest article suggested that “ethical supply chain management is being fueled by consumer demand, profitability, and visibility. The concept of ethical sourcing has risen in popularity during the past four years.”  

Supply chain due diligence is a critical topic for manufacturers and enterprises in all industries, especially given three major impacts of recent high-profile abuse cases, new due diligence laws and consumer buying trends.    

Let’s break it down.

Recent High Profile Cases

It doesn’t take a very deep search to uncover recent global headlines of abuses in production.

In April 2022, allegations arose claiming children as young as 10 in Ghana, West Africa were harvesting cocoa beans for food industry giant Mondelēz International, which owns Cadbury. The company issued this statement at the time: “We explicitly prohibit child labour in our operations and have been working relentlessly to take a stand against this.” 

In Bangladesh in July 2021, a fire at a food factory claimed the lives of at least 52 people, some of whom were children.

In the U.S., as a tornado struck a town in Kentucky in December 2021, workers at

Mayfield Consumer Product factory continued making candles as the massive storm bore down on the region, even after receiving a notification 20 minutes before the tornado hit.

In April 2021, food giant Hershey Food announced its “No Deforestation Policy” to end deforestation across its supply chain by 2030. However, earlier in the year Hershey was named in a lawsuit regarding child labor abuses in Cote D’Ivoire.

Two Foxconn Technology workers died in 2016 in work-related incidents at the company’s Zhengzhou, China plant, which produces Apple iPhones. Despite this, Apple claims its suppliers uphold fair labor and human rights standards. However, Foxconn has faced repeated scrutiny for labor-related deaths.

New Due Diligence Laws

Manufacturers across the globe are facing new due diligence laws in addition to historical legislation relating to human rights and environmental protection. These new laws are pushing for greater CSR accountability for corporations and their supply chains and levying penalties for non-compliance.

For example, new laws have been or will soon be enacted in the U.S. and across Europe. The legislation generally seeks to implement the standards set by the U.N. Guiding Principles on Business and Human Rights to eliminate forced and child labor, add environmental protections, eradicate human rights abuses, and seek to improve working conditions.   

United States

The Uyghur Forced Labor Prevention Act (UFLPA) states all goods fully or partially manufactured in China’s Xinjiang Uyghur Autonomous Region are products of forced labor and are not eligible for U.S. entry.

Europe

The German Supply Chain Act (GSCA) goes into effect January 1, 2023 for companies with 3,000 or more employees and will extend to companies with 1,000 or more employees January 1, 2024. The legislation is not restricted to German companies alone — foreign-based companies with registered German branches must also comply.

The European Union released the Mandatory Human Rights and Environmental Due Diligence Directive earlier this year.

The European Commission published the proposal for a Corporate Sustainability Due Diligence draft directive in February 2022.

Norway, Switzerland, the Netherlands, France, and the UK have all passed similar due diligence, human rights, and anti-slavery legislation.

Greater accountability standards around CSR and accompanying consequences add further challenges to the already complicated international trade compliance landscape. Enterprises must focus on due diligence legislation to compete successfully in the global market. Ignoring the legislation could lead to monetary penalties, bad PR, and a drop in consumer trust – not to mention the potential loss of source materials and the possibility of production interruptions.

Consumer Buying Trends

Consumers are increasingly expressing interest in ethical sourcing and environmental impacts related to the products they purchase.

A 2021 Deloitte study documented how 43% of UK consumers selected brands based on environmentally sustainable values. The same study indicated that 34% stopped buying brands with ethics concerns. A similar study in the U.S. found that consumers would stop purchasing brands with ethics issues. When demographics are added, research finds that millennials and younger age groups place a distinct priority on sustainability.

During a time where workforce retention has proven to be especially difficult, serving as a company with a strong CSR policy can actually help to attract and retain top talent. According to an article in Forbes, “64% of Millennials won’t take a job if their employee doesn’t have a strong CSR policy.” And, after looking at the numerous ways purpose has driven success with consumers, “purpose-driven companies had 40% higher levels of workforce retention than their competitors.”

Companies are acting, and responding. A 2020 KPMG analysis found that:

  • 96% of the world’s biggest 250 companies produce an annual sustainability report
  • All top 100 companies in Japan and Mexico produce an annual sustainability report
  • 80% of all companies worldwide report their sustainability performance

Consumers are making buying decisions based on ethical issues – consumer trends indicate that shoppers favor companies acting on corporate social responsibility and environmental/social/governance issues. Business-to-business buyers are likewise focusing more on corporate social responsibility and environmental/social/governance challenges over costs and service levels. Producers need supplier management software to qualify suppliers and automated ways to conduct restricted party screening.

A recent article from the American Marketing Association sums it up well:

“Old metrics, models and assumptions may be our own worst enemy in a market where consumer demands have shifted to value trust over newness, lasting quality over flashy features, and humancentric purpose over hype. Today, over 60% of consumers look for brands they can trust before they look at price.”

LEAVE A REPLY