Pioneering retailers have established that it is possible to audit the social and environmental performance of their suppliers in developing countries, but an industry consensus on best practice is still at least a decade away
Extending the reach of any corporate policy beyond a company’s core operations is never easy. The more complex the policy, the harder it is to assess its effect and monitor compliance. When that policy relates to highly sensitive issues, such as child labour and environmental protection in the production units of third party suppliers in developing countries, the challenge is even greater.
By agreeing to monitor their individual supply chains against an agreed ‘base code’ on labour standards, members of the Ethical Trading Initiative (ETI) have therefore set themselves a testing task. The first annual report from this alliance of companies, non-governmental organizations and trade unions, which was formed in 1998 to develop ways of monitoring supply chains, makes clear that despite two years of hard work, much remains to be done.
A key obstacle is a lack of consensus on best practice which, according to one recent study, is unlikely to emerge until at least 2010. To help reach one, the ETI plans to help members share their experiences by producing a practical guide incorporating the lessons they have learned.
‘We have discovered that despite the difficulties, supply chain monitoring is do-able and can have marked benefits quite quickly’, says ETI manager Dan Rees. ‘Suppliers have responded well – in some cases by entirely re-building factories.’
The big lesson so far appears to be that interested parties, rather than just auditing firms or in-house teams, need to be involved in supply chain monitoring from an early stage. These ‘multi-stakeholder’ teams should include representatives from NGOs, unions and local communities in the country where the supplier operates.
‘Our experience seems to have borne out the idea that there has to be multi-stakeholder involvement in some form, probably in direct monitoring,’ says Rees. ‘Companies that have tried to send in their own monitoring team or outsiders for a quick audit have not found the results as effective. They’ve told us it can be a waste of money.’
The ETI’s annual report reveals that of the 14 companies who had been members long enough to submit statistics, 11 were judged to have shown the degree of progress expected by the ETI board, while three ‘appeared to be at an earlier than expected stage in applying the ETI base code to their own codes of conduct’.
There will be efforts to improve the performance of these three companies, and to increase the number of suppliers evaluated by the 17 corporate members.
A further priority is to tackle the large number of suppliers who have failed to meet the standards of the base code. The report shows that of 1183 suppliers evaluated by the 14 companies last year, 781 (66 per cent) failed to comply with at least one aspect of the code. ETI says this ‘gives an indication of the scale of the challenge’ companies face. Only 14 per cent of suppliers have been evaluated to date.
There were 168 cases of ‘significant’ non-compliance with the code, defined as ones which either will lead to a contract termination, or will involve problems expected to take at least six months to resolve. These cases related to eight of the nine clauses of the code: the exception was the clause dealing with harsh treatment of staff.
Most of the infringements related to the clauses on freedom of association, safe working conditions, payment of a living wage and hours of work.
There were four breaches of the clause on child labour and 14 of the clause on discrimination.
According to Rees, the multi-stakeholder approach is likely to cost at least ¤3280 (£2000) for a single audit of one factory or plantation. Cost is likely to be among the issues discussed at a forthcoming one-day conference that will review ETI’s progress to date. He says:‘Whatever way you do it, it tends to be expensive, and how you make it economic over a full-scale supply chain monitoring situation we haven’t yet decided. But if in the long term you can create a culture of compliance among suppliers then the cost is reduced dramatically’.
Rees argues large cost savings are available to companies that share expertise and monitoring systems and have common suppliers and countries. This pooling of ideas and resources is at the root of ETI’s thinking.