No More Excuses In Delivering Ethical Supply Chains – Report Urges

Less than a quarter of global businesses address climate change and child labour in their supply chains, an international study has found.

The report released by The Economist Intelligence Unit (EIU) found that progress in raising ethical standards in global supply chains had stalled in many places.

Although companies generally describe their supply chains as “responsible” and recognise a direct link with brand reputation, the research found that few addressed issues such as climate change, child labour and gender equality.

The report, “No more excuses: responsible supply chains in a globalised world”, found that issues where it was relatively easy to demonstrate quantifiable short-term risks and benefits/opportunities (such as health and safety risks and waste reduction) received more attention from firms than less tangible longer-term ones such as climate change.

The report also said issues that only affected a subset of people, such as child labour and gender equality, also appeared to be side-lined.

However, it found that four in five respondents reported their companies addressed general problems in their supply chain “well” or “very well”, and almost all respondents said their companies’ standards were “compliant with” or “more stringent” than those of governments (94 per cent) or industry watchdogs (97 per cent), respectively.

“This indicates a degree of complacency given that many key issues are still overlooked,” the report said.

Other findings included:

Four in five executives claimed their companies had a responsible supply chain;

• Yet 30 per cent of firms had decreased their focus on supply chain responsibility over the past five years;
• only 27 per cent of firms were willing to cooperate with non-competitor firms to raise supplier standards, and even fewer (23 per cent) were willing to cooperate with competitors.

While the companies surveyed were headquartered outside of Australia (China, Germany, Hong Kong, Italy, Japan, Singapore, South Korea and the US), 23 per cent of companies said their suppliers were located in Australasia (Including Australia, New Zealand and Papua New Guinea).

The study concluded that a failure to acknowledge the risks and lack of understanding among companies of their own supply chains was not a positive result.

“Companies should think long-term and build a business case for more transparent, sustainable and socially-inclusive supply chains,” it said.

“New compliance risks are constantly emerging as NGOs and activists highlight scandals and governments attempt to close loopholes—but a reactive approach is not good enough. Firms need to get out ahead of the regulatory wave and show leadership in improving supply chain transparency and management. Those who do will find it does not just mitigate risks, but also generates opportunities.

“Consumers and business customers are paying attention: in every market we surveyed, customers were cited by firms as one of the top influences driving them to make their supply chains responsible, with a greater perceived impact than even regulators.

“In our discussions with representatives of corporations, financial stakeholders, regulators, international organisations and NGOs, it was striking how often each blamed the others for constraining, or failing to adequately support, their efforts to be responsible. Company executives also pointed to the difficulties of fully understanding and monitoring their supply chains—something which some experts from academia and consultancy disputed, given the possibilities presented by digital technologies and outside specialists.”

The report said companies seeking credibility with an increasingly well-informed and critical consumer base needed to “stop making excuses” and get ahead of the issue.

“They must recognise that in the digital era, they can neither control the agenda, nor who can access information on their supply chains,” the report said.

“Pressure on them for transparency and responsibility will only increase. But the responsibility does not lie on the corporate sector alone. Corporations are best-placed to understand and take action on their supply chains, to mitigate both financial and ethical risks.

“They must therefore play the biggest role, but the other parties involved in setting, monitoring and enforcing standards must also consider how best to incentivise and support companies along this path.

“No more excuses. It is time to embrace the necessity of, and business opportunities presented by, responsible supply chains.”

In March 2017, an Insight report by KPMG Australia said: “Cyber hacking, human rights violations, environmental disasters or complex new laws are just some of the risks Australian organisations are exposed to through their supply chains.”

“Competitiveness in global trade is growing and it throws up complexities and challenges throughout supply chains that a lot of Australian corporates are not used to dealing with,” the head of supply chain and operations at KPMG Peter Liddell said.

Liddell said that in some businesses, up to 80 per cent of their operations could be interacting with a supply chain, making it tough to stay ahead of risk.

“It is therefore essential that they understand the pressure points, and have a solid strategy to mitigate potential damage,” he said.

Director of corporate affairs advisory at KPMG Mike Kaiser said the excuses of “different laws”, or “not knowing” were not valid when reputation was at stake.

“In some territories child labour may be a socially accepted norm, but supply chains are only as strong as their weakest link,” he said.

“The reputational vulnerability along any part of the chain usually impacts the consumer-facing brands.”

KPMG said non-governmental organisations (NGOs) and activists for different causes (for example anti-child labour, climate change or animal welfare), were becoming more sophisticated in their monitoring of supply chains.

“They know where to target, when to attack in a coordinated manner and how they can get the most impact,” Kaiser said.

“However, rather than seeing this as a problem, companies should embrace that NGOs are highlighting what their customers, shareholders and employees demand.

“The NGOs aren’t creating these issues, they’re just surfacing these issues and people are responding to them,” he said.