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Making the right choices
25 Jul 2008
Topics: Ethical trading, Ethics, CSR, Social accountability, SA8000, Sedex
Retailers have never had a stronger set of reasons to trade - and to be seen trading - ethically. In the wake of a number of high profile cases of global sweatshops, increased media scrutiny and growing public consciousness of a range of social and environmental issues, retailers are under pressure to prove that their supply chains operate not only to the benefit of the customer and the company, but also to thousands of stakeholders.
Trading ethically is a complex business, however. Retail supply chains are vast, involving thousands of suppliers and partners, and many countries. The potential for ethical problems to arise - and the embarrassment and opprobrium that goes with them - is sizeable. What's more, the expectations of stakeholders - which include campaign groups and NGOs, the media, investors, unions and government - evolve over time, placing new requirements on companies to act responsibly.
Tesco, the UK's largest retailer, faces as much ethical trading complexity as any British company. Accounting for one in every eight pounds spent on the UK high street, not to mention its burgeoning operations in eastern Europe, the US and Asia, it has more than 5,500 primary suppliers in 94 countries. This primary tier alone employs up to two million people worldwide; their suppliers, in turn, employ many millions more.
According to Will Stephens, Tesco's ethical trading co-ordinator for food, retailers are under constant pressure to account for their supply chain activities from a variety of quarters. He says Tesco sees trading ethically as important for a range of reasons: protecting the company's brand and managing risk, because it's "good for business" (improving product quality and limiting accidents) and because it improves the morale of Tesco's own employees (who, like everyone else, want to work for a firm that acts reputably).
By improving the transparency of its supply chain, Tesco also has an opportunity to get a competitive advantage over its rivals, Stephens believes. "More awareness creates more risk. But, on the other hand, it's not just Tesco that gets targeted. That accountability offers another point of differentiation," he says.
With so many partners, however, keeping tabs on the whole supply chain is difficult for an organization as extensive as Tesco. Increased transparency is tough on suppliers as well, as they must account for their activities - often in great detail - to retailers with slightly different demands.
"Tesco may define good as 'A'. Sainsbury's demands 'B'. And then Asda comes along and demands 'C' and so on. If you are a single supplier, you can't do A, B and C, you can only do one of them," Stephens explains. The growing complexity of ethical trading led to calls for greater standardization, with suppliers and retailers agreeing what is "good".
Getting it together
In 2004, a range of suppliers and retailers, including Tesco, came together to form the Suppliers Ethical Data Exchange (Sedex), a web-based system that enables suppliers to record and demonstrate their performance on labour standards. Retailers can use the system to monitor performance and improvements on labour standards in their supply chains.
"Sedex is really a fundamental step forward in standardizing the ethical trading requirements of the various organizations involved," Stephens says. Sedex is useful in two main ways. First, it gives retailers a detailed view of its supplier relationships: "We can get visibility of what the relationships are in our supply chain. It means we can quickly check the system in the event of a call from a factory or farm, or if the media is making an allegation," says Stephens. "If you want to improve standards in your supply base, or reassure yourselves of standards in your supply base, you need visibility of what's going on. It's the old mantra: if you can see and measure it, you can manage it."
Second, it is a tool for assessing risk. Each supplier is asked to fill in a questionnaire based on the provisions of the Ethical Trading Initiative (ETI) - an organization formed in the mid-nineties to raise ethical standards among retailers. Retailers can add their own provisions as well - for instance, on issues such as bribery, corruption, the environment, and health and safety.
The retailer then uses the questionnaire to establish a "risk rating" for each supplier - high, medium or low. For example, suppliers with a greater proportion of temporary workers will likely be seen as a higher risk than those with more permanent workers. Likewise, garment-makers are generally higher risk, as are suppliers from China's Export Processing Zones.
Stephens concedes that Sedex is not a panacea - neither fixing all the ethical problems in Tesco's supply chain, nor placating outside observers who are demanding that retailers do more. However, he argues that the standardization of ethical practice and the growing scope of Sedex - now with over 19,000 partners around the world and adding more every day - is a step forward.
In the future, Stephens hopes that the move to greater standardization will continue: "Having different targets and requirements is really costly and confusing for the supply base. It's also quite confusing to customers when it comes to communicating these things. In five years time, I think it will be more standardized and more normal."
IN A NUTSHELL: An ethical approach
BSI has recently been approved by Tesco to carry out Sedex audits, but its work on ethical business practices goes back even further.
It can also carry out checks against the internationally-recognized social accountability standard, SA8000 or other recognized ethical trade schemes such as Worldwide Responsible Apparel Production (WRAP). SA8000 in particular represents a unique step for businesses hoping to establish or reaffirm their ethical credentials.
It is the first auditable standard to provide a framework for assuring all stakeholders that social accountability is being stewarded by a company's management. This is essential: NGOs (non-governmental organizations), analysts and consumers are putting pressure on organizations to demonstrate that minimum standards are upheld in the workplace and ensure that workers are getting a fair deal.
For more information: www.bsigroup.com/july08socialresponsibility
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