It is no longer socially acceptable for companies to operate in a bubble. We are all inter-connected through globalisation and companies as a result must factor ethical, responsible behaviour into all of their activities and decisions (including their partner and relationship decisions) in order to retain their social license to operate.
Pleading ignorance of supply provenance is no longer accepted as a viable defence and companies are considered complicit if any supplier in their value chain is involved in exploitation or abuse.
Suppliers who have not been properly vetted can have an adverse effect on companies if they are found to be involved in irresponsible, illegal or unsustainable behaviour. This is even true of indirect suppliers who may not supply the company directly but instead supply the company’s supplier (i.e. Tier 2, Tier 3 etc. suppliers). Consumers and the public do not differentiate between suppliers in a chain but instead hold the interfacing firm accountable for detrimental behaviour or incidents. This is known as the ‘chain liability effect’ and many large companies have experienced negative publicity, backlash and public boycotting when suppliers or supplier contractors were discovered to be engaged in illegal or unethical behaviour.
A prime example of this would be the many major clothing retailers who have taken a reputational hit over the last number of years by working with suppliers who engage in human rights and health and safety violations. There are countless exposés and documentaries detailing these violations which when further fuelled by social media communications, have resulted in product and brand boycotts and widespread negative PR for the companies in question.
Supply Chain Legislation
The importance of companies taking responsibility for their value chain and the growing urgency of same is reflected in prominent international, legislative initiatives such as the UK Modern Slavery Act, Dutch Child Labour Due Diligence Law for companies, Australian Modern Slavery Act and in the European Commission commitment to introduce mandatory human rights due diligence as part of their Proposal for a Directive on corporate sustainability due diligence (CSDDD).
In addition, the need for investors to ensure a company is not linked to adverse impact through its business relationships is reflected in the disclosure requirements of major international reporting standards and frameworks such as the European Sustainability Reporting Standards (ESRS), IFRS Sustainability Disclosures Standards and the GRI Standards.
To identify directly linked impact and to get ahead of these legislative and disclosure requirements, companies must chart their value chain and identify all their direct and indirect suppliers.
RBESG’s STS Sustainability Transformation System can guide you through the value chain mapping and reporting process, enabling your organisation to mitigate against these threats.
