CSR Ratings are putting more emphasis on Supply Chains!

September 26, 2012 EcoVadis

Yesterday, the FTSE4 Good announced they were reviewing their methodology with an increased focus on Sustainable SupplyChains. The number of companies for which Supply Chain Labor standards criteria now apply rose from 164 to almost 400. Most notably they will apply to several new sectors for continued inclusion in the index, such as companies that provide consumer and office electronics like computers mobile phones and photocopiers; home and other consumer products, including jewellery and watches.

It follows a similar move by the Dow Jones Sustainability Index (DJSI) which in early 2012 introduced a new model to significantly increase the focus on Sustainable Supply Chains, moving from 5 to 20 questions on it. The new section entitled “Supply Chain Management” affects all sectors, and takes a comprehensive approach to companies’ management of both risks and opportunities in their supply chain by asking more questions on strategy, risk analysis, evaluations & audits as well as reporting.

Why are international Sustainability ratings suddenly so focused on Supply Chains?

  • Investors realize that the topic is increasingly important as companies continue to outsource activities. The internal CSR practices of the Global 500 companies are getting more and more analogous and the Supply Chain is becoming a key differentiator. In a recent study with Insead, EcoVadis demonstrated the impact on share price.
  • A number of new regulations have recently focused on Sustainable Supply Chains, such as the Dodd Frank Act Section on Conflict Minerals, the UK Bribery Act & the CaliforniaTransparency in Supply Chains Act. These regulations require many companies to place greater emphasis on responsible Supply Chains & procurement choices.
  • The former models were becoming obsolete: the limited questions asked in the past on the Supply Chain by DJSI, FTSE and others, did not allow them to adequately differentiate between performers. Respondents were getting very good at box ticking (‘yes we have a Supplier Code of Conduct, yes we’re have developed a self-assessment questionnaire’) and it was not easy to discriminate between leaders and laggards. The new frameworks enable this to happen, making it clear to all that Sustainable Supply Chain issues are important and will play a part in the Sustainability Indices of the future.

We think this is all good news! Sustainable Supply Chains are proving the next great leveler in CSR and these indices are following current trends on corporate behavior by placing more attention on them. They also help investors identify who is and is not at greater risk of CSR breaches in their Supply Chain, and who has better insight on their procurement practices as a whole.

We would also like to congratulate our long term EcoVadis customer Alcatel-Lucent for their recent nomination to the DJSI SuperSector Leader. We hope that the major focus Alcatel-Lucent have shown on Sustainable Supply Chains in the past three years was a key contributor to this nomination.

>> Disclosure: EcoVadis collaborated with the DJSI on the development of the new “Standards for Suppliers” questionnaire used for the DJSI 2012 ratings.

This article was written by Pierre-François Thaler, co-founder and co-president of EcoVadis

You can follow him on twitter @pierrov 

Follow us on Twitter @ecovadis

Top photo on Creative Commons license

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