Pressure Mounting in EU Regarding Sustainable Supply Chains

April 21, 2011 EcoVadis

Following the resolution which was adopted in November on CSR in International Trade, the EU has released a new study in Sustainable Supply Chains: Responsible Supply Chain Management : Potential success factors and challenges for addressing prevailing human rights and other CSR issues in Supply Chains of EU-based companies. The study looks at success factors and challenges in addressing Corporate Social Responsibility (CSR) issues in supply chains. The key question raised is: “Why for some CSR-issues in their supply chains, has CSR not yet provided a solution and why do companies, assuming that they may be aware of the issues, fail to deal with them, and what is needed to improve the situation?”

The report begins by looking at different definitions of Responsible Supply Chain Management (RSCM). The International Chamber of Commerce defines it as “voluntary”, whereby nothing is holding companies to take sustainable procurement actions. That is, as of yet. Additionally, both the ICC and UNGC definitions highlight the importance of “collaboration” between companies, their supply chains and their stakeholders. The study takes a specific look at both how voluntary initiatives are working (or not) and assesses successful implementation of stakeholder engagement and the challenges faced when involving different stakeholders in initiatives to improve sustainable supply chains.

Since all CSR issues have their own characteristics, causes, legal and non-legal regulatory issues, this study is just the beginning of an examination into finding key areas for improving Responsible Supply Chain Management. It examines three industrial sectors within Europe – cotton, sugar from sugar cane and mobile phones – and looks specifically into five CSR supply chain issues. The results are correlated with the “Protect, Respect and Remedy” Business and Human Rights Framework proposed by Harvard Professor and UN Secretary-General on human rights and business, John Ruggie. This framework delineates clearly between the roles and responsibilities of business and government and is used as a basis for examining a detailed set of case studies outlined in the 200 page report.

The report makes 7 recommendations to EU policy makers and EU Member States:

1. Increase supply chain transparency – A key current solution towards transparency is leveraging the Global Reporting Initiative (GRI) reporting standards, but it is noted that while CSR reporting is on the rise, reporting on Responsible Supply Chain Management is still in its infancy, as most reporting primarily relates to the internal activities of the company. Specific recommendations towards regulation include adopting legislation that would require large enterprises to disclose information on their supply chain or to require traceability throughout supply chains.

2. Strengthen the OECD Guidelines for Multinational Enterprises – The OECD Guidelines’ application to the supply chain is limited and in addition the consequences for non-compliance are either minimal or non-existent. It is recommended to broaden the scope of the Guidelines to include CSR supply chain issues in more detail and secondly to linking adherence to the Guidelines to eligibility for public support and benefits.

3. Enhance access to remedy for victims in supply chains – Effective grievance mechanisms are a crucial part of CSR, but it is the responsibility of States to take appropriate steps within their territory to ensure access to effective remedy for corporate-related human rights abuses. The study recommends the establishment of a monitoring authority at the EU-level.

4. Support multi-stakeholder initiatives aiming to enhance Responsible Supply Chain Management – Many large corporations are embracing such initiatives as they can reap the benefits of sector-wide leverage upon a supply chain of shared suppliers. That is simply smart business. The report recommends improving the effectiveness of multi-stakeholder initiatives by improving the regulatory environment in which they operate. Since such initiatives are voluntary the recommendation is that companies should be rewarded for their positive efforts by linking their participation to various forms of public support.

5. Address competition affecting labor rights – The point here is that States need to cooperate in applying their duty to protect. The EU and Member States could therefore address the issue of Responsible Supply Chain Management in their state level relations (i.e. negotiation on trade and investment agreements) with third countries such as China.

6. Due diligence for high risk sectors/countries – Disclosing on due diligence remains a voluntary company measure and the report recommends requiring companies to exercise due diligence particularly in high risk areas, such as the regulation passed in the United States requiring companies to annually disclose their exercised due diligence on the source and chain of custody of conflict minerals originating from the conflict-affected eastern part of the Democratic Republic of the Congo.

7. Promote Responsible Supply Chain Management through public procurement – Finally, of course it is not just companies who should take action on Responsible Supply Chain Management, but public entities should also establish policies and measures to ensure they are sourcing sustainably. There are currently many EU initiatives supporting this development including Procura+, the European Sustainable Procurement Campaign.

While there is no clear timetable or plan on how these recommendations will be reviewed and implemented, it is clear that regulatory pressure on the topic is mounting in Europe, and that companies who have not yet initiated a programs should reexamine their strategy. Not only will this keep companies out of trouble when regulations will become enforced, but taking steps towards implementing more robust responsible supply chain management now will only increase a company’s competitive edge, reduce risks and provide an innovative CSR story to market and tell to the world.

This article was written by Nicole Sherwin, a CSR Analyst at EcoVadis. You can follow her on twitter @NicSherwin

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