what new initiatives are shaping the future of the … … · fewer audits doesn’t just mean...

Best Practice Explained and Analyzed

Measure The Success of Your Initiatives

Working With Suppliers and Co-operating with Competitors

How To Cut Through the Greenwash

Focus On China's Environmental Laws

INSIDE

WHAT NEWINITIATIVESARE SHAPINGTHE FUTUREOF THEETHICALSOURCINGDEBATE?

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4 Ethical sourcing – initiatives and best practice InsightandsuggestionsfromDougCahn,AuretvanHeerden andMarcelaManubens

10 Measuring systems – how to gauge successful initiatives Thevitalinformationforeveryproject

13 Sector focus: cotton sourcing LabourissuesinUzbekistan

15 Supply chain relationships Starbuckstakesthelong-termview

18 Competitors co-operating for mutual benefit Casestudies:LeviStraussandHP

23 Cutting through the greenwash Thepitfallstoavoid

27 Regulating the environment China’slawsexplained

Contents

EthicalSourcingreportnorthamerica2008

executivesummaryThisissueofEthical Sourcing Reportseekstoaddresssomeofthemajorissuesfacingsupplychainprofessionals,focusingonexamplesofbestpracticewhilehighlightingconcernsandproblems.

Firstly,frompage4weaskthreeindustryexpertstosharetheirviewsonwhattheyareoptimisticabout,andwhichinitia-tivestheyapplaud.Thenfrompage10weaddresshowtomeasurethesuccessofsupplychainandethicalsourcingini-tiatives–manybrandsandcompaniesnowhavegoodprogrammesinplace,buttheyareonlygoingtocontinueiftheirsuccessisclearanddemonstrable.

Forcedandchild labour insupplychainshas, rightly,attractedthemostnegativepublicity formanybrands.Andwhileengagingwithsupplierfactoriesisachallenge,itisevenmoredifficulttobecertainwhererawmaterialsarecomingfrom.Aprimeexampleisthecottonsector,particularlyinrelationtothecentralAsianrepublicofUzbekistan,andweexplaintheissuesfrompage13.

Developing long-term relationships with suppliers is an effective method of ensuring corporate values filter down thechain.Frompage15,wecasestudyhowStarbuckshastakenthelong-termview.Andalsoexaminethevalueofcross-indus-tryco-operationinitiativesfrompage18–takingLeviStraussandHPasexamples–andaskifsharingdataandinformationreallycansaveeveryonetimeandresources.

Withaccusationsof“greenwash”flyingarounditisimportanttobeconfidentwhenyouaresourcingenvironmentally-sus-tainableproducts.Frompage22weexplainwhattowatchoutfor.Andfinally,frompage26,weaskaaskalocalexperttoexplainhowtotackleChina’senvironmentalrulesandregulations–vitallyimportantforanybrandsourcingorplanningtosourcefromthecountry.

EthicalSourcingReport|NorthAmerica2008

Developing awarenessA “growing awareness of CSR’s requirements in producercountries” is something that Doug Cahn highlights as arecent positive development, particularly where there is adevelopingcultureofchange.Alongwiththis,“morerobustcollaborationinthebuyercommunity”isincreasing.“Wehavesector-wide initiatives thatarebuildingon thework in thepastwhensomepioneerswereworkingontheirown,”Cahnsays. And with collaboration comes“increasing leverage insupplychains,buildingefficiencyintosystems”.

CapacitybuildingatfactoriesisanotherfactorCahnstresses.“There’snowafocusawayfrom‘traditional’monitoring,withtoolsbeingdevelopedthatallowforcompliance.Therearemoreopportunitiesfortraining–butthesedoneedtobeinplacefortheretobesustainedprogress.”

Intermsofongoingmajorproblemstheindustrystillfaces,Cahn picks out the “rampant and ongoing falsification ofrecords.” While checking for such things is a routine partof any assessment process,“the fact that there is a lack oftransparency means that it is difficult to have an honestconversation”.Primarily,Cahnargues:“Thiscontinuestobeapersistentattributesurroundingrecordsofhoursandwages,withemployeesunder-compensatedforhoursworked.It’sacoreproblem.”

Pricepressureandunrealisticexpectations frombuyersarealsonegative factors intheoverallethicalsourcingdebate.Cahnsays:“Expectingfasttimesfromfactorytomarket,andheavy incidence of late ordering are an everyday part ofthe job for brands and retailers.” But this puts the pressureon factory management to bend the rules to meet their

Whatarethenewinitiativesthataretakingtheethicalsourcingdebateforwardandcontinuingtodevelopsupplychainbestpractice?Ethical Sourcing Reporthasaskedthreeexperts–consultantDoug Cahn,theFairLaborAssociation’sAuret van HeerdenandPVH’sMarcela Manubens–tooutlinewhatisgivingthemcauseforoptimism,what thingsarestillgetting in thewayofprogressandthekeyattributes thatare required forsuccessfulcollaborationandco-operation.

Industrytakestheleadforethicalsourcing

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“Informalnetworksandconversationsaremovingontobecomingmoreestablishedcodesandorganisations”DougCahn

customers’ expectations. “The model poses a number ofdilemmas”forfactories.

Andwhilethereisanincreasinglevelofconsumerawarenessof the issues, and a corresponding greater demand forethically sourced goods,“they are not yet engaged to theextent that would provide brands with a mandate to alterexistingbusinessmodels”.

Thenumberofcollaborativeinitiativesthathavedevelopedencourages Cahn. “There is a lot of promise in some ofthe things that are going on. Informal networks andconversationsaremovingontobecomingmoreestablishedcodesandorganisations.CSRexecutivesaregettingtogetherand sharing information.” He picks out in particular theInternational Labour Organization for moving the debateforwardeffectively,andtheFairFactoriesClearinghouse(seeboxonp6),an initiativewithwhichCahnhasbeencloselyinvolved.

Lip serviceDespitepositivemoves,however,Cahnsaysthatthereisstilltoomuch“lipservice”todealingwithproblemsataworkerlevel.“Thereneedstobebettercommunicationwithworkers,and trust is absolutely essential. And trust happens whenthereistransparency.Workersneedtofeelthattheirconcernsarerespectedandbeingaddressedandforthisthereneedstobeasystemofdialoguewith factorymanagement,andresponsivenessfromthem.”While“workersarenotgoingtoget everything they want”, the most important thing is fortheretobeaprocesswithresults.

And to get factory management buy-in to improvingconditions, there are two key approaches Cahn highlights.Firstly, ifthere iscollaborationamongthebrandsorbuyersat a particular factory, and they then co-ordinate on whattheyaskofthefactoryintermsofimprovementsandworkerconditions, it is much easier for the factory to be able toget on with the remediation required. Secondly, there issignificant efficiency in costs for factories in co-operatingwith brands collectively. Fewer audits doesn’t just mean

savingsforthebrands:it’sgreatnewsforfactoriestooastheycanconcentrateresourcesonimplementingimprovements(and,ofcourse,producingtheproductstheyareinbusinesstomakeinthefirstplace).

Forbrands themselves, reputation is suchamajorconcernthatit’sintheinterestsofalltoensurethattheirsector,asawhole,remainsuntarnished.Poorpracticeinafactoryhurtseveryone “whether or not it’s your particular brand that’sunderthespotlightatanyonetime”.Theansweristoworktogetherandensurethat,sector-wide,practicesthatattractthereallydamagingnegativepublicityareeliminated.

Beyond monitoringAuret van Heerden, president and CEO of the Fair LaborAssociation, says that the debate now has moved beyondmonitoring.“The fact that there are thousands of codes ofconduct,andthatcompaniesarelookingatsocialauditandcomplianceissueshasbeenagiantfirststep.Butwhileauditsaregreatatidentifyingtheissues,thereisnotsomuchclarityon suggesting the changes required. So we are getting tothe‘beyondtheaudit’stage.”

Alsopositiveisthefactthatsuppliersaretakingtheinitiative.VanHeerdensays:“Themanagementatsomefactoriesaresaying ‘let us take ownership of the issues’ and get theirfactoriesuptostandardssothattheycanpassanyaudit.”

Standinginthewayofsuchanapproach,however,canbeintransigenceonthepartofbuyersthatinsistfactorieshaveto follow their brand’s procedures, whatever the standardscurrentlyinplace.“Bureaucraticproceduresatthebuyerlevelcanbeaverybluntinstrument,”vanHeerdenargues.

Doug Cahn has 30 years of experience as acorporate responsibility professional. Formerlyhead of human rights programmes at ReebokInternational, he is currently chairman of the FairFactories Clearinghouse, president of ClearVoice,

anindependentandconfidentialcommunicationchannelforworkers,andprincipalofTheCahnGroupconsultancy.

“Tailor-madecapacitybuildingonafactory-by-factorybasiscanbeaneffectivesolution”AuretvanHeerden

ETHICAL SOURCINGEthicalSourcingReport|NorthAmerica2008

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He says that a more effective approach is to deal withfactories on an individual basis. “Tailor-made capacitybuilding on a factory-by-factory basis can be an effectivesolution.”Ofcourse,thisrequiresfactoriestobecandidabouttheirprocedures–somethingthatvanHeerdenadmitscantake a number of meetings to achieve. “Another problemisthatmanybuyersaresuspiciousandworrythatfactorieswill try tocheat theprocess.At theFLA,wefindourselveshavingtoarguethecaseforgivingthematleastachance,

demonstratingthatsomesuppliersdowanttoengageintheprocess.”

It is still difficult, van Heerden says, to get co-ordinationbetweencompaniesthatareauditing,with“toomuchgoingroundincircles”.Toachieveeffectivechange,thereneedstobe commitment on all sides to remediation measures. Anawarenessthattheprocess“takestime”isvital.

AccountabilityIncreasingly, it is the accountability debate that is drivingbestpractice.VanHeerdenpicksupsomethingmentionedbyUNspecialrepresentativeforhumanrightsJohnRuggie:thousandsofcompaniesmaybe responsible,butvery fewareactuallyaccountable.Inotherwords,therearenotmanycompaniesthatarereally“grapplingwithwhatitallmeans”.

“Whatgetsmeasuredgetsdone”maybeabitofanoldcliché,butvanHeerdensaysthatinthiscaseitholdstrue.“Thebestcompaniesareputtinginmetrics,settingchallengingtargetsand then assessing progress against them.” Many brandsmay have “learnt the hard way” with negative publicityfromexposuresofbadlabourpracticesatsupplierfactories.But some of these“have become best in class” and madeenormousprogress.

VanHeerdensays:“Themostsociallyresponsiblecompaniesdon’tclaimtohavealltheanswers.Butthepubliccanhavetrustinthemnowastheyareraisingthebar.”Asanexampleofwherebrandsareleadingthedebate,eventakingtheplaceofgovernmentinimprovingstandards,vanHeerdenpointstoBangladesh.Theminimumwageinthecountryhadbeenpainfullyinadequatesincethe1990s,andpromptedriotsin2005whenthedecreaseinrealtermspayhadreachedacrisispoint.“Thegovernmentwasslowtoreact,butbrandswentandmetwithministerstotryandgetthesituationresolved.”Arevisedwageratewasagreed,buteventhenitwasdownto“theleadinginternationalbuyerswhohadtoinsistitwaspaid”.Soitwasbrandsthatwerepushingtheagenda.

The leading buyers are now “getting beyond the check-list approach,” van Heerden believes, and he argues thatdeveloping systems of key performance indicators (KPIs) isthenextstep.“Takeemployeegrievanceprocedures. IfyoucanputinplacesomeKPIsthatexamine,forexample,howmanygrievancesa factoryhashad,what theywereabout,how long they took to resolve and how many resolutions

FAIR FACTORIES CLEARINGHOUSE: SHARING DATA FOR MUTUAL SUCCESS

TheFFC isdedicatedto improvingtheavailabilityof factory-complianceaudits,byprovidingitsmemberswiththeuseofacompliancedatamanagementsystemthatstores,manages,andtracksworkplaceconditions.Thesystemalsofacilitatestheexchangeofnon-competitiveinformationconcerningfactorycompliance between brands and retailers, and so aims toreduceauditfatigueforfactories.

Marychris Melli, FFC programme director, says that throughtheuseofitstoolstheorganisation“seekstohelpcompaniesmakeinformeddecisionsabouttheirsourcing,andtofacilitateimprovedprocessesforaddressingsupplychaincompliance”.FFC’srecently-launchedSharingPlatformisatoolthatallowscompaniestocontributetoFFC’sfactoriesdatabase,searchforfactories shared with other FFC members, share appropriatefactorycompliance information,andinitiatecollaborationonauditing,remediationandcorrectiveactionplans.TheSharingPlatform complements FFC’s Compliance Data ManagementSystem, which enables all aspects of auditing, managementof supply chain and sourcing information, and customisedreporting on all data including remediation measures andcorrectiveactionplans.

While arguing that many companies are getting involvedin data sharing for “altruistic reasons” Melli says there arealso cost benefits to be realised in compliance programmesif audit duplication is avoided. “If there is even a 10% to15% overlap rate, this can provide a company the ability toreallocate compliance resources to address areas that canprovide more sustainable benefits for suppliers such as rootcauseidentificationofcomplianceissuesortheinstitutionofformal training programmes.” In addition, with the ability toidentifypotentialcomplianceissuesbeforevisitingasupplier,companiescanconductmorefocusedauditsandpotentiallyhelptofacilitatetransparencyonthepartofthefactory.

For more information go to www.fairfactories.org

ETHICAL SOURCING EthicalSourcingReport|NorthAmerica2008

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ETHICAL SOURCING

wereacceptedbyallparties,thenimmediatelyyoucanhavea good look at the health of the factory.” These numberscanbecorrelatedwithlabourturnoverfigures.And,clearly,improvementscanbemoreeasilymonitored.

Getting mainstreamMarcela Manubens,seniorvice-presidentforglobalhumanrightsandsocialresponsibilityprogrammesatthePhillips-VanHeusenCorporation,saysshe isverypositiveaboutethicalsourcing, and the associated corporate values, becomingmoremainstreambusinesspractice.

She is enthusiastic about the numbers of“values-oriented”graduates coming out of colleges and universities. “Theywant toexercise their spendingpower inagoodwayandwant towork forcompanieswhereCSR isembedded,” shesays. This means, if nothing else, that “there will be moreexecutiveswithvaluesinthefuture”.

Manubens also picks out a more positive relationship withNGOs as further cause for optimism.“There was a bit of a‘catch-you’attitudefromsomecivilsocietyNGOsinthepast,whoseemedtobelievethatallcompanieswereevil,whilemanycompaniesregardedNGOsasextremists.”Notsonow,particularly among leading companies, Manubens argues,which is indicativeof“how farwehavecome”and toa lotofhardworkfromallsideskeentodevelopwaysofworkingtogether effectively. She says that the engagement of civilsociety groups and corporations “in constructive dialoguebringsabetterunderstandingoftheissues,cohesiveeffortsto improveconditionsandinnovativethinkingtofindwin-winsolutions”.And,morethanthat,“ithelpsbuildtrust”.

Measuring company performance by triple-bottom-line assessment is how the value of corporate socialand environmental performance can be integrated intobusiness models, Manubens says. And when the financialcommunity realises that the profitable companies will betheones integrating sustainablepractices, corporate socialresponsibilitywillthenbeembeddedinstandardcompanyeconomics.

Makingthebusinesscaseismoredifficultintimesofeconomicslowdown or potential recession. When consumers havelessmoneytospend,“howyoumanufactureandpriceyourproducts becomes even more important,” Manubens says.Inevitablythereisarenewedfocusonpriceasakeydriveronpurchasingdecisions.

Butengagingwithconsumers,economicdownturnornot,isakeyissue,shebelieves.“SimpleeconomicssuggeststhesustainabilityofCSR/ethicalsourcingdependsonconsumers

Auret van Heerden has over 30 years’experience in international human and labourrights.HebegancampaigningforworkerrightsasastudentinapartheidSouthAfricaandservedtwotermsaspresidentoftheNationalUnionof

SouthAfricanStudents.Afteraperiodinforcedexile,duringwhichheworkedfortheILOinGeneva,hewasappointedbythenewSouthAfricangovernment tobe labourattachéattheUN.SubsequentlyhereturnedtotheILO,beforesettinguptheEuropeansubsidiaryoftheFLAinGeneva,whereheisnowpresidentandCEO.


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“Values-orientedgraduateswanttoworkforcompanieswhereCSRisembedded” MarcelaManubens

ETHICAL SOURCING

Marcela Manubenshascreatedandnowdirectsthehumanrights,workingconditionsandethicalsourcingeffortsforPhillips-VanHeuseninherroleas senior vice-president of global human rightsandthesocialresponsibilityprogramme.Shehas

beenanactiveparticipantintheFLAsince1996.ElectedasaboardmemberoftheFairFactoriesClearinghouse,sheheadsitsauditcommittee.

beingonboardandrewardingethicalcompanieswiththeirpurchases. While campaigning and targeting companiesprompts action from responsible corporations, it doesn’tguarantee the sustainability of the ethical sourcing model.”Manubensarguesthatvalues-drivenconsumerswhorewardbrands with their purchases will in fact have an importantroleinthissustainability.

Thereisalotthatcompaniescandorightnow,however,andManubensagreesthatcross-sectorcollaborationisoneareawhere there have been major improvements particularlywherethereis“co-operationtoreduceduplicationofwork”.Shesays:“Therearesomany issuesthatcan’tbesolvedbyonecompanyactingalone.Goodinitiativesaretheonesthattarget the endemic problems, and deal with, for example,capacitybuildingandengagingwithsuppliermanagement.”So, there is a bigger picture emerging for the future ofcorporate responsibility and ethics that ties together thegrowthofSRI,andthefactthatpensioncompaniesarenowwantingtoinvestinethicalfunds,withthegrowingbandofethically-awareprofessionalsinpositionsofpoweratleadingbrands.

And given that ethical sourcing and supply chainmanagementareinessencejustdoingtherightthing,thisisatrendthatislikelytocontinue.

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Q: It can be difficult to establish the success of ethical supply chain measures. What is your initial advice to companies facing this problem?

A: Asastartingpoint,Ithinkit’simportant,firstofall,tonotassumethatexistingprogrammesaresuccessful.Companiesshould critically examine them, instead, and address thequestion: what measurable impact are ethical sourcingprogrammes(orotherCSRinitiatives)trulyhaving?

Itmaybe–andonecertainlyhopes–thatcurrentsystemsofinternalandexternalsupplychainmonitoring(orotherCSRmeasures)arehavingapositive impact, increasing factory-level compliance, protecting rights, and making workingconditionssaferandbetterforworkers.Butwithoutpropersystems of measurement, it’s not possible to documentthoseresultsandtoevencontemplatemakingimprovement

oncurrentsystems.Itmayalsobethatthesuccessofcurrentpractices is being under-reported, or under-appreciated,becauseofthislackofsystematicassessment.

Myadvicetocompanieswouldbeto,first,reviewandassessthecurrentprocedurestoseewhethertheyaredesignedtomeasureimpact.

From what I can see, most companies have not set uptheir procedures to actually measure impact. Some criticalquestions,therefore,mustbeasked.Haveyoudefinedexactlywhatyou’remeasuring?Havetheappropriateindicatorsbeen

Asmanycompaniesareimplementingnewandinnovativecorporateresponsibilityprogrammes,particularlyintheirsupplychains,thequestionnowishowtomeasuretheirsuccess.Donna Chungexplainstheimportanceofhavingmeasurementsystemsbuiltintocorporateethicsinitiatives.

Measuringsuccess

“Mostcompanieshavenotsetuptheirprocedurestoactuallymeasureimpact” DonnaChung

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Measuringsuccess

selected?Isyoursystemsetuptomonitortheseindicatorsonaregularbasis?Arethedataanalysedappropriately?And,finally, does the analysis inform your future decisions onsupply-chainmanagement?

Whenlinkedwithkeyperformanceindicators(KPIs),IbelievetheimpactofCSR(orsocialcompliance)programmescanbeassessedinthemostcosteffectivemanner.Q: In general terms, what are the method-types that can be used to gauge impact of CSR measures?

A: In general, it would be ideal if randomised evaluationscouldbesetup,sothatonewouldcomparetheoutcomesobserved in programme participants (factory workers, forinstance)withthoseof“equivalent”personsnotexposedtotheprogramme.Buttherearemanychallengestosettingupsuchevaluations.Forexample,acompany’ssupplierfactoriesare likely tobebased invastlydifferentcontexts, so that itmaybedifficulttoestablish“control”and“test”groups.Plusethicalquestionsariseinimplementingwhatishopedtobean“ethical”CSRmeasureinonlyaselectgroupoffactories.Q: Given that there are no “control groups”, is it possible to estimate how things might have developed without a programme, so that the difference between actual outcomes and probable outcomes can be made clear?

A: Yes,therearetoolsthatcanbeusedtostatisticallycontrolfor the differences between groups that would otherwiseleadtobiasedprogrammeeffectestimates.

Some popular statistical tools for this sort of analysis are:multivariate analysis; regression-discontinuity designs; andtime-series designs. I personally like time-series designs,because they do not involve selection of different groupsfor comparison and tend to be simpler to design andimplement.

Q: What sorts of systems should be implemented for projects so that their impact can be established?

A: Thereisunfortunatelynostraightforwardanswertothis.

The sort of “system” that might be best for a company

woulddependlargelyonwhatethicalsourcingmeasuresacompanyhasinplaceandwhat“impact”thecompanywantsto achieve through those measures. Once the causal linkshavebeenidentified–thelinksbetweentheCSRmeasuresand their intended effects – then one must examine theassumptionsunderlyingthoselinksandtestthecausallinks.

The method adopted to test the links would depend onmanyfactors,includingcost,timeline,commitment,levelofco-operationofotherstakeholders,etc.

Q: What is the importance of proximal and distal effects, and how are they related?

A: “Proximaleffects”arethoseoutcomesthataretheimmediateresultsofaprogramme.Forexample,oneproximaleffectofconductingatrainingprogrammeonprotectiveequipmentinafactoryforworkersmaybeincreasedknowledgeofhowtousetheequipmentamongthetrainedworkers.Onemightmeasurethisbyhavingtheparticipantstaketestsbeforeandafter the training, or to test the knowledge of participantsagainstnon-participantsofotherwiseequivalentmake-up.

“Distaleffects”areoutcomesthataretheultimateintendedresultsofaprogramme,whichfollowfromtheprogramme’sproximaleffects.Forexample,adistaleffectof thetrainingprogramme may be that increased knowledge of how touse theprotectivegear leads toan increasedusageof theprotectiveequipment,sothatachangeinknowledge-levelleads to a behavioural change. Or, the ultimate outcomeintended, the distal effect of interest may be whether anincrease in the use of the protective equipment has acorrespondingeffectofadecreaseinthenumberofinjuriesintherelevantdepartmentsorfactorylinesusingthatsafetygear.

It is important to identify the different levels of outcomesthat can be measured. A correctly implemented impactassessmentwouldexpressprogrammeresultsasalogically-linkedseriesofproximalanddistaleffects.

Q: Can you give any examples of projects where better measurement of outcomes has led to further success?

A:Unfortunately,inmyexperienceoflookingatcompaniesinthepastdecade,Ihavenotcomeacrossmanyexamplesofgoodpracticeinthisarea.Alotofthedevelopmentofethical

MEASUREMENT SYSTEMS


sourcingmeasuresinthepast15yearshasbeen“reactionary”,withcompaniesadopting“policing”methodsoftestingandre-testingtheirsupplierfactories.

Now, much emphasis is being placed on remediationmeasuresand factorycapacitybuilding.But,unfortunately,mostoftheseeffortsarebeingmadewithoutthesystematicintegrationofimpactmeasurement.

IcanthinkofonepilotprojectthatwasconductedinafewfactoriesinChina,whereimpactassessmentsweredoneonasmallscale,measuringtheimpactofa“workerempowerment”and factory capacity building CSR programme. But thatproject,too,hadsomemethodologicalweaknesses.

In general, companies’ programmes are not set up tomeasure impact reliably. Success of programmes often iscouchedintermsofdollarsspent;orsimplebefore-and-aftersnapshotsaretakentomean“impact”.Ithinkthisisalarming,because unless companies start to measure the impact oftheir CSR programmes effectively, the future of the wholeCSRmovementcouldcomeintoquestion.

If you can’t answer the question, “what difference is yourCSRprogrammemakingontheground?” it’shardtojustifysustained investment in those programmes. It’s a questionofinteresttoallstakeholders–tocorporateexecutivesandshareholdersinterestedinmeasurablereturnsoninvestmentsmade;toCSRprogrammedirectors,interestedinenhancingandoptimisingonfutureefforts;andofcoursetoconsumers,activists,andworkersinterestedintheactualimprovementofstandardsinthefactories.

Dr Donna E Chung is trade and labourcompliance advisor at Sandler, Travis andRosenberg,basedinWashingtonDC.

“UnlesscompaniesstarttomeasuretheimpactoftheirCSRprogrammeseffectively,thefutureofthewholeCSRmovementcouldcomeintoquestion” DonnaChung

MEASUREMENT SYSTEMS

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Childlabourincotton’ssupplychain

Ethicalsourcinggoesbeyondfactoryauditsandsuppliercompliancecodes,rightbacktowheretherawmaterialscomefromandhowtheyareproduced.Ascottonisacomponentpartofmanybigbrands’supplychains,therevelationsaboutlabourabusesinmajorcottonexporterUzbekistan,includingforcedchildlabour,arebe-comingamajorconcern,andonethatbuyerscannotignore.

ThecentralAsianrepublicofUzbekistanisthethird largestexporterofcottonintheworld.Weighingataround800,000tonnes a year, Uzbek cotton exports are worth $1 billion,andgenerate“around60%ofhardcurrencyearnings”forthecountry,accordingtotheLondon-basednon-governmentalorganisationEnvironmentalJusticeFoundation.

According to EJF, human rights violations are endemic inUzbekistan’scottonproduction.Mostdisturbingly,thousandsof school children are removed from classes during theharvest season to supplement the agricultural workforce.Government officials close schools for up to three monthsandtransportthestudentsandtheirteacherstocampsinthecotton-growingregions.Workingforminimalwages,youngchildren spend long days in the fields manually pickingcotton.Requireddailyquotasarehigh,and failure tomeet

themispunishedbyscoldingsorevenbeatings.Andwhilechild labour can be commonplace in many countries, thesituationinUzbekistanisunusualinthatitistheauthoritiesthatareforcingchildrenintothefieldsandnotacaseofthemhelpingoutontheirfamilyfarm.

The International Labor Rights Forum says that in total“upto one-third of the country’s workforce labours on cottonfarms”andthat“independentunionrepresentationisalmostnonexistentforworkers”.

Patricia Jurewicz is associate director of the corporateresponsibility programme at As You Sow, a shareholderadvocacyorganisation.ShesaysthatalotoftheproblemsinUzbekistanstemfromthefactthat“thegovernmentcontrolstheentireproductionprocessthroughoutthecottonsupply

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chain”. And it is Uzbek president Islam Karimov and thecountry’scontrollingelitethatdirectlybenefitfromprofitstheindustrygenerates,whilethevastmajorityofthethreemillionUzbekfarmersandagriculturalworkersliveinconditionsofextremepoverty.AsEJFcomments:“Thousandsofchildrenareorderedtopickacropthatbenefitsthegovernment,nottheirfamilies.”

Jurewicz offers some clues as to why the forced and childlabour issues that have emerged regarding Uzbek cottonhaveslippedthroughthenet, intermsofbuyerawareness,for so long. “Many companies were a bit overwhelmeddealingwithissuesinfactories.Attentionandresourceswerefocusedthere,whichmeantthatothersupplychainmattersgot ignored. Plus, when brands feel far removed from theproblem, theydonot feel it is their responsibility topolicesomethingthatmayormaynotbeintheirproduct.”

Raw materials sourcing issues are not unique to cotton,though. Jurewicz highlights earlier revelations regardingchild labour intheAfricancocoaindustryand, in2006,theproductionofBrazilianpigironthatsimilarlyhasaffectedtheUSautoindustry.Butthefocushasshiftedtothecottonsupplychain,particularlyfollowingthebroadcastingofaBBCnewsstory in October 2007.The socially-responsible investmentcommunity has a role to play in such circumstances,Jurewiczbelieves.Therearestrictrulesregarding“nochildorforcedlabourinsupplychains”beforeSRIfundscanconsiderinvestinginacompany,and“althoughthecompaniesinthecurrentSRIportfoliosmaynotbeusingforcedorchildlabourthemselves, it is unacceptable in any part of their supplychains,”Jurewiczadds.

Europe has been the main market for Uzbekistan’s cotton,andnowsomebigEuropeanbrandsarestatingpubliclythatthey will not source from the country. Jurewicz points outthatasacotton-exportingnation itself, there isnotagreatdealofrawUzbekcottoncomingintotheUS.“However,weareimportingtonnesoffinishedapparelfromChina,Russia,Bangladesh and India.Where are they getting their fabric?And there is cotton in more than just the base material –thinkaboutzippers,threadandothercottontrims,”shesays.“Buyersneed toask the toughquestionsof their suppliers.Wherearetheysourcingtheircottonfrom?CouldanyofitbecomingfromUzbekistan?”

Campaigners agree that there are potentially serious risksforbrandsthatdonotinvestigatewherethecottonintheirsupply chain is coming from. Jurewicz highlights that the

USStateDepartment isconveningconcernedgovernmentagenciesandanarrayofUSstakeholderstoprovideaforumfor different parties to communicate their concerns andpotentialactionstotakeregardingtheUzbekcotton issue.“Thisisanareawherenationalauthoritiesneedtotaketheleadandco-ordinatewithinternationalinstitutionsandtheirconstituencies, and urge the Uzbek government to stopdenyingtheproblem,”shesays.

WHAT BUYERS CAN DO NOW

The Environmental Justice Foundation has somerecommendationsforbrandsorbuyersconcernedaboutUzbekcottonintheirsupplychain.

• Workwithcivilsocietyorganisationstodevelopaneffectiveproductlabellingsystem,guaranteeingthatneitherchildnorforcedlabourisusedatanystageoftheproductionprocess.

• Take immediate steps to make available to customersinformationontheoriginsofallcottonproducts(notonlythecountryofmanufactureoftheitem).

• Undertake an independent review of cotton suppliers–includingUzbekgovernment-ownedtradingcompanies–andseekassurancesthatthecottonisproducedinaccordancewith international labour norms. Where assurances cannotbe provided, alternative suppliers should immediately besought.

• Undertake commitments to be more transparent in theagreeingofcontractswithUzbekgovernmentagencies.

• Avoid procurement of Uzbek cotton until such time thatchildand forced labourareeradicated fromtheproductionprocess.

• Engage with civil society groups and internationalorganisations in jointefforts to improveworkingconditionsoncottonfarmsandremunerationprovidedtofarmersandotherworkers.

Source: “White gold: the true cost of cotton”, Environmental Justice Foundation

A DEAD SEA – COTTON’S LEGACY

Bordering Uzbekistan to the north, the Aral Sea was oncethe world’s fourth-largest body of water, some 68,000 squarekilometresinarea.Butsincethe1960sithasshrunktoaround10% of its original size, now comprising a series of partiallyinterconnected highly saline lakes. A major culprit has beenthe diverting of rivers and watercourses to irrigate thirstycotton crops in Uzbekistan, a process initiated under Sovietrule50yearsago,andaccelerated inrecentdecades.ManyofUzbekistan’s canals and man-made irrigation channels are ofpoorconstruction,allowingchronicleakageandevaporationsothatonlyasmall fractionofthewaterdivertedfromtheAral’ssupplyactuallyreachesthecottonfields.

COTTON SOURCING

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Takingthelong-termviewonsupplierrelations

Some companies with a real interest incorporatesocialresponsibilitysetupdedicateddepartments to promote higher standardsamong their suppliers. While Starbucks doeshavesomeemployeeswhofocusonimproving

social and environmental standards throughout its supplychain, Virginia Bergin, Starbucks regional manager forsustainable procurement practices, says that the companytries to ensure that the entire staff is aware of CSR policy.She says: “The supplier social responsibility programme isintegrated in the whole corporation. It’s a shared initiativethroughouttheentireorganisation.”

StarbuckshasaseriesofCSRstandardsonwhich it takesazero-tolerancestance:allsuppliersmustcomplywiththem.

For instance, the factory must be transparent and showrealwageandhour records. Ifnot,Starbuckswillcancelallproductionorders.Forotheraspectsofitssocialresponsibilityprogramme,thecompanyispreparedtoworkwithsuppliersthatfailtocomplybutwhicharepreparedtodemonstrateaconcretecommitmenttomeetingthesegoalsovertime.Forinstance,whereemployeesworka75-hourweek,thismustbegraduallyreducedtoamaximum60-hourlevelaccordingtoanagreedschedule.

The company tries to help suppliers to identify problemsand thenfind theirownsolutions.“Whendecidinghowtoimplement our programme in a particular factory, we lookat country risk and at how effectively particular countriesimplementtheirownlabourlaws,”Berginsays.

Insisting that suppliersabidebyafixedsetofsocialandenvironmentalstandardsisonething,buthowshouldbuyersrelatetosuppliersinpractice?Starbucksisanexampleofacompanythathasdevelopedaninnovativesocialresponsi-bilityprogrammethatintegratesethicsintoitssupplychain.

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“Seniormanagementinsupplierfactoriesneedtobeonboardfromthestart” VirginiaBergin

“Ithelpsifsuppliershearitfromthebuyersdirectly.Wetrainthebuyersonsustainableprocurementinternallyandbuildmonitoringintotheirtrainingprogramme.Thenthroughourassessmentprocesswefocusoncontinuousimprovement.InChina,forinstance,webringbuyersandsupplierstogetheron a quarterly basis. We explain that the supplier socialresponsibilityprogrammeispartofourwiderCSR.”

Gettingboardroomagreementatsuppliersiscrucial.Berginsays: “Senior management in the supplier factories needto be on board from the start and communicate the CSRrequirements down through the firm. Everyone needs tounderstandtheimplications.”

Whether or not working with suppliers that employ poorlabour standards is the best method of ensuring socialresponsibility within Starbucks’ supply chain remains to beseen.But,Berginsays:“The‘complyordie’policiesofthepastcreated problems with transparency, so Starbucks aims tobringaboutrealchangethroughourcurrentprogramme.WetrytoengageonlabourandhumanrightsbydemonstratingthebusinesscaseforCSR.Weseektodemonstratethatgoodmanagementsystemsaremoreefficient.”

Stronger relationshipsBringingsuppliers into theCSRprocesshaspaiddividendsfor both sides, as Starbucks is able to build stronger long-termrelationshipswithfactoriesthatknowthatthecompanysupportstheirchanges.Berginsays:“Long-termrelationshipsare vital. It’s very hard to conduct assessments and effectchangeintheshortterm.”

Starbucks uses third-party monitoring organisations toassesshowwellsuppliersareabidingbytheagreementsthathavebeenreached. Itsmainmonitoringpartner is Intertek,althoughitalsoworkswithLevelWorksinChina.Inaddition,Starbucksworks inthefield itself,shadowingitsthird-partymonitors. “Our third-party monitors use a combination oflocalandinternational laws–aswellasourownstandardsformanufacturedgoodsandservices–butwherethereisaconflictbetween themtheygowith thehighest standard,”Berginsays.

Other companies also monitor many of Starbucks’ supplierfactories.Thisraisestheissueofauditandcodefatigue,wheresuppliersarepresentedwithadifferentsetofstandardsbasedondifferentapproachesbyeachinternationalcustomerwitha social responsibility programme. Co-operation betweenpurchasingcompaniesisfrequentlythebestpolicy–andtoharmonisestandardswherepossibleisagoal–soStarbucksnow works with other brands at the factory level in somecountries. The collaboration is limited, however, due toconfidentialityagreementswiththefactories.Thecompanyhopes to increase factory-level collaboration opportunitiesin the future through its participation in the Fair FactoriesClearinghouse.

The integration challengeIntegrating the traditional demands of price, quality andtimingwiththenewrequirementsofCSRisalwaysachallengeand one that Starbucks’ lack of a formal scorecard couldmake more difficult, although the company is consideringdevelopingsuchascorecardinthefuture.Buyersarecloselyinvolved in the implementation of the programme, andfactoryperformanceforCSRisadecidingfactorinawardingbusiness,thoughthereisn’taformaltooltosupportthis.

Yet the role of long-term relationships with suppliers iswhat matters for Starbucks. And the long-term results ofthecompany’sstrategyofconstructiveengagementshouldprovidefurtherevidenceofthevalueofthisapproach.

SUPPLY CHAIN RELATIONSHIPS

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EthicalSourcingReport|NorthAmerica2008 SUPPLY CHAIN RELATIONSHIPS

THE BUSINESS CASE FOR CSR

Starbucks defines CSR as conducting business in ways thatproduce social, environmental and economic benefits forthecommunitiesinwhichitoperatesandforthecompany’sstakeholders, including shareholders. A few of the benefitsare:

• Attractingandretainingpartners:Starbucksbelievesthatitscommitment to CSR leads to higher than typical levels ofsatisfactionandengagementamongitspartners.

• Customer loyalty: studies have revealed that customersprefer to do business with a company they believe to besociallyresponsible,whentheirotherkeybuyingcriteriaaremet. It believes customer loyalty has been a driving forcebehinditsgrowthandsuccess.

• Reducing operating costs: many environmental measures,such as employing energy-efficient equipment orlighting, involve initial investments but deliver long-termenvironmentalandcost-savingbenefits.

• Strengthening the supply chain: to have a sustainablebusiness requires a reliable and responsible supplier basethat can keep pace with growth. Starbucks invests inmeasurestohelpitssupplierstodoso.

• Licencetooperate:havingastrongreputationasasociallyresponsiblecompanymakesitmorelikelythattherewillbeawelcomeinalocalcommunity.

GOOD PRACTICES PAY OFF

Starbucks has developed its Performance ImprovementPlanningprogrammeinconjunctionwithIntertektoinspireacultureofcontinuousimprovementamongsuppliers.

VirginiaBerginhighlightsoneexampleofhowthisprogrammehas worked successfully in practice. Starbucks identified aChinesefactoryasapotentialsupplier.Theinitialassessmentrevealedthatthecompanymetthezero-tolerancestandardsbut problems emerged later in several areas, particularly onwagesandhealthandsafetystandards.Inparticular,overtimewas commonplace and the company suffered from staffturnoverof30%ayear.

Starbucks tried to give the factory incentives to addressits overtime problems while the factory owners identifieda number of positive changes that could help to improvethe situation. The factory agreed to improve the lines ofcommunication between managers and workers, partlythroughthecreationofaworkers’committee,whilefreemealsandrecreationalfacilitieswereprovidedforworkers.Nowstaffturnoverisdownwhilequality,wagesandefficiencyhaveallincreased.

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Levi Strauss – dealing with audit fatigueLeadingclothingbrandLeviStraussiscommittedtoworkingatthe“factory,communityandpublicpolicylevelstoensurethat the people making [its] products are treated withdignityandrespect,andworkinsafeandhealthyconditions”,according to the Corporate Citizenship section of thecompany’s2007annualreport.

The company believes that by working with other brandsin shared factories, it is possible for working conditions to

be improved while concurrently reducing the burden onsupplierswithfewerfactoryauditsandvisits.Levi’stookthefirststepinthisdirectionin2005whenitrevealeditssupplierlist, while suggesting to other brands that it was time toinvestigatehowtoco-operate,tothebenefitofallparties.

Leslie Croshaw, manager for supply chain social andenvironmental sustainabilityatLeviStrauss, says thatwhileittooksometimeandenergyforthecompanytogettothisstage,therewasacommitmenttoseetheprocessthrough.

Whiletheargumentoverwhetherornottoaudit factoriesandsuppliers isperhapsbeingwon, thenextchallengesaretofindthebestwaysofusingauditdataand,increasingly,exploringwaysinwhichthisdatacanbesharedwithotherbrandsformutualbenefit.

SpeakingtoEthical Sourcing Report,Leslie CroshawfromLeviStraussexplainsthebackgroundtothecompany’sethicalsourcingpoliciesandalsowhyithastakenstepstoworkwithcompetitorbrands insharedfactories.AndHP’sBonnie Nixon Gardineroutlineshowelectronics’biggestplayerworkswithitssupplychain,whytheindustryco-operateswithintheEICC,andarguesthecaseformakingsupplierlistspublic.

Casestudies:

LeviStraussandHP

Co-operatingwith

competitorsand

engagingwithsuppliers

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“Wesawtheopportunitiesforco-operationwithourcompetitorsthatwouldbeforthebenefitofeverybody” LeslieCroshaw

“Itwasn’tjustaboutdevelopingthetransparencythatNGOshad been asking for – we saw the opportunities for co-operationwithourcompetitorsthatwouldbeforthebenefitofeverybody.”

Initially, Levi’s wrote to a number of competitor brandssuggesting there were grounds for co-operation in sharedfactories.Atfirstitwasaquestionof“ifwedoshareinformation,whatwouldweshare?”Croshawsays.“Differentbrandswereabletoprovidedifferentlevelsofinformation.”

And,ofcourse,USanti-trustruleshavebeenforemostinmanyminds,withcompanylegalteamsallverycarefultokeepco-operation within the proper parameters. Croshaw explains:“Asageneralguide,wecanspeakwithotherbrandsaboutconditionsinthefactory,butnotaboutordersorvolumes.”

In2008,Levi’s isnowworkingwith15otherbrandsacross135 factories, sharing the results of monitoring exercisesand formalaudits,andco-ordinatingon remediationplansandtrainingforcapacitybuilding.Theco-operationmeansthat Levi’s, along with the other brands involved in theprogramme,hassignificantlymoreinformationavailableonmanyofthesuppliersfromwhichtheysource.Levi’ssaysthatithasbeenabletoreducethenumberofauditsinfactoriessharedwithotherbrandsbyabout25%.

Thefactoriessignificantlybenefitfromthisbrandco-operationprogramme.“A typical factorymightbe receivingup to25visitsannuallyfrombrandsorthird-partymonitors,butiftwoorthreeofthesebrandscanco-operatethenuptoninevisitsmightno longerbe required,”Croshawsays.Thismeans,ofcourse,thatratherthanshowingmoreandmoreinspectorsround the facilities, factory management can actually getonanddealwiththeissuesthatauditsidentifyasrequiringattention.And,fromtheworkerwelfareperspective,“ifthereare two factory customers asking for improvements to bemade,thatcarriesmoreweightthanifitwasjustone.”

The information-sharing process has been somethingwelcomed by Levi’s staff in the field.“They’ve found it an

empoweringexperience,”Croshawsays.Ofcourse,fieldstaffcanbeinthebestpositiontobeabletomakesuggestionsabout problems at local factories and indicate possibleremediation measures. “They can now actively look forcreativewaystosolvetheproblems–andareencouragedtodoso.”Clearly,localstaffworkingfordifferent,competing,brandsareboundtobeawareofoneanother,andinmanycases are likely to be well acquainted. Information sharingmeansthattheycan,insomeareas,carefullyworktogetherformutualsuccess.

But just to get CSR initiatives on the senior managementagendaatmajormultinationalcorporations,letalonemakingitapriority,isataskmanysupplychainorsourcingteamsfindthemselvesfacing.Croshawsaysthatitisimportanttofindachampionamongtheseniorteamwho“gets”whatcorporateresponsibilityandethicalsourcing is reallyallabout.“That’swhathappenedatLeviStrauss,”shesays.“Noteveryonebuysinto the agenda, but we had senior management, right atthetop,whowereonboard.”

Lookingtothefuture,Croshawseesscopeforcontinuingtolookforcommonalitiesinauditsandauditprocedures,andshe thinks that pushing for ever-increasing transparency iswhatwillkeepdrivingtheprocessforwards.

For more information see www.levistrauss.com/Citizenship

HP – partnering with suppliersPromotingmoresupplychaintransparencywasverymuchpartoftheprocessforITgiantHPwhenitannounceditslistofsuppliers.Bonnie Nixon Gardiner,HP’sglobalprogrammemanager for its supply chain social and environmentalresponsibility programme, says:“We wanted to say‘we areproud you are our partner’ but more importantly‘now wearepublicaboutit’.”ThismeansthatHP’sethicalsupplychainpoliciesareupforscrutinyandthattherecanbe“noexcuses”fromthecompanyanditssuppliersalike.

HP sees its relationship with suppliers very much as apartnership.NixonGardinersays:“It’snotjustaboutpolicing.Thereisagreatdealofmutualrespect.Butinthesamewayas we work with suppliers on design and quality, we workwith them on social responsibility.” She is proud of HP’sinvestmentinstrategicmentoringinthecompany’ssupplychain.“Ifthereisaproblemweask‘whyareyounotgettingitright?’and‘whatcanwedotohelp?’.”


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“Focusonworkerownership–whilewecanenabletheprocess,theyhavetoownit”BonnieNixonGardiner

NixonGardinerisalsopleasedtobeinvolvedintheElectronicIndustryCodeofConduct(EICC–seeboxonp22).“Takinganindustryapproach,wherewecanalllearnfromothers,isveryimportant,”shesays.“Thereisnopointinrepeatingworkjustfor thesakeof it if there is informationthatcanbeshared.EICC ismakinggreatprogress, and it’s an initiative thatHPhasbeeninvolvedinfromthestart.”

Whendealingwithsupplychainissues,NixonGardinersaysthat it’s importantnot toget lost in theminutiae,but stayclearthatauditingandremediationprogrammesshouldbeabouttheworkersandfactoryconditions.“Focusonworkerownership – while we can enable the process, they haveto own it,” she says. Creating an environment where this ispossibleisalargepartofthebattle.

Leading on from this approach, Nixon Gardiner stressesthe need to deal with the root causes of problems, anddeveloping an understanding of them. She highlights theproblemsthatcanoccurwherethereisarapidlyexpandingeconomyandlargenumbersoffactoriesbeingestablishedinshorttimeperiods.“InChinesecities,forexample,theremightbeeightmillionmigrantworkers,butacivilinfrastructureforless thantwomillion.”Workersmightthennothaveaccesstohealthcare,legalorfinancialservices–notbecausetheyareactivelybeingdeniedthem,butsimplybecausethereisnocapacityforthem.Thatis,ofcourse,unlesstheiremployerprovidesthem–andit isnotuncommonforgovernmentstosaythat it is theresponsibilityof thecompanytodoso.Understandably,“this situation is something thatpeople indevelopednationssometimesstruggletounderstand,”NixonGardinersays.

Akeypartofdrillingdowntotherootcausesoftheissuesistotakecarenotjusttotreatthesymptomsofaproblem.NixonGardinersays:“Insomerespectsa‘tick-box’mentalityon its own doesn’t solve anything. Yes, audits are a vitaltool, and we have to have a presence in the factories, butwhat’s important is an understanding of what’s behindmanagementsystems.”Shearguesthatestablishingaseriesofkeyperformanceindicatorsis“asustainablefixandawaytoreallysolveproblems”.

And often the best solutions come from the factorymanagement and the workers themselves. “Involve themin the process,” Nixon Gardiner suggests.“Sometimes theymightnotevenrealisethattheyhavetheanswers.”Inotherwords,it’saboutempowerment.

HP is involved in a HERproject (Health Enables Returns)programme at two of its supplier sites in Mexico and atseveralinChina.“ManyITmanufacturingworkersarefemale.It’sanattractiveworkplaceenvironmentforthemasthere’sno heavy lifting and it’s relatively clean and secure. Thismeans thata lotof thehealth issuesaffectingaworkforceareconsistent.”TheHERprojectprovidesadviceabouthealthissues and also other relevant matters, including domesticviolenceandeducation.“I thinkthissortofpeereducationmodel can really work – and could even be extended tootherareas,”NixonGardinerargues.

Thebottomline,though,istokeepfocusingonthebusinesscasethat,forsuppliers,itisgoodforthecompany’sprospectstotreatemployeesproperly.“It’snotrocketscience–it’sjustcommonsense,”NixonGardinersays.Acontentworkforceisaproductiveone.Enticingemployeestostaykeepsturnovercostsdown.AndnowthatHPhasmadepublic itssupplierlist,thereisafurthermotivationforitssupplierstoimproveworkerconditions.“Factoriesareproudtobeonourlist.Butnowtheyhavetobemoreaccountable.”

For more information see: www.hp.com/hpinfo/globalcitizenship/environment/supplychain/index.html

www.hp.com/hpinfo/globalcitizenship/gcreport/supplychain.html


A Smarter Way to...• Encourage knowledge transfer of

successful sustainable productionmethods and practices presentlyadopted by manufacturers

• Equip manufacturers with the skillsets and capabilities necessary toimplement sustainable productionmethods and practices

• Engage stakeholders through localplatforms to increase awareness oncurrent and emerging sustainabilityissues and to facilitate commonunderstanding

• Build partnerships and collaborativenetworks which drive convergence,confidence and behavior changeacross the supply chain

Join today, visit www.csrlaws.com

2.0_China_Center_Poster:Layout 3 05/03/08 11:34 Page 2

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EthicalSourcingReport|NorthAmerica2008SUPPLY CHAIN RELATIONSHIPS

ELECTRONIC INDUSTRY CODE OF CONDUCT – THE WHAT, WHY AND HOW

TheElectronic IndustryCodeofConductoutlinesstandardsto ensure that working conditions in the electronicsindustrysupplychainaresafe,thatworkersaretreatedwithrespect and dignity, and that manufacturing processes areenvironmentallyresponsible.

To adopt the code, a business shall declare its support forthecodeandseektoconformtothecodeanditsstandardsinaccordancewithamanagementsystemassetout inthecode. Participants should regard the code as a total supplychain initiative. At a minimum, participants shall require itsnexttiersupplierstoacknowledgeandimplementthecode.

Fundamentaltoadoptingthecodeistheunderstandingthatabusiness,inallofitsactivities,mustoperateinfullcompliancewiththelaws,rulesandregulationsofthecountriesinwhichitoperates.Thecodeencouragesparticipantstogobeyondlegal compliance, drawing upon internationally recognisedstandards, in order to advance social and environmentalresponsibility.

Thecode ismadeupoffivesectionsthatoutlinestandardsfor:labour;healthandsafety;theenvironment;theelementsofanacceptablesystemtomanageconformitytothecode;and,businessethics.

EICC was initially developed by a number of companiesengagedinthemanufactureofelectronicsproductsbetweenJune and October 2004, which included Celestica, Dell,Flextronics,HP,IBM,Jabil,SanminaSCIandSolectron.

Source: Taken from the EICC Code of Conduct. For more information go to www.eicc.info

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“Many companies now openly express theircommitment to social responsibility, but theleveloftheiractivitiesvariesalot.Consumer-facing companies are certainly becomingmore concerned, and this is being noticedand discussed in the mainstream more than

the activities in other sectors such as mining or forestry inspiteofalonghistoryofsocialresponsibilityintheseothersectors,” says CBSR’s Lorraine Smith.The brands making arealdifferenceareworkinghardbehindthescenesinwaysthat the general public often fails to detect.The challengeforsociallyandenvironmentallyresponsiblecompaniesistousetheirsustainableprocurementstrategiestosupporttheirCSRandenvironmentallyawareimage.

Companiesarebecomingincreasinglyawareoftheirenviron-mentalimage,inlargepartbecauseofgrowingconcernover

climate change. Smith says:“Four years ago at the Intertekconference,factorycompliancewasthebigthing.Delegateswereclearlyfocusingonhumanrightsandlabourlaw.Atthisyear’sconference,socialandenvironmentalfactorsseemedtocarryequalweight indiscussionof sustainableprocure-mentstrategies.”

Sheagreesthattherehasbeenabiggrowthincompaniesoutside the retail sector that are also interested in sustain-ableprocurement.“Thefirstplacetheytendtolookispaper:

Corporatesocialandenvironmental respon-sibilityisagrowingconcernforsupplychains.Productsareincreasinglybeingbrandedas“green”or“derivedfromenvironmentallysustainablesources”,buthowcantheimageandthegreenwashbeseparatedfromgenuinelysustainableprocurementstrategies?Lorraine SmithfromCanadianBusinessforSocialResponsibility(CBSR)hassomeanswers.

“We’reintheinfancyofunderstandingtheenvironmentalandsocialimpactofourdecisions” LorraineSmith

Puttinggoodgreenintentionsintopractice

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where do they source their paper, how is it produced andhowmuchofitdotheywaste?Butfurtherimplementation,for example office furniture or computers, is often muchmoredifficult.”

Green queriesThe drive to associate products with environmental inter-ests has resulted in a wave of greenwash, where productsarepositioneddifferently,perhapsthroughapackagingre-vamp,butnosubstantivechangeshavebeenmade intheprocurementchain.Smithsays:“Notallthecurrentinterestintheenvironmentisgreenwashing,butthereisoftenalackofvigourandsophisticationbehindtheclaims,eveniftheyaremadeforgenuinereasons.

“Thereisa lackof informationandknowledgesurroundingthesubject,which isunderstandabletoanextent.We’re intheinfancyofunderstandingtheenvironmentalandtheso-cialimpactofourdecisions.”

But perhaps the widespread evidence of greenwashing atleastmeansthatcompaniesarestartingtothinkaboutthesocial and environmental impact of their operations? Notso,Smithsays.“Idon’tseeanythinggoodingreenwashing.Wemustencouragecompaniestobeabletobackupstate-ments.”

Greenwashing isenabledby the lackof legalor regulatorychecksoncompanies’claims,asphrasessuchas“CSR”,“car-bonneutral”and“carbonoffset”meandifferentthingstodif-ferentpeople. It is thereforeeasytomakeclaimsthathavelittlesubstance.Asaresult,surveysrepeatedlydemonstratethat consumers believe companies can have a huge influ-enceonclimatechangeandonworkingconditionsthroughtheirsupplychains;yetatthesametimeconsumerslargelyconsider corporate social responsibility and environmentalpoliciestobegreenwash.

Now, innovative trade associations and cross-business or-ganisations, including CBSR, are making it their mission toimproveenvironmentalandsocialperformance.Whilenon-compliancewithovertimeregulationsremainsabigworry,itisdifficulttoseparatethesocialandenvironmentaleffectsofmanyproblems.Forinstance,airqualityaffectsworkersaswellastheenvironmentbeyondthefactory,asdoeswastedisposal.

Oneofthebiggestconcernsininternationalprocurementinrecentyearshasbeenthediscoveryofleadinthepaintused

ontoys.Notonlydoesthisaffectthehealthoftheworkersontheproductionlineaswellasthechildrenwhoplaywiththetoys,butitalsohasimplicationsforlandfill.Ethicaltradedemandsthatcompaniesdemonstratethattheyareawareoftheimplicationsoftheirsupplychainandthenimplementeffectivecodesofconduct.Thisisequallyvalidwithbothso-cialandenvironmentalimplications.

The solutionSmithsaysthathowwegetfromthecurrentenvironmentofgreatinterestandlimitedactiondependsonwhethereachcompany can identify key goals. No single firm can put asmuch effort into mitigating all the negative social and en-vironmental effects of its procurement, while accentuatingthepotentialpositiveeffects.“Eachcompanyhastoidentifywhereitcanmakethemostimpact.Ifit’sabrandthatisCSR-aware and climate change is of concern to its customers,then itneeds to identify itsbiggestsourcesofgreenhousegasemissionsandthatisnotalwayswhereyouexpectittobe.”

Thebiggesthurdleisnot“dotheyreallymeanit?”but“howdo you do it?” Smith believes. She argues that the issue ofgreenwashisinitsinfancynotbecausecompaniesandcon-sumersdon’tcareandjustwantasuperficialanswer,butbe-cause we are generally still unsure of the questions to askandthebestanswerstoexpect.

CBSRconsidersthatthebalancedscorecardapproachisthebestoptionforcompaniesseekingtoturn imageintoreal-ity. Instead of just focusing on price, quality and timing intheirprocurementstrategies,theynowalsoneedtoincludeenvironmentalandsocialconsiderations if theyare to turnCSRpoliciesintomorethanjustasetofgoals.Smithadvises:“Letstakeholdersknowifyoumaketherightchoices:reputa-tionalpaybackwillserveyouwell.”

In its Good Company Guidelines, CBSR lays out a series ofcheckliststhatcompaniescanuseintheirrelationswithsup-pliers,consumersandotherstakeholders. Ineachcase, theorganisationrecommendsastagedapproachtoimplemen-tation. Once a commitment has been made, a firm policymustbedrawnup,aprogrammedesignedthatissubject

“Downwardpressureonpricehasledtoalotofsocialandenvironmentaldamage” LorraineSmith

AVOIDING GREENWASH

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EthicalSourcingReport|NorthAmerica2008 AVOIDING GREENWASH

toevaluationandmanagement,withstakeholdersinvolved.Importantly,thewholeprocessmustbetransparentandac-countable.

Certainly,puttinggoodintentionsintopracticeisnotalwayseasy.Smithgivesanexampleofalargeretailfirmthatisex-pandingbyopeningnewbranchesacrossCanada.Itwantstomakeapositiveimpactoneverycommunitywhereitop-eratesbutrecognisesthatbuildingnewstoresongreenfieldsites, where land is cheaper, can have a negative environ-

mental impact. It iscurrentlyassess-inghowtomarryitsbusinessmodelwithitspolicyoncorporatesocialre-sponsibilityandismeetingwithkeystakeholdergroupstodiscusshowtoachievethis.

Consumers tooConsumers also have a role to play.Totaketheexampleofpackagedre-tailproducts,consumersneedtoaskthemselves whether all ingredientsare disclosed; whether they containrecycled content; and whether thepackaging is designed to minimisewaste and maximise shipping.Theyalso need to consider whether theproduct is designed for long-termuse and whether it contains knowncarcinogens, hormone disrupters orother hazardous substances. In ad-dition, the post-consumer result oftheproductisnotalwaysobvious,asmany biodegradable products mayendupinlandfillwheretheycannotbiodegradeintheshortterm.

Smithagreesthatchangewilltakealongtimebutbelievesthatconsum-er pressure is not enough becauseconsumers are not critical or wellinformed enough.“Downward pres-sureonpriceiswhathasledtoalotofsocialandenvironmentaldamage.We can do things better but it willcost more and now may be a diffi-culttimetoeffectchangebecauseoftheglobaleconomicdownturn.”She

says thatcapitalmarketsneed tobesteered towardsenvi-ronmentallyandsociallyawareinvestment,butitisclearthatpromoting sustainable procurement will not be achievedovernight.

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EthicalSourcingReport|NorthAmerica2008AVOIDING GREENWASH

What is greenwash?How to make sure your supply chain is green

APPLY THE STAKEHOLDER APPROACH

Without stakeholder input and analysis, the greening of operations and products risks:

•Onlysolvingasmallpartoftheproblem;•Creatingunintendedconsequences;•Alienatingthosewhoit’smeant

tobenefit;and•Missingkeyopportunities.

TAKE THE GREENWASH TEST

There may be a greenwash situation if:

•Nothinghaschangedexceptthepositioningormessagingof

theproduct;•Oneissueispickedandfocused

inapositivewayandallothersareignored;and

•Unsubstantiatedclaimsaremade.

THE LIFE-CYCLE APPROACH

Use life-cycle analysis (LCA) to identify and prioritise which impacts can be affected:

•Rawmaterials;•Manufacturing(allstages);•Distribution;•Consumption;and•Disposal.

SETTING GREEN GOALS

Ask questions to develop your goals:

•Whatimpactdowewanttohaveonstakeholders,theenvironmentandourbusiness?

•Howwillwemeasurethisimpact?•Hasthefulllife-cycleanalysis

beenincluded?Andifnot,why?

Follow up:

•Measuretheimpactandadaptthestrategy;and

•Reviewresultswithstakeholders.

Source: Lorraine Smith, CBSR

Note: Lorraine Smith is an independent consultant, and until recently senior CSR adviser at CBSR. Smith remains an associate consultant for CBSR.

SUPPLIER CHECKLIST

1. Incorporatesocialandenvironmentalvaluesinto purchasingdecisions.2. Makefairandpromptpayment.3. Prioritiselocalsuppliers.4. Ensureallqualifiedbusinesseshavetheopportunityto supply.5. Donotenterintobusinessrelationshipswith companiesthatusecompulsorylabour.6. Informsuppliersofthecompany’sprocurement standards.7. Ensure directors and senior managers practise supply

chainriskmanagement.8. Gatherandpromptlyrespondtosuppliercomplaints.9. Involvesuppliersinsuppliercontractdevelopment: (a)performanceindicatordevelopment;and (b)contractevaluation.

Source: CBSR

COMMUNITY CHECKLIST

1. Makeexplicitcommunitycommitments: (a)businessbasics:meetcommunitydemandsforcost

effectiveproductsandservices; (b)philanthropy:meetcommunityneedswithout apparentbusinessbenefit; (c)commercialinitiatives:partnercommunity-based organisationsthatsupportbusinesssuccess;and (d)communityinvestment:engageinlong-term strategiccommunitypartnerships.2. Donate1%ofpre-taxprofits.3. Prioritiselocalemploymentandsuppliers.4. Incorporatesocialvaluesintopurchasingdecisions.5. Considerlocal/regionalemploymentandtrainingneeds

inhumanresourcesstrategy.6. Haveaboardandmanagementteamthatunderstands

communityinterests.7. Conductsocialandenvironmentalimpact assessments.8. Gatherandpromptlyrespondtocommunity complaints.9. Involvecommunitystakeholdersin: (a)programmedefinition; (b)performanceindicatordevelopment;and (c)programmeevaluation.

Source: CBSR

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China’sdevelopingenvironmentlaws

Q: How have China’s environmental laws developed over the past few years?

A: China’s environmental protection law system hasgradually been established with the development ofenvironmental protection measures, which have becomethe basis of China’s environmental protection efforts. Thelegal environmental protection system is integrated andindependent, consisting of associated and co-ordinatinglaws, regulations, rules, standards and international treatiesonenvironmentalprotection.ItisbasedontheConstitutionof the People’s Republic of China, with the basic law ofenvironmental protection at its core and provisions onenvironmental protection in other related branches of thelawsupplementarytothis.

Sofar,Chinahasformulatednineenvironmentalprotectionlawsand15naturalresourcelaws.Chinahasintroduced:

• Over 50 administrative regulations on environmentalprotection;

• Nearly200departmentrulesandregulatorydocuments;• 17militaryenvironmentalprotectionlawsandregulations;

and• Over800nationalenvironmentstandards.

And, thegovernmenthasapprovedandsignedmorethan50internationalenvironmentaltreaties.

Local People’s Congresses and local governments haveestablishedmorethan1600localenvironmentalregulations.

WithChinesefactoriesafeatureofmanysupplychains,brandsneedtokeepupwithChina’sstatutoryenvironmentalrequirements.InaninterviewforEthicalSourcingReport,Shen Xiaoyue,fromthePolicyResearchCentreforEnviron-mentandEconomyoftheStateEnvironmentalProtectionAdministration,explainsthebasisofChina’senvironmentallaws,howtheyareapplied,andsomekeyissuesofwhichcompaniesoper-atinginthecountryneedtobeaware.

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A legal environmental protection system has been initiallyestablishedthatreflectsChina’sactualsituation.

Environmentprotectionlegislationisoneofthemostactiveand fastest-growing fields in the legal system. In less than30years,Chinahasestablisheda relatively integrated legalsystem,developedfromnothing.

Q: What has been the time-frame for these developments?

A: After the United Nations Conference on EnvironmentandDevelopmentin1992,China’senvironmentallegislationenteredanewstageofdevelopmentguidedbytheconceptofsustainabledevelopment.

TheChinesegovernmentformulated10StrategiesonChina’sEnvironmentandDevelopmentand issuedChina’sAgenda21 – White-Book of China 21st Century on Population,EnvironmentandDevelopment.Overaperiodofmorethan20 years, significant breakthroughs have been achieved inChina’s environmental protection standards, environmentallegislationtechnologiesandanumberoflaws.

During this period, China has revised some outdated lawsandregulationsandcontinuouslyimprovedandrefinedtheenvironmentallawsystem.

• Solidwastepollution:People’sRepublicofChinaLawonthePreventionandControlofEnvironmentalPollutionbySolidWasteswasformulatedin1995andrevisedin2004.

• Atmospheric pollution: People’s Republic of China LawonthePreventionandControlofAtmosphericPollutionformulatedin1987wasamendedin1995andin2004.

• Noise pollution: People’s Republic of China Law on thePreventionandControlofNoisePollutionwasformulatedandimplementedin1996.

• Marine environment protection: Marine EnvironmentProtection Law of the People’s Republic of China wasamendedin1999.

• People’s Republic of China Law on Promoting CleanProduction and People’s Republic of China Law onAssessmentofEnvironmentImpactswereformulatedin2002.

• People’sRepublicofChinaLawonPreventionandControlofRadioactivePollutionwasformulatedin2003.

• People’sRepublicofChinaLawonPreventionandControlofWaterPollutionwasamendedin2008andwillgointo

effectonJune1st2008.

Inaddition,amendmentsofotherbasiclawshaveimprovedtheregulationofenvironmentalprotection.In2007,CrimeofViolatingtheProtectionofEnvironmentandResourceswasincludedintheCriminalLawintheformofaspecialchapter,whichwasamajorbreakthroughinChineselegislation.TheSupreme Court promulgated The Interpretation on SomeIssuesConcerningtheSpecificApplicationofLawintheTrialof Criminal Cases Involving Environmental Pollution whichdetailsstandardsforconvictionandsentencingasspecifiedinthePeople’sRepublicofChinaCriminalLaw.Itmakestheinvestigationofenvironmental criminal responsibilitymorepractical.

In November 2001, China joined WTO, an indication thatChina’s economic development is geared to internationalstandards.Furthermore,ChinahasenteredtheInternationalConvention, which accelerates the development ofenvironmentallegislation.

Q: What have been the significant milestones during the process of development?

A: Since the United Nations Conference on Environmentand Development, China has been determined to changeunsustainable production and consumption methods andproceedonthebasisofasustainabledevelopmentstrategy.TheformulationofChina’sAgenda21wasforthispurpose.

Sustainable development has brought comprehensiveand far-reaching effects on China’s environmental lawconstruction. There is now an increased emphasis onprevention principles, entire process management, cleanproduction, sourcing control and totality control in theenvironmentallawsystem.

With the penetration of the sustainable developmentstrategy and integrated environmental management, thescope involved inChina’s systemofenvironmental lawhasgrownfromaninitialcontrolofindividualelements(suchasthe“endcontrol”ofpollutionwithanemphasisonpollutanttreatment and disposal) to the entire process controlincluding the decision-making process (such as “pollutionsource control” and entire process control“from beginningtoend”).From, initially,managementof individual issuesorcertaintypesofissues(suchaswastemanagement),nowthefocusisonthemanagementofvariedrelatedmatters(such

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aswastemanagementandproductmanagement,resourcemanagementandenvironmentalmanagement).

Inaddition,somenewlegalsystemsarenowbeingpromotedin China, such as integrated decision-making systems,comprehensive assessment for environmental impacts,environmentallabellingsystems,cleanproductionsystems,newenvironmentandresourcetaxsystems,anddischargepermitsystems.Q: What is the break-down of responsibility for environmental issues at a national and regional level?

A: According to the People’s Republic of China Law onEnvironmentalProtection,theadministrativedepartmentofenvironmental protection directly under the State Councilshall implement unified supervision and administration ofenvironmentalprotectionallaroundChina.Theadministrativedepartments of environmental protection under localgovernments above county level shall implement unifiedsupervisionandadministrationofenvironmentalprotectioninlocalareas.

TheadministrativedepartmentofenvironmentalprotectiondirectlyundertheStateCouncilshallestablishstatepollutantdischarge standards according to environmental qualitystandards and the economic and technological conditionsofthestate.

The people’s government of any province, autonomousregionormunicipalitymay,forissuesnotprovidedinthestatepollutantdischargestandards,workoutlocalstandards.Forissuescoveredbythestatestandardsforpollutantdischarge,local authorities may also devise local standards that arestricter thanthestatestandards.Suchstandardsshouldbefiled with the administrative department of environmentalprotectionundertheStateCouncil.Companiesthatdischargepollutants in areas where the local standards for pollutantdischarge have been established shall observe such localstandards.

Q: For companies currently operating in China or wishing to set up operations in China, what are the key requirements of China’s environmental laws?

A: According to the People’s Republic of China Law

on Environmental Protection, companies that causeenvironmental pollution and other public hazards shallincorporate environmental protection into their plans andestablisharesponsibilitysystemforenvironmentalprotection.Theymustadopteffectivemeasurestopreventandcontrolpollution and harm caused to the environment by wastegas, waste water, waste residues, dust, malodorous gases,radioactivesubstances,noise,vibrationandelectromagneticradiationgeneratedinthecourseofproduction,constructionorotheractivities.

Facilities for the prevention and control of pollution in aconstructionprojectmustbedesigned,builtandputintousetogetherwiththeprincipalpartoftheproject.Nopermissionshallbegivenforaconstructionprojecttobecommissionedor started, until its facilities for the prevention and controlof pollution are examined and considered to have metthe standards set down by the appropriate department ofenvironmentalprotectionadministrationthatexaminedandapprovedtheenvironmentalimpactstatement.

Facilitiesforthepreventionandcontrolofpollutionshallnotbedismantledorleftidlewithoutauthorisation.Ifitisreallynecessarytodismantlesuchfacilitiesorleavethemidle,priorapprovalshallbeobtainedfromtheappropriatedepartmentofenvironmentalprotectionadministrationinthelocality.

Enterprises and institutions discharging pollutants mustreport to and register with the relevant authorities inaccordancewiththeprovisionsoftherelevantdepartmentofenvironmentalprotectionadministrationundertheStateCouncil.

Enterprisesandinstitutionsdischargingpollutantsinexcessof the prescribed national or local discharge standardsshall pay a fee for excessive discharge according to stateprovisions and shall assume responsibility for eliminatingandcontrollingthepollution.TheprovisionsoftheLawon

“Ifanenterpriseorinstitutionhascausedsevereenvironmentalpollution,itshallberequiredtoeliminateandcontrolthepollutionwithinaprescribedperiodoftime” ShenXiaoyue

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PreventionandControlofWaterPollutionshallbecompliedwithwheretheyareapplicable.Theincomederivedfromthefeeleviedfortheexcessivedischargeofpollutantsmustbeusedforthepreventionandcontrolofpollutionandshallnotbe appropriated for other purposes.The specific measuresthereofshallbeprescribedbytheStateCouncil.

Ifanenterpriseorinstitutionhascausedsevereenvironmentalpollution, it shall be required to eliminate and control thepollutionwithinaprescribedperiodoftime.

Q: What environmental issues will the Chinese authorities deal with next?

A: In the Outline of the 11th Five-Year Plan for NationalEconomic and Social Development, it says that duringthe period of “11th Five-Year Plan”, the unit GDP energyconsumption should be decreased by 20% and totaldischargeofthemainpollutantsshouldbereducedby10%.

By2010,energyconsumptionper10,000yuanofGDPshouldbereducedfrom1.22tonnesofstandardcoalin2005tolessthanonetonneofstandardcoal,areductionofaround20%.Waterconsumptionperunitofindustrialaddedvalueshouldbeloweredby30%.

Duringtheperiodof“11thFive-YearPlan”,thetotalpollutantdischargeshouldbereducedby10%.By2010,thedischargeof sulphur dioxide should be reduced from 25.49 milliontonnesin2005to22.59milliontonnes.Theaveragesewagetreatment rate of cities and towns should be no less than70%andcomprehensiveutilisationofindustrialsolidwastesshouldbemorethan60%.

Q: What issues do you think will be of the greatest concern over the coming years?

A: Firstly, establishing a solid and complete environmentallawsysteminChina;strengtheningthelegalresponsibilitiesof stakeholders, especially governments’ responsibility inenvironmental protection; and adopting more and bettereconomicmeasuresinenvironmentalprotection.

Secondly,changingeconomicandtradegrowthprocesses;solving structural problems in environmental pollution;and solving environmental problems in the process ofdevelopment,soastopromoterapideconomicgrowth.

Thirdly, further intensifying efforts in energy saving andemissionreduction,andimprovingenvironmentalconditionsinbothwatercoursesandtheatmosphere.

Shen Xiaoyue is division director and seniorresearcherintheDivisionofEnvironmentalLawatthePolicyResearchCentreforEnvironmentand Economy of the State EnvironmentalProtectionAdministration,basedinBeijing.

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