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Process requirements 4

Here we explain what is meant by preventing and mitigating adverse impacts linked to the supplier. We describe the responsibility and the need to use your leverage through, for example, supplier assessments, the establishment of action plans and the forwarding of requirements in writing.

Excerpt from the contract terms

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Supplier shall use its leverage to prevent and mitigate actual and potential adverse impacts linked to Supplier's operations, by

a) assessing risk suppliers based on the commitments in the Code of Conduct for suppliers and the due diligence process, with a particular focus on the most significant risks identified,

b) establishing action plans for risk suppliers, with a particular focus on the most significant risks identified,

c) forwarding the commitments in the Code of Conduct for suppliers (clause 1) and the due diligence process (clause 2) in writing to risk suppliers,

d) requiring risk suppliers to account for their supply chains in accordance with the supply chain transparency requirement (clause 4.3) and

e) ensure the ability to temporarily stop deliveries from a subcontractor while preventive and limiting measures are taken and, in the event of serious deviations that are not remedied, the ability to terminate the contract with the subcontractor concerned.

You may be involved in adverse impacts either through your own operations or through suppliers and other parties linked to your operations, such as security forces.

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“Linkage” is defined by the relationship between the adverse impact and the supplier’s operations, through sub-suppliers and other entities. “Linked” is not defined by direct contractual relationships, for example “direct sourcing”. A supplier is hence linked to all adverse impact in the supply chain.

Processkrav 3 Linkage ENG_4x.png

Example of linkage​

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  • A supplier of electronics sells laptops by a brand that has outsourced its production to manufacturers sourcing cobalt mined by child labourers.

  • A supplier of work clothes sells shirts with embroidered labels, whose sewing process has been outsourced to child labourers in homes by the manufacturer.

  • A supplier of fruit sells bananas grown using pesticides, which impact the surrounding community’s water supply as well as the fertility of male workers.

If a supplier is linked to adverse impact, it does not have responsibility for the impact itself: that responsibility lies with the sub-supplier or entity that is causing or contributing to the harm.

However, the supplier has a responsibility to use its leverage to make the entity causing or contributing to the adverse impact to cease, prevent or mitigate it.

 

Definition of leverage

 

Leverage is considered to exist where the supplier has the ability to effect change in the wrongful practices of the entity causing the harm.

The appropriate approach to using leverage will depend on the degree of leverage a supplier possesses over the sub-supplier or entity causing the harm, the impact in question, and other characteristics specific to the sector and/or nature of the business relationship.

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The degree of leverage may be influenced by factors such as:

  • the supplier’s degree of direct control over the entity

  • the proportion of business the supplier represents for the entity

  • the supplier’s market power in general.

 

Appropriate approaches to using leverage may include one or several of these strategies:

  • incorporating requirements in contracts with risk suppliers

  • supporting or collaborating with risk suppliers in developing action plans

  • following-up risk suppliers’ measures to prevent and mitigate adverse impacts

  • engaging with risk suppliers through letters, emails, phone calls or face-to-face meetings

  • providing technical guidance or capacity-building to risk suppliers (trainings, upgrades of management systems, establishment of complaint mechanisms, provision of personal protective equipment etc.)

  • committing to future business or long-term contracts, if risk suppliers improve their sustainability performance 

  • facilitating access to finance for risk suppliers to help implement action plans, through guarantees of continued sourcing, direct financing or low-interest loans

  • cooperating with other buyers to improve the sustainability performance of risk suppliers, including through industry associations and multi-stakeholder initiatives

  • facilitating participation of risk suppliers in cross-sector, sector-wide or regional initiatives, such as amfori BSCI and the Responsible Business Alliance

  • engaging with local or central governments to improve the sustainability performance of risk suppliers, through regulations, monitoring, sanctions etc.

  • communicating the possibility of disengagement from risk suppliers.

 

If the supplier lacks leverage it shall consider ways to build leverage, through longer-term relationships, commercial incentives, outreach to senior management, cooperation with other actors and buyers, or through engagement with governments.

 

a) Assessing risk suppliers

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You must assess risk suppliers based on the commitments and the due diligence process, with particular focus on the most significant risks. This means that supplier assessments shall include:

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  • actual and potential adverse impact caused or contributed to by the risk supplier (e.g. unsafe handling of chemicals, payment of bribes to officials)

  • the risk provider's capacity and willingness to carry out due diligence

  • the adequacy of the due diligence performed, including the measures the risk provider implements to prevent and mitigating adverse impact.

  • How to carry out a risk analysis
    Step 1: Mapping the supply chain The first step in a risk analysis consists of mapping the supply chain to find out its structure. This includes identifying in which countries the work is carried out, and if possible also in which regions. This is particularly relevant if the work is carried out in any region known to have high risks. Within certain industries such as food, textiles and IT there is a lot of information. For other industries such as pharmaceuticals, however, transparency is low. To obtain this information, you can ask the category manager, the category councils, ask questions of suppliers, find out import data, read audit reports and market analyzes for specific industries. It is also important to identify what type of work is carried out and what type of actors in the supply chain that performs it. Is it, for example, an industry characterized by low wages and health-hazardous processes? Does the workforce consist of migrant workers or seasonal workers? Is the supply chain complex with many subcontractors and a lack of transparency? This type of information is important as both geographical risks, industry risks and product risks need to be taken into account. Step 2: Gather information from credible and independent sources Once you have mapped the origin and the supply chain, the next step is to gather information about the situation of human rights, workers' rights, the environment and business ethics in the relevant countries where the work is carried out, that is, both for final manufacturing, component manufacturing and raw materials. For this you need to turn to credible and independent sources such as international organizations, authorities, voluntary and civil society organizations and global trade unions. Sources Step 3: Identify and assess negative impacts The last step involves assessing the actual and potential negative impact the supply chain is associated with, based on the information that has been compiled in steps 1 and 2. This is to be able to determine which concrete measures need to be taken to manage the risks. Often several risks have been identified and to prioritize them you need to make a seriousness assessment. The most significant risks are prioritized based on probability and seriousness ( read more under point d in process requirement 2 )

Suggested verifications​

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  • Process documents that describe how you determine whether you cause, contribute to or are linked to negative impact.

  • Process document describing the supplier assessments.

  • Supplier assessments for sample products, where responsibility has been defined.

  • Supplier self-assessments, for sample products.

  • Reports from on-site visits or inspections, for sample products.

  • Reports from multi-stakeholder initiatives, for sample products.

b) Establish action plans for risk suppliers

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You must establish action plans for risk suppliers, with particular focus on the most significant risks that have been identified. Which measures are needed depends on the adverse impact in question. However, it is important that they target the root cause of the problem. In order to prevent excessive overtime, it is not enough to demand that the practice cease. It is also necessary to investigate the underlying cause. Are workers forced to work overtime? Do they choose to do so because of low wages? Are there other reasons? In that way you can address the root cause.

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Depending on your leverage and relationship with the risk provider, the action plans can either be internal documents that guide decision-making or drawn up in consultation with risk suppliers. They must describe your measures and your expectations of risk suppliers.

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The action plans shall be documented, notified to the affected party and contain the following:

  • Proposed measures i.e. descriptions of how you and/or the sub-supplier intend to prevent and mitigate the adverse impact, including the identified root cause

  • Time frames, ie. date for when the measures must have been carried out at the latest.

  • Responsible persons, i.e. the persons responsible for the implementation of the measures

 

However, it is important to note that you should only enter into business relationships if you assess that you will be able to use your leverage to prevent and mitigate adverse impact.

  • How to carry out a risk analysis
    Step 1: Mapping the supply chain The first step in a risk analysis consists of mapping the supply chain to find out its structure. This includes identifying in which countries the work is carried out, and if possible also in which regions. This is particularly relevant if the work is carried out in any region known to have high risks. Within certain industries such as food, textiles and IT there is a lot of information. For other industries such as pharmaceuticals, however, transparency is low. To obtain this information, you can ask the category manager, the category councils, ask questions of suppliers, find out import data, read audit reports and market analyzes for specific industries. It is also important to identify what type of work is carried out and what type of actors in the supply chain that performs it. Is it, for example, an industry characterized by low wages and health-hazardous processes? Does the workforce consist of migrant workers or seasonal workers? Is the supply chain complex with many subcontractors and a lack of transparency? This type of information is important as both geographical risks, industry risks and product risks need to be taken into account. Step 2: Gather information from credible and independent sources Once you have mapped the origin and the supply chain, the next step is to gather information about the situation of human rights, workers' rights, the environment and business ethics in the relevant countries where the work is carried out, that is, both for final manufacturing, component manufacturing and raw materials. For this you need to turn to credible and independent sources such as international organizations, authorities, voluntary and civil society organizations and global trade unions. Sources Step 3: Identify and assess negative impacts The last step involves assessing the actual and potential negative impact the supply chain is associated with, based on the information that has been compiled in steps 1 and 2. This is to be able to determine which concrete measures need to be taken to manage the risks. Often several risks have been identified and to prioritize them you need to make a seriousness assessment. The most significant risks are prioritized based on probability and seriousness ( read more under point d in process requirement 2 )

Suggested verifications​

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  • Process document that describes how you work with action plans, including prioritization of risks.

  • Action plans including prioritisation of risk, for sample products.

c) Forwarding the commitments and the due diligence process

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You must forward the commitments and the due diligence process in writing to risk suppliers. The most common methods of forwarding are written contracts and signing codes of conduct. The documents shall be written in a language the risk provider understands. Sometimes it may also be appropriate to forward the commitments in local languages, if they are connected to a complaints mechanism.

 

Guidance process requirements 6

 

By requiring forwarding of not just the commitments but also the due diligence process, contracting organisations cascade both the commitments and the due diligence in the supply chain. This also means that risk suppliers are required to continue forwarding, since it is part of due diligence.

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  • How to carry out a risk analysis
    Step 1: Mapping the supply chain The first step in a risk analysis consists of mapping the supply chain to find out its structure. This includes identifying in which countries the work is carried out, and if possible also in which regions. This is particularly relevant if the work is carried out in any region known to have high risks. Within certain industries such as food, textiles and IT there is a lot of information. For other industries such as pharmaceuticals, however, transparency is low. To obtain this information, you can ask the category manager, the category councils, ask questions of suppliers, find out import data, read audit reports and market analyzes for specific industries. It is also important to identify what type of work is carried out and what type of actors in the supply chain that performs it. Is it, for example, an industry characterized by low wages and health-hazardous processes? Does the workforce consist of migrant workers or seasonal workers? Is the supply chain complex with many subcontractors and a lack of transparency? This type of information is important as both geographical risks, industry risks and product risks need to be taken into account. Step 2: Gather information from credible and independent sources Once you have mapped the origin and the supply chain, the next step is to gather information about the situation of human rights, workers' rights, the environment and business ethics in the relevant countries where the work is carried out, that is, both for final manufacturing, component manufacturing and raw materials. For this you need to turn to credible and independent sources such as international organizations, authorities, voluntary and civil society organizations and global trade unions. Sources Step 3: Identify and assess negative impacts The last step involves assessing the actual and potential negative impact the supply chain is associated with, based on the information that has been compiled in steps 1 and 2. This is to be able to determine which concrete measures need to be taken to manage the risks. Often several risks have been identified and to prioritize them you need to make a seriousness assessment. The most significant risks are prioritized based on probability and seriousness ( read more under point d in process requirement 2 )

d) Require risk suppliers to account for supply chains

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You must oblige risk suppliers to report on the supply chains in accordance with the requirement for transparency in the supply chains (point 4.3). This requirement will be adapted in each procurement depending on the complexity and maturity of each industry.

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Transparency in the supply chain

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Requiring risk suppliers to be transparent with supply chains leads to better risk assessments and risk mitigation over time. The information is also increasingly important for procurement organizations, which have sanctions and other regulations to comply with. However, you can use existing transparency systems to reduce any unnecessary burdens.

Suggested verifications​

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  • Process document(s) which describe(s) the forwarding of commitments and due diligence process.

  • Formal agreements that include both the commitments and the due diligence process, for sample products.

  • Signed codes of conduct, for sample products.

  • If the supplier is part of a multi-stakeholder initiative, a benchmark of the initiative against the commitments and the due diligence process, and a description of how the supplier is working within it to update it, if needed.

  • If the supplier is selling goods from a multinational brand that won’t sign its code of conduct, a benchmark of the brand’s policies and processes against the commitments and due diligence process, and an action plan depending on whether there are any discrepancies and the degree of leverage.

  • Signed sustainability certifications, for sample products.

Templates for process requirements 4 (in Swedish only)​

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