The integrity and sustainability of supply chains are under increased scrutiny in today’s global marketplace. According to McKinsey, 70% of companies believe a supplier code of conduct significantly improves their risk management and compliance efforts.
Although this is undeniably important, these codes and practices are not just about following compliance. At their heart, they are about demonstrating ethical, sustainable and socially responsible practices across every facet of the supply chain.
How have supplier codes of conduct evolved?
The nature of the supplier code of conduct has evolved significantly over the past decade. This evolution has been driven by changes in ESG reporting requirements and legislation. Today, businesses must take these requirements into consideration if they are to foster ethical and sustainable partnerships. For example, the introduction of the 17 Sustainable Development Goals (SDGs) in 2015 marked a pivotal shift. The SDGs brought increased focus to measures intended to address the climate crisis, social inequality, and promoting ethical economic growth.
Much of this change has been driven by a number of government-backed legislation. These include the Companies Act 2006 (Strategic Report and Directors’ Report), Regulations 2013 and the EU’s Non-Financial Reporting Directive, which was brought into UK law in 2016. These regulatory changes have urged businesses to develop or re-develop their supplier codes of conduct to ensure continued compliance throughout the supply chain.
What are the key components of an effective supplier code of conduct
Changes in government-backed legislation have driven businesses to rethink their supplier codes of conduct. So, in the current regulatory climate, what makes for an effective one?
Businesses must ensure their supply codes of conduct demonstrate a commitment to ethical, safe and sustainable practices. Not only that, but they must establish that suppliers are equally committed. Essentially, the foundations of what makes an effective supplier code of conduct is built around five core pillars:
- Protection of planet and people: The code must prioritise ethical, safe, and sustainable practices to ensure that both internal and external stakeholders are safeguarded.
- Clarity and completeness: The code must be clear, concise and comprehensive – covering areas such as ethics, anti-bribery, conflicts of interest, legal compliance, data protection, human rights, labour practices, health and safety, environmental laws, and sustainability.
- Consistent with international standards: Aligning with standards like the ETI Base Code, ILO’s International Labour Standards, or the UN Global Compact can ensure that expectations are consistent and manageable for suppliers.
- Effective communication: Organisaitons must effectively communicate codes of conduct clearly to all suppliers and require them to communicate upstream.
- Enforceability: Backed by corresponding policies, codes of conduct should provide assurance that suppliers can and will adhere to the code, making it enforceable through non-negotiable contractual obligations.
Sustainability is a vital cog in the supplier code of conduct machine
Sustainability considerations that sit within the supplier code of conduct are no longer optional. With businesses under the spotlight regarding their societal obligations, incorporating environmental and societal impact into their supply chains is crucial. Corporate Social Responsibility (CSR) initiatives, which includes sustainability, are vital for building trust and loyalty among customers.
For instance, the UK government’s pledge to be Net Zero by 2050 underlines the importance of sustainability in procurement. By fostering supplier partnerships that support Environmental, Social, and Governance (ESG) goals, businesses can demonstrate continuous action and commitment to meeting these targets.
Leveraging technology to continuously improve
Technology is becoming an increasingly important and heavily utilised tool to ensure ethical and supplier practices are followed. Organisations can use technology, such as analytical and performance tracking software. This technology allows them to monitor and track suppliers’ performance against the principle laid out in the code of conduct.
Additionally, leveraging automation of data capture and collection processes reduces time and human-induced errors associated with manual data processing. Not only that, but it can allow for real-time alerts to flag any compliance violations or risks as they arise. This then allows for the swift resolution of compliance issues. Research from the CIPS revealed that 58% of UK manufacturers experienced a supply chain disruption in the past 12 months. By leveraging technology to identify and mitigate risks against the supplier code of conduct, businesses can continue working to ensure their suppliers are following ethical and sustainable practices.
What does the future hold?
Looking ahead, supplier codes of conduct must adapt to regulatory demands and mandatory disclosures in order to advance the ESG agenda. Transparency, compulsory ESG and sustainability ratings, and visibility into the origins of materials will become increasingly important in the years ahead. Future supplier codes of conduct must be more collaborative and they must focus on responsible, ethical, and sustainable procurement.
Kim Russell leads on Procurement Transformation and Integration for OCS UK&I. She has 25 years’ experience delivering procurement strategy, process improvement, strategic sourcing, and stakeholder management. Kim is passionate about breaking down barriers to sustainable procurement, driving efficiency, improving supplier relationships, and simplifying procurement for all.
