Companies should regularly assess the labour performance of at least new and existing direct suppliers, and ensure that their direct suppliers assess and monitor their sub-suppliers. Companies should report on the results of these assessments. They should request corrective action plans from non-conforming direct suppliers and sub-suppliers, and, as a last resort in cases of repeated non-compliance, terminate contracts.

Background

A 2013 UN Global Compact survey of nearly 2,000 global companies across sectors showed that while a majority of companies have established sustainability expectations for their suppliers, they are not tracking compliance.46 While supplier assessments such as audits can only provide a snapshot of performance at one point in time, when done well they can be helpful in identifying labour issues at supplier level, especially when information is gathered directly from workers. However, monitoring can only identify the problem, and needs to be followed up by actions to address the problem, such as building suppliers’ capacity to address the issues (further examples are outlined in Expectation 4).

Engagement questions

Opening questions

Monitoring supplier compliance - scope and robustness

  • Does the company assess the labour performance of its direct suppliers and/or high-risk suppliers?

Addressing supplier non-conformance

  • Does the company act in cases where suppliers are identified as not complying with the code?
  • Does the company require corrective action plans within a specific timeframe?

Follow-up questions

Monitoring of supplier compliance - scope and robustness

  • Does the company assess the labour performance of its sub-suppliers, including at farm level, and its labour brokers?
  • What percentage or type of direct suppliers and subsuppliers is the company monitoring, and how often?
  • To what extent does the company undertake unannounced audits?
  • Is the monitoring done according to internationally recognised standards (e.g. the SMETA methodology from Sedex)?
  • Is a third party involved in the monitoring? If so, to what extent?
  • Does the company gather information from workers on the ground (e.g. by making use of mobile phone applications)?

Monitoring of supplier compliance - outcomes

To report on outcomes of monitoring processes, what kind of information does the company disclose, including both quantitative information (e.g. percentage of suppliers assessed, number of suppliers where negative performance on the labour practices were identified) and qualitative information (e.g. whether cases of non-conformity were identified and what kind of issues)?

Certification

If the company uses certification that covers labour practices:

  • How much of the company fs key crops/commodities/ purchasing volume is certified?
  • How does the company evaluate the effectiveness of the certification it uses? Where needed, how does the company work with certification bodies to improve standards?

Addressing supplier non-conformance

  • How does the company act in cases where supplier are identified as not complying with the code?
  • Does the company decrease sourcing?
  • Where the code is repeatedly violated does the company, as a last resort, suspend/terminate contracts?
  • Does the company support suppliers to move to good practice e.g. via training?

Does the company disclose outcomes, e.g.

  • percentage or number of suppliers with which improvements were agreed and/or achieved;
  • percentage or number of suppliers that were warned or for which contracts have been terminated;
  • percentage or number of suppliers with which relationships were terminated as a result of repeated negative performance?

Company examples

Setting measurable and time-bound targets on monitoring: The Singaporean agri-business Olam has set time-bound targets to ensure its suppliers, including farmers, are compliant with the labour criteria of its supplier code: by 2015, the company aims to have 50% of tonnage compliant, and 100% by 2020. To achieve this, the company will continue its supplier training and awareness raising on its code, develop country level supplier risk assessments, conduct annual audits, focus on products with a higher risk – cocoa, hazelnut, cotton, rubber and palm – and continue as one of the few food and beverage companies participating in the Fair Labor Association (FLA).

Assessing conditions at farm level, unannounced third party audits, reporting on outcomes: A number of companies report that they reserve the right to conduct unannounced audits, without explaining whether they actually exercised that right. To demonstrate its compliance with ILO standards, Olam provided a case study of its hazelnut sourcing from Turkey, where Olam conducted unannounced audits with the FLA at 39 farms, and aims to monitor another 60 farms in the next season. Cases of child labour were identified on three farms, where children of migrants were found to be employed. Remedial actions were immediately put in place, including a warning that repeated incidents would not be tolerated, establishing child care areas and supporting ILO projects.

Reporting on volumes of certified commodities: Olam lists the certification bodies it is using in its sustainability report. It reports on the tonnage of internally and third-party verified produce, e.g. 71,488 MT Rainforest Alliance certified cocoa and coffee and 30,755 MT UTZ certified cocoa and coffee.

Addressing supplier non-compliance: The British Dutch consumer goods company Unilever requires non-conforming suppliers to create time-bound remediation plans addressing root causes, the implementation of which is verified by an audit company. Where suppliers are not willing to comply, Unilever’s Procurement Code Committee will evaluate the situation and issue recommendations. In cases where suppliers are found in repeated non-conformance with the code and put no remediation plans in place, the issue will be escalated to Unilever’s Global Procurement Code Committee for a decision on terminating the business relationship.

The company demonstrates its systematic supplier analysis and improvement process by reporting in detail on outcomes including the extent to which corrections were achieved in each country (see chart on the following page). Most issues related to health and safety, with wages and working hours being another recurring issue, in particular in relation to part-time or temporary workers. In 2013/2014, Unilever found a 60% decrease in non-conformance of suppliers who were re-audited one year after the initial nonconformance was identified.

Tools and further guidance

Guidance on how to monitor supplier compliance:

  • SAI, IFC (2010) . Measure & Improve Your Labor Standards Performance. Performance standard 2 handbook for labor and working conditions, chapter on eLabor Standards Performance in Your Supply Chain f: Supplier Risk Assessment, p. 73ff; and eSupplier Risk Assessment Guidelines f, p. 177f.
  • BSR, UN Global Compact (2015) - Supply Chain Sustainability - A Practical Guide for Continuous Improvement, Second Edition, chapter 5: Engaging with Suppliers: Monitoring and evaluation), p. 39ff.

Labour related certifications and standards:

  • The Standards Map of the International Trade Centre provides an overview of sustainability standards. Amongst other things, these can be filtered by commodity, producing country, destination market and issues (including worker and labour rights, ILO 8 core conventions, child labour).
  • SA8000 certification covers ILO core conventions, as well as working hours and living wage.

Issue-specific guidance on common audit non-compliance, and how to achieve and maintain standards:

  • Sedex and Verite (2013) - Supplier Workbook. See Part 1: Labour Standards.

Unilever’s reporting on supply chain human rights issues and outcomes achieved by industry

Unilever’s reporting on supply chain human rights issues and outcomes achieved by industry

Download the full report

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    From poor working conditions to forced labour - what's hidden in your portfolio?

    June 2016