Investors and shareholders are taking an increasingly keen interest in supply chains. In March, Zara was the latest major brand to find itself under pressure to make public a full list of its suppliers.
More and more investment houses are offering “active shareholding” as part of their service to clients, and ESG reporting on portfolios is now commonplace.
Suppliers under the regulatory microscope
Meanwhile, legislation is also placing greater scrutiny on larger companies. In April 2024 the European Parliament passed the Corporate Sustainability Due Diligence Directive (CSDDD), which will require larger companies to exercise far greater oversight of their supply chains. A survey from the Santander bank, published in the same month, reported that more than half of UK firms are now seeking greater transparency in their supply chains, with almost three quarters reporting growing pressure from customers to meet ESG requirements.
This is good news for organisations downstream from these major brands. However, in practice, ensuring quality all the way along a global supply chain is not easy.
Large multi-national organisations typically have chains that extend through numerous levels, with many different strands feeding into each. May’s revelation that L’Oreal subsidiary Lancôme and Estee Lauder subsidiary Aerin Beauty have been employing child labour in Egypt demonstrates that ticking the boxes of transparency is not enough.
L’Oreal’s website boasts “a responsive and responsible supply chain”. At the same time, Estee Lauder’s has a page on responsible sourcing. However, neither company knew how their suppliers harvested the jasmine in their products.
Top down isn’t enough
Achieving true transparency requires a lot of work. Brands need to establish a culture of collaboration and accountability between manufacturers, suppliers and retailers. It’s not enough simply to issue edicts from the top and to request completed questionnaires — to achieve real improvements, manufacturers need to be provided with an environment where they feel comfortable admitting their failings and supported.
If a culture of blame develops, suppliers will be reluctant to disclose problems, making it far harder to develop a safe and ethical workplace.
The process of sourcing responsibly begins with the selection of partners which already share a belief in high ethical standards. Trust is vital – to build the right relationship there has to be an experienced team on the ground which can deal with issues efficiently and impartially. Investment in training is likely to play a part in this, not only building capabilities but also developing teams that can manage the process of compliance with labour, environmental and health and safety standards.
It’s vital to establish communication channels that remain open year-round, not simply when an audit is due. It’s important that suppliers in different regions report issues as they happen, not only when problems arise. Changes in legislation, such as the CSDD, also demand open and honest conversations with suppliers to ensure that the implications are understood, and that support is provided where needed.
What’s next?
In reality, most brands require specialist help in their journey to supply chain transparency. Encouraging ethical working practices needs to be handled carefully so that required changes don’t come across as heavy-handed or overly bureaucratic.
Processes that may be taken for granted by a brand, for example, such as implementing a robust grievance procedure, may be daunting for a local if the rules are foreign to the in-house team. And there’s no point in imposing new processes unless they actually work.
Awareness of the implications of actions taken far down the supply chain is growing fast and the price of a failure to achieve full visibility is very high. A shocking revelation in the media can hit sales – and a brand’s share price – very hard. Supply chain transparency is not a new topic, but any brand which has been merely paying lip service to it will need to get to work fast to make it a reality.
- Sustainability
