Addressing risks

Sustainability risks such as child labour, low wages and income, poor working conditions and environmental pollution have various causes. It is important for your company to take action and address them. Here’s how to do it:

Make a plan for the potential and actual risks that you identified and, if applicable, prioritised in step 2. This plan of action must clearly state which measures you intend to take to prevent or limit adverse impacts, who is responsible for taking these measures, who is needed to implement these measures and the required budget. Engage with the right stakeholders while you are making the plan of action. This could be suppliers with known issues, experts who are knowledgeable about these issues and possible solutions, or the individuals who are affected by the issues (or their representatives, such as trade unions or non-governmental organisations).

Good supplier relationships are needed to address sustainability issues. For many companies, wholesalers will be the first point of contact in the supply chain. In some cases, the wholesaler will have thought about how to eliminate negative impacts. If that is not the case, you can engage with suppliers about sustainability risks and consider ways to improve.

If a company does business directly with suppliers in production countries, it is crucial to make clear agreements about social and environmental themes and to work towards long-term collaborations.

This can be done by:

• respecting agreements;
• paying on time;
• letting suppliers know about changes in good time;
• working towards multi-year contracts that give suppliers peace of mind;
• proactively searching for common projects or initiatives.
• saying that you are willing to invest time and money into the relationship and improve the issues in the supply chain;
• letting the manufacturer provide input for specifications, contracts and delivery terms;
• being transparent about relevant market developments and opportunities that benefit you both;
• recording these agreements in the previously mentioned 2-way code of conduct.

Although it is better to remain engaged and look for improvements together, you may find that you need to switch supplier. This is the worst-case scenario and is always a final resort.

Occasionally, companies can effectively address risks in the supply chain by carrying out specific projects. This could be switching from pesticides to organic pesticides, investing in transport to the local school or promoting the use of personal protective equipment for a company’s employees. When selecting this type of project, it is important to engage local experts, the local community and other stakeholders, as they know where the need is greatest.

SMEs sometimes do not have enough bargaining power to engage with suppliers on certain topics. Collaborating with other companies and stakeholders, such as NGOs, can help. There is a growing trend among companies in the textile sector to state which factories they work with. One example is the Open Supply Hub. If several companies purchase from the same factory, they can engage as one with that supplier on certain topics. Many high-risk sectors have set up collaborations or coalitions that companies can join. Check out how your SME can join current initiatives.

There are many different types of sustainability certifications. These could relate to agricultural best practices or organic farming. Certification involves a check by an independent organisation. They assess whether a company implements certain best practices. For many smaller companies, purchasing certified ingredients, products or raw materials can be a key step towards adopting sustainable practices in the supply chain. Certifications differ widely in terms of quality. Good certifications also collaborate with suppliers to address any issues. However, certification on its own is not enough: always combine sustainability certifications with supplier collaboration. 

If you are unable to address sustainability risks, you can engage with your current supplier to see whether it is possible to source raw materials from another country. This is usually not recommended, as it means you no longer have an influence in the country in which the risks are present. Another solution could be to replace an ingredient or raw material with an alternative. If you do this, consider whether it improves circumstances for poor families or workers. The best thing to do is work together with suppliers to address the core issues. Give your supplier time to address the identified actual or potential risks, and only end your business relationship as a last resort.