Measurement and Disclosure
- Thirty four percent (210 companies) monitor supplier sustainability performance, up from the 25 percent in 2012.
- Eighteen percent (110 companies) perform in Tiers 1 and 2 for demonstrating that they have implemented a robust supply chain monitoring system to measure and respond to supplier performance on key environmental and social factors.
The only way a company can ensure its efforts to encourage sustainability performance by its suppliers are effective is to establish systems for monitoring, auditing and disclosing supplier environmental and social performance data. Armed with this information, companies can determine what’s working well and what isn’t and adjust their engagement strategies accordingly. It also allows companies to identify where the highest sustainability risks in the supply chain exist and to direct more resources to address those risks.
The most forward-thinking companies in this regard understand there are enormous benefits to looking beyond metrics focused on compliance with supplier codes of conduct; they understand that improvement of supplier social and environmental performance can also strengthen the bottom line. Gap’s P.A.C.E. (Personal Advancement and Career Enhancement) program, for example, is designed to empower and educate women. According to the International Center for Research on Women (ICRW), factories where P.A.C.E. programs were in place saw improvements in worker efficiency, quality, and worker retention rates. The ICRW report also noted that factory supervisors observed that program participants had stronger communication skills and increasingly sought suggestions to improve personal work performance1. In short, there’s a strong business case for investing in sustainable supply chain programs.
Of the 613 companies assessed on this expectation, 34 percent (210 companies) disclose at least some evidence of supplier monitoring activities—up from 25 percent in 2012. And 18 percent (110 companies) perform in Tiers 1 and 2 for demonstrating that they have implemented a robust supply chain monitoring system to measure and respond to supplier performance on key environmental and social factors.
The best performing sector was Footwear & Apparel; 64 percent (9 of 14 companies) perform in Tiers 1 and 2, up from 27 percent in 2012. In 2012, only Gap and Nike performed in Tier 1; they are now joined by peer companies including Limited Brands, PVH, and VF Corporation. This improvement may reflect a shift from seeing supplier sustainability data as proprietary information, closely held for competitive reasons, towards seeing it as open information that can be mutually advantageous for industry peers, all of whom are facing similar supply chain sustainability challenges.
The Consumer Discretionary sector was the poorest performer. Sixty-six percent (39 of 59 companies) fall in Tier 4 for this expectation, disclosing no supplier monitoring activities. Nevertheless, this is small improvement over the 75 percent falling in Tier 4 in 2012. Two companies in this sector are high performers, however: Walt Disney Company and Starbucks. As we have seen in other sectors, Consumer Discretionary companies have an opportunity to learn from these leaders, benefiting from their experience and adopting practices that allow them to better understand and mitigate sustainability risks within their own supply chains.
Leaders for this expectation are those companies that not only conduct a thorough and ongoing audit process with suppliers, but are also committed to working with suppliers to identify the root cause of the issues at hand and transparently disclose the results of the audit process to external stakeholders. For example:
- IBM is the largest user of the EICC’s Validated Audit Process, which provides a common process for member companies to share results of supplier audits—thus, creating both time and resource efficiency. IBM discloses the results of its annual audits by geography and by key issue area, such as working hours, child labor and freedom of association. The company also discloses those suppliers with whom IBM conducted a re-audit to assess if issues of noncompliance were remedied and the Supplier Improvement Plan implemented, as well as the results of those re-audits.
1. Nanda, P., Mishra, A., Walia, S., Sharma, S., Weiss, E., Abrahamson, J. (2013). Advancing Women, Changing Lives: An Evaluation of Gap Inc.’s P.A.C.E. Program. Washington, DC: International Center for Research on Women.