INSIGHTS

The COVID pandemic has forced companies and consumers alike to become more aware of where our goods are sourced from due to supply chain disruption. While companies look to minimise the disruption and strengthen their supply chains it now seems like an appropriate time to investigate.

A supply chain makes up the activities required by a company to deliver goods or services to a consumer. To make the supply chain a responsible one, the company incorporates environmental and social criteria when selecting a supplier. These criteria could include ensuring fair pay and conditions for workers or minimising the effect on the environment.

For a company, ensuring it has a responsible supply chain is one part of good risk management. Not only can it minimise the chance of a PR nightmare, it can beneficially raise the profile of the company to both investors and consumers. If a company is sourcing their materials and goods responsibly consumers will start to notice. Consumers in the UK were surveyed on their sustainability practices over the last year and nearly one third of them had stopped buying certain brands or products because they had ethical or sustainability related concerns about them.

Not only can consumers influence company behaviour but so can investors. A recent analysis performed by Morningstar found that 2021 looks to set a record for sustainability themed shareholder proposals as well as an increase in support from other shareholders. Investor influence is also evident from the flow of funds into sustainable investments. Over the last four years investment into sustainable funds has grown 55% according to the Global Sustainable Investment Alliance.

The attention on a responsible supply chain isn’t coming from just one stakeholder. The mounting pressure from consumers and investors on top of increased scrutiny from regulators and stakeholders, is pushing responsible supply chains into the limelight for many companies. In recent times, legislation was introduced by both the US and EU surrounding the use of conflict minerals (such as tin, tungsten, tantalum and gold) which are commonly used in electronics. This was followed by legislation in California, the UK and Australia for companies to disclose their modern slavery risk assessments. These regulatory acts forced the issue of responsible sourcing into the spotlight for consumers and businesses alike.

Investors can look for a few key details to indicate if a company is taking supply chain responsibility seriously. One clue to look for is if there is a supplier code of conduct in place with all its suppliers or at least some version of this. This document should outline the expectations of the supplier for international labour, how compliance will be monitored and what the outcome will be if this isn’t followed. Evidence of auditing and actions taken by both the company and supplier demonstrates the company has a transparent and ethical supply chain.

International companies are generally more advanced in their journey to a responsible supply chain, including Microsoft and Unilever. However, if we look at domestic supply chains, New Zealand has some great companies such as Spark and Meridian Energy. Over in Australia, Brambles shows a commitment to an ethical supply chain through its responsible sourcing of products.