Companies supply chain risks at alert level, despite Rana Plaza outrage: report

Despite the high media profile of employee deaths in catastrophes such as the Rana Plaza factory collapse in Bangladesh, average corporate performance on responsible supply chain management remains weak in all regions and countries, according to a study titled: ‘Responsible Supply Chain Management: Where Do Companies Stand?’ Link published by Vigeo Eiris, the ESG research agencies from France and the UK that merged last year. The report was published this week at a Vigeo Eiris conference in Paris addressed by Emmanuel Macron, the French Minister of the Economy, and a former investment banker.
And the report claims controversies faced by companies – and their responses – particularly in sectors such as retail, supermarket, food and beverage, luxury, cosmetics, or energy on the subject of international supply chain have already reached alert level.
The comparative study assesses the degree to which listed companies around the globe report on the respect of international, social and environmental norms in their supply chain management. It analyses nearly 1300 companies that are headquartered or listed in European, North America (US, Canada) and Asia Pacific countries. The research is based on the Equitics rating methodology developed by Vigeo Eiris in 2002. It says the specialised retail sector is most exposed to social supply chain allegations with many existing controversies, including Rana Plaza, ‘slavery’ schemes in the Indian textile Industry, Thai prawn fishing ‘slavery’, labour standards in the commodities supply chain, and beer girls in Cambodia.
The food sector is most exposed to environmental supply chain allegations with widely known issues such as sourcing palm oil, animal welfare, and environmental pollution.
The study also analyses the managerial behaviours of the listed companies and their best practices. The results show that the luxury goods and cosmetics sector is leading in terms of integrating social issues in the supply chain. The tobacco sector is the relative best performer regarding the managerial approach towards integrating environmental standards in its supply chains.
However, companies are still not engaging with stakeholders to avoid environmental and social dumping or enhance global standards across value chains. Instead, they focus more on selecting and controlling suppliers on their social and environmental standards.The study says there appears to be a slightly more proactive approach to such partnerships between European companies and stakeholders compared to companies from other regions. But, 30% of the total company sample do not report on any commitments and measures for fair and balanced relations with suppliers.
While a third of the listed companies have call for sustainability audits, the report says there is concern over the breadth of the issues covered by such audits, the independence of auditors and on the systemic follow up if incidents are identified. Specialised retail and tobacco companies record the highest percentage of independent external social audits. Yet, only a minority of these companies report on what social topics are actually covered by these audits, and fundamental labour rights such as freedom of association, collective bargaining and non-discrimination appear out of scope. Therefore, there is a low level of assurance that relevant environmental topics are even covered by the audits.
Furthermore, the study shows that the majority of companies assessed do not report corrective measures for any social or environmental incidents identified in their supply chains, thus undermining the utility of audits and other corrective responses. It says they also tend to comment more on policies and commitments than on actual measures (audits, training, questionnaires, risk mapping…), and that there is a lack of disclosure on other key indicators such as average payment delays to suppliers and the total of suppliers’ income.
The study also notes that only 6.9% of the companies assessed have faced allegations concerning breaches of social standards in their supply chains, and rare are the companies that face related legal cases related to environmental and social standards. Vigeo Eiris says this indicates that supply chain management remains a marginal topic in the CSR and consumer field.
Speaking at the event, French Minister Macron reportedly said supply chain issues: “is a fundamental subject that calls into question the heart of our economic systems”. All the questions around CSR come principally from two transformations: on one side, the arrival of a ‘society of risks’ – financial, environmental, social, governance and political, and on the other side a crisis of global capitalism, which is prey to hyper-financialisation, excessive greed, and which doesn’t pursue its true goals; those of a productive capitalism, which, in turn, necessitates long-term thinking.”