Retailers sustainability initiatives for non-food products

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1 Retailers sustainability initiatives for non-food products If you export non-food products to the EU, you have to take into account that many EU retailers, especially the large retailers, demand their suppliers to comply with requirements that go beyond what is required by EU legislation. The reason for this is that EU consumers increasingly hold EU retailers responsible for the sustainability aspects of the products they distribute (in addition to the quality and safety aspects laid down in legislation). In response to those increasing consumers concerns, EU retailers developed codes of conducts, standards and management systems and obliged themselves to only source products that meet the environmental and social requirements laid down in these codes and standards. Relevance In the EU, large, internationally operating retailing groups encompass a variety of distribution channels (see the box below). Because of their size, EU retailers are extremely influential in terms of pricing, products specifications and sourcing procedures. They exert an influence both on the companies that produce branded products and on the suppliers of their private label products. As a (potential) direct or indirect supplier to EU retailers, it is important to understand the initiatives of EU retailers regarding corporate social responsibility. Largest retailers in Europe Retail generates 11% of the EU s GDP. The largest EU retail chains are Carrefour (France), Metro AG (Germany), Tesco (the UK), Schwarz Untemehmens Treuhand KG (Germany), Aldi GmbH & Company ohg (Germany), Rewe-Zentral AG (Germany) and Groupe Auchan S.A. (France).Most of them have various store brands and they can be active in various types of retail: hypermarkets, supermarkets, hard discount stores, convenience store, cash and carry, etc. As an example, the French group Auchan owns hypermarkets and supermarkets in 13 countries and has specialised stores in textile, sport equipment, cultural products, car repairs, electronic devices and DYI stores (Do-it-yourself, selling construction materials). Source : EuroCommerce What do retailer initiatives cover? As an exporter to the EU targeting the retail sector, you will not only need to meet legal requirements, but also non-legal market (driven) requirements at different levels: Product-specific standards/requirements (e.g. for cars, textile or electronic appliances). Management systems for product safety and quality and hygiene (e.g. ISO 9001). Labels: certification of products or services according to specific standards. For more information on non-legal requirements that can apply to your products, search the CBI database. The retailer-specific initiatives that are described in this document can be considered an addition to the market driven requirements mentioned above. While EU retailers are engaged in many actions towards sustainability in their internal operations (reduction of

2 energy consumption, reduction of raw material use and employee satisfaction), this document only covers sector-wide initiatives that directly apply to suppliers. Many large retailing groups have developed their own codes of conduct, standards and auditing systems. Generally, these individual initiatives are based on internationally recognised principles (e.g. based on the conventions of the International Labour Organisation, the ILO and the Universal Declaration of Human Rights from the United Nations) or on sector-wide initiatives. These company-specific codes of conduct and standards can be consulted on the retailers websites. ILO Standards: guiding principles for retailers social initiatives The retailers initiatives use internationally recognised declarations and principles on social and working conditions. Although each initiative s standards may differ, here is an indication of some of the guiding principles that they use, based on the core standards of the International Labour Organisation(ILO): - Freedom of association and collective bargaining - Elimination of forced and compulsory labour - Elimination of discrimination in respect of employment and occupation - Abolition of child labour For more information on the ILO standards on working conditions refer to related document and for further information on the standards of each initiative, refer to their websites available in the external links section. Please also note that some retailer initiatives refer to the SA8000. This is a non-retail specific certification initiative on labour, social conditions in production sites that is broadly used internationally. For more information on SA8000, refer to the related document on certification initiatives. For more information on individual codes of conduct of retailers, refer to their websites. Information can generally be found in a Corporate Social Responsibility / CSR or a Sustainable Development section. Sector-wide retailers initiatives have up to now mainly focused on social conditions at the level of suppliers, but are also starting to address environmental aspects. The most relevant initiatives are: Business Social Compliance Initiative - BSCI Ethical Trading Initiative - ETI Initiative Clause Social ICS In addition, the following two initiatives are discussed: Global Social Compliance Programme GSCP Retail Forum 1. Business Social Compliance Initiative - BSCI What is BSCI? The Business Social Compliance Initiative is an auditing system looking at the social performance of suppliers. It has been developed by European retailers with the aim to improve the social conditions in sourcing countries. It covers food and

3 non-food products (including construction materials, cutlery, toys, jewellery, accessories, kitchen and bed linen, sporting goods etc). The BSCI is not a certification scheme (even if its standards refer to the criteria set by SA8000 which is a certification programme). The BSCI is a monitoring system of supplier s working conditions. It follows the process: supplier s self-assessment, initial audit, corrective action plan and re-audit. BSCI members commit to have 2/3 of their suppliers progressively applying the BSCI Code of conduct. In terms of environmental performance, the BSCI code of conduct requires compliance with national legislation. The BSCI code of conduct contains two levels of social requirements. The first level of standards is compulsory (minimum social standards and working conditions). The second level is voluntary and includes certification of the social management system SA8000. For more information on the BSCI standards, refer to the BSCI Internet site in the external links section. How relevant is the BSCI in Europe? Suppliers can only join the initiative upon invitation of a client that is a BSCI member. However, an exporter that wants to market his/her products in the EU could proactively try and prepare to pass a potential BSCI audit. BSCI has gained rapid support amongst European retailers. In 2010 more than 500 members, mainly retailers, industry and importing companies have joined the BSCI initiative (in comparison to 180 members two years back). Because of the growing importance of the BSCI amongst EU retailers, a supplier that has been audited - at the initiative of one of the BSCI members - becomes an attractive business partner to a growing number of purchasers that are sensitive to working condition issues. Once a supplier has been audited, it is registered in the BSCI database 1. The supplier does not have to start the auditing procedure again if it starts doing business with other BSCI members. Any new client will be able to check compliance to the BSCI standards in the database. What can facilitate the implementation of BSCI? The aim of BSCI is not to exclude non-compliers, but to assist suppliers to reach compliance. BSCI members are required to assist their suppliers as partners in the process. Commitment of suppliers to improving and working towards compliance is considered a key issue. To prepare for the audit, awareness raising workshops and coaching are offered by BSCI. An online self-assessment questionnaire also provides suppliers with a good overview of the level of compliance to the BSCI requirements before the actual audit. If a corrective action plan is needed after audit, special training, coaching and controlling are recommended. For suppliers successfully audited on BSCI s mandatory basic requirements, the monitoring process will be repeated every three years. However, in order to further improve social conditions as well as their own economic performance, successfully audited suppliers are encouraged to move towards full compliance with the SA8000 certification scheme. The payment of costs incurred for audits, improvement activities and the implementation of necessary corrective actions can be negotiated between the BSCI member and the supplier. The audit costs depend on the size, the location of the factory and the time required in order to conduct the audit. 1 The BSCI database does not aim at putting retailers and suppliers in contact. This is why audited suppliers names are not disclosed to other BSCI members.

4 For more information on BSCI, refer to the external links section. 2. Ethical Trading Initiative ETI What is ETI? The Ethical Trading Initiative (ETI) is a social code of conduct that commits participating companies in the UK to guarantee decent working conditions throughout the supply chain. The ETI covers food and non-food products. The ETI is an alliance of British companies, NGOs and trade union organisations and is supported by the British government. Note that the ETI is not a label or certification scheme and that participating companies do not communicate the ETI on their actual products. Instead, they commit themselves to incorporate labour standards in their supplier requirements. Consequently, they will require their suppliers to meet the ETI standards. Companies joining the ETI commit themselves to meeting the ETI Base Code. The ETI Base Code forms the foundation for the work and contains nine clauses which reflect the most relevant international standards with respect to labour practices. ETI members are expected to adopt the Base Code, or to adopt their own code as long as it incorporates the Base Code. They must require that suppliers meet agreed standards within a reasonable time frame, and that performance in this regard is measured and transparent. For more information on the Base Code on the ETI website, refer to the external links section. How relevant is the ETI in Europe? Companies participating in the ETI have a significant share in the British retail sector. The largest UK retailers such as Tesco, Sainsbury s, ASDA or Marks & Spencer take part in the ETI. As a result, an exporter that wants to market his/her products on the British market is advised to consider working towards compliance with the ETI Base Code. What can facilitate the implementation of ETI? There are different approaches from ETI participants looking for new suppliers. In some cases, companies are looking for suppliers that already meet the criteria of the ETI. In other cases, companies initially focus on commercial criteria to turn to labour standards at a stage when the business relationship has already started. The audits of suppliers are used as a way of diagnosing problems, not as a pass or fail test. ETI member companies should not stop trading with a supplier if the audit uncovers only minor issues. However, if they discover very serious issues, the supplier will be expected to take immediate corrective action. If a supplier fails to do so, it may lose its business. For more information on ETI, the Base Code and answers on frequently asked questions (FAQ) by suppliers, refer to the external links section. 3. Initiative Clause Sociale - ICS What is ICS? The Initiative Clause Sociale is a social code of conduct that has been developed by the French Trade and Distribution Federation (FCD Fédération française du Commerce de Détail). The initiative focuses on direct suppliers of manufactured non-food consumer products in source countries. It is signed by 15 brands or retailers including the largest French retailers. The ICS code of conduct aims to encourage suppliers to comply with universal

5 human rights principles as well as the main ILO (International Labour Organization) conventions and local labour legislation in their production units. Retailers are free to maintain their individual codes of conduct to stipulate additional or enhanced clauses. The ICS scheme involves a uniform audit questionnaire and (corrective) action plans. The principal conclusions of all audits initiated by ICS members are registered in the ICS database and exchanged among the ICS members, in order to avoid unnecessary repetitive audits. How relevant is the ICS in Europe? Companies participating in the ICS have a significant share in the French retail market. Amongst the 15 members of the ICS are Carrefour, PPR Group (Fnac, La redoute, Printemps, Conforama), Casino, Auchan, E.Leclerc, groupe ADEO (1 st DYI retailer in France owning for example Leroy Merlin). Suppliers can only join the initiative upon invitation of a client that is an ICS member. However, an exporter that wants to market his/her products in the EU and more specifically in France could consider to proactively work towards compliance with the ICS core requirements. What can facilitate the implementation of ICS? As part of the code of ethic of the ICS, retailers agree to bear the cost of social audits. By doing so, they can ensure the independence, the implementation and the follow-up of the audit. They can also avoid putting financial pressure on the supplier, which could impact working conditions. Members of the ICS also commit to a pragmatic field approach (respect of local culture, awareness of the limitations inherent to developing countries, regular feedback to suppliers and suppliers). For more information on ICS, refer to the external links section. Supplier Ethical Data Exchange - Sedex Sedex is a data exchange platform that is used by retailers to monitor the social compliance of their suppliers. It started in 2001 by a group of UK retailers and their first suppliers. Sedex stores information on ethical and responsible practices covered by ILO Conventions; ETI Base Code; SA8000; ISO14001 (on environmental management) and; industry specific codes of conduct. Sedex members can use the information of the system to evaluate suppliers against any of these codes or the labour standards provisions in individual corporate codes. In the EU, about 400 purchaser members and 28,000 supplier members are currently registered in the system and share information on ethical and responsible practices via Sedex. If you are already complying with one of the social codes of conduct that are used by EU retailers, becoming a member of Sedex can represent an advantage to sell your products to other EU retailers. Because Sedex enables suppliers to share the same data with many customers, it helps to reduce the duplication of audits, allowing suppliers and retailers to concentrate on improvements, rather than on numerous self-assessments and audits. For more information on Sedex, refer to the external links section. 4. Global Social Compliance Programme GSCP What is the GSCP? The Global Social Compliance Programme is an initiative in development. It is briefly mentioned here since it aims at more harmonisation between the initiatives mentioned above in this document (but it does not aim at replacing them).the GSCP provides a platform for building consensus on best practices for social and environmental standards in supply

6 chains of consumer goods. It emerged as a reaction to the proliferation of codes on working conditions in global supply chains that can lead to a duplication of efforts and confusion at the suppliers level. How relevant is the GSCP in Europe? The GSCP is a global professional organisation that brings together the major corporations in the retail and consumer goods business. It was initiated in 2007 by five founding members from the retail sector (Carrefour, Metro, Migros, Tesco and Wal-Mart). Since then, most of the large brands and retailers working with one of the initiatives on social and environmental conditions in global supply chains have joined the GSCP. It can be expected that the Global Social Compliance Programme will be increasingly used as a harmonised or equivalence system for retailers of consumer goods in Europe. It is not sure yet how the tools developed by this initiative will be implemented at the supplier s level. At the time of writing of this document, the programme has published two tools: a Reference Code on labour conditions that relies on international conventions and guidelines from which it sets generic requirements. a Reference Tool on Audit Process and Methodology. The GSCP is currently working on other tools for example a data sharing platform and a Reference Tool on Environmental Practices. For more information on the latest news on the developments of this initiative, refer to the GSCP website available in the external links section. 5. The Retail Forum and the Retailers Environmental Action Program What are the Retail Forum and the Retailers Environmental Action Program (REAP)? The Retail Forum is a multi-stakeholder platform set up in order to exchange best practices on sustainability in the European retail sector. It promotes environmental performance via the Retailers Environmental Action Program (REAP) and the Retail Code for Environmentally Sustainable Business (published in June 2010). Signatories of the Retail Code for Environmentally Sustainable Business commit to the setting up and implementation of measures in order to reduce the environmental footprint of their operations. How relevant is the REAP in Europe? The Retail Code for Environmentally Sustainable Business is a recent initiative and is not used operationally yet. It is the first retail code focusing specifically on the environment, while retailers first focussed on improving labour conditions in their supply chains. The members of the ERRT (one of the two founding organisations) are Asda Wal-Mart, C&A, Carrefour Group, Delhaize Group, El Corte Inglés, H&M, IKEA, Inditex, Kingfisher, Marks & Spencer, Mercadona, Metro Group, Royal Ahold and Tesco. This shows that the largest European retailers are increasingly interested in environmental sustainability and as a consequence in sourcing products from environmentally aware exporters. One can expect that signatory retailers of the Code will increase their products requirements in this sense in the near future. For exporters to the EU, this means that retailers can try for example to: Expand the range of certified products and/or the amount of certified material in the products (FSC, PEFC, Eco-label, etc.) Develop new, more environmentally friendly products through engagement with suppliers Raise awareness of suppliers of the environmental impact of production operations and improvement thereof (e.g. implementation of requirements for suppliers to reduce the environmental footprint in manufacturing etc.)

7 For more information on the Retail Code for Environmentally Sustainable Business, refer to the external links section. For more information on the abovementioned certification schemes, search the CBI database. What can you do to asses your possibilities? Check with your sector association what EU buyers look for when selecting suppliers. Check the codes of conduct of your potential EU buyers and their participation in one or more of the initiatives mentioned. Identify the key issues for your organisation, for example by benchmarking yourself against the criteria of the relevant initiative(s). Identify issues that need to be improved. Check whether support is available from the relevant initiative(s) to reach the desired level of compliance. Check the need for certification. Many EU buyers will not directly require certification, but will appreciate the willingness to work towards certification. Communicate your plans and progress. Work on continuous improvements and check new developments in your markets on a regular basis. Last updated: Augustus 2010

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