Published 8 years ago.
About a 4 minute read.
Companies are under increasing pressure to improve transparency across their supply chains and introduce more stringent procurement policies covering issues including human rights, corruption, and social and environmental impacts. Whilst much of the media focus has been on retailers and other consumer-facing businesses, there is an argument that natural resources firms will be more impacted by this trend, as regulations such as the Dodd Frank Act in the US — which requires companies to report and make public the use of “conflict minerals” from the DRC or adjoining countries in their products — come into force.
Yet, research by Aura Financial has found that over half of FTSE-listed natural resource companies did not provide any significant disclosure on their supply chains in their 2013 reports. Only one-third of companies provided meaningful reporting on their supply chains, showing a commitment to transparency, explaining the potential risks and the importance of supply chain management to the business and outlining the steps they were taking to address potential issues. This is despite recent changes to UK company law, requiring all UK listed companies to consider the relevance of non-financial issues to their business and identify, evaluate and disclose in the strategic report those issues which they deem to be material to the development, performance or future prospects of the business.
Why are the majority of natural resource companies still not reporting on their supply chains? Is it because they do not regard supply chain issues as material? Or is there a lack of awareness of the importance of supply chain management to their businesses or a lack of resources to manage supply chain issues?
In our view, many companies have not yet fully recognised the potential impacts of supply chain issues. Those companies that do mostly focus on financial and operational risks, such as costs and efficiency. However, there are a number of broader issues which can significantly impact company development and performance, including:
We therefore believe supply chain management is a material issue for most, if not all, natural resource companies. Not only are there significant risk issues to consider, there are also opportunities for companies to demonstrate their commitment to the communities where they operate. And in the long run, it is possible that companies could generate competitive advantage from adopting an industry-leading position.
So what should companies be doing to ensure responsible supply chain management?
As a starting point, they need to engage directly with their suppliers and make sure they understand their responsibilities by setting out expectations in key areas, including ethics, environment, safety and human rights. This can be challenging, as many suppliers are small companies with limited resources. Companies should be willing to support suppliers in meeting these standards - for example, through training programmes. Companies also need to put systems in place to monitor and assess suppliers to ensure they are complying with their requirements and upholding responsible business standards, reporting their progress to their shareholders and wider stakeholder audiences. For companies to deliver widespread improvements, their programmes must also be scalable and that’s where collaborative supply chain platforms such as Sedex can help.
This post first appeared on the Sedex blog on January 28, 2015.
Published Feb 6, 2015 6pm EST / 3pm PST / 11pm GMT / 12am CET