Responsible Sourcing in Palm Oil Supply Chains

Abstract

Global supply chains for palm oil are complex and lack transparency. However, growing awareness of the negative environmental and social impacts that are often associated with palm oil production is increasing the pressure on companies to engage more fully with the various tiers of their supply chains. Sedex streamlines the information-sharing process throughout supply chains by allowing suppliers to share audit data on their ethical sourcing practices with multiple customers at once, thereby avoiding time-consuming audit and questionnaire duplication.

Keywords: supply chain, transparency, responsible sourcing, ethical trade, standards, monitoring, ethical audit

SEDEX

Background situation

Palm oil is one of the most productive vegetable oil crops and is also incredibly versatile, being used in thousands of products from food to cosmetics and cleaning products. As the world’s demand for these products increases, so too does the need for increased palm oil production. This has led to vast areas of forested land in South East Asia being converted to palm oil plantations, resulting in loss of habitat for endangered species as well as increased carbon emissions to the atmosphere, which contributes to global climate change. The palm oil industry has also been linked with labour issues, including the use of forced labour at some of the more remote plantations.

Understandably, companies that source palm oil have come under enormous pressure from consumers, the media, investors, and other stakeholders to address the negative environmental and social issues associated with this commodity.

Options and action

In order to resolve issues in the supply chain, companies first need to understand where the risks lie. One of the key problems for companies that source palm oil is the complexity and lack of transparency in the supply chain. They often find that the further down the supply chain they go, the more difficult it becomes to monitor standards.

While many responsible sourcing programmes only look at the first tier of the supply chain, which is perhaps the most logical place to start, this won’t necessarily highlight where the true risks to business are lurking.

Sedex was developed as an innovative supply chain tool that can offer visibility through multiple tiers of the supply chain, from large first tier suppliers right through to the producers at the upstream end of the chain. To successfully engage with multiple tiers of its supply chain, a company will need to work closely with its suppliers to educate them about the company’s pledge to undertake a responsible sourcing programme and guide them through the process. This can be an expensive and resource heavy exercise; however, since its launch in 2004, Sedex has been working with companies to streamline this engagement process.

So how do companies monitor standards?

Traditionally, ethical audits have been used to gain an insight into how suppliers operate and identify any issues or areas of concern regarding the labour practices of a particular workplace or company via a thorough, formal examination. A well-conducted ethical audit can highlight where a supplier is performing well and where they may be struggling, enabling the customer to prioritise areas for improvement.

However, the prevalence of ethical audits being required by customer organisations means that suppliers are often asked to complete multiple questionnaires and audits and to comply with various codes of conduct in order to satisfy all of their customers’ requirements. Duplicating this information can be counter-productive, with both buyers and suppliers spending their time completing paperwork rather than on improving standards.

The Sedex Members Ethical Trade Audit (SMETA) is a set of tools which has been developed by the Sedex Associate Auditor Group (AAG) to provide a reference framework of ethical audit best practices to help auditors achieve the consistency needed for audits to be widely accepted by retailers and brands. It also helps organisations who are commissioning audits to specify the auditing methodology required. SMETA draws from practices defined by Sedex members and by the Global Social Compliance Programme (GSCP).

SMETA Best Practice Guidance (BPG) describes the key steps of planning, executing, and documenting a “SMETA audit” against Sedex’s four auditing pillars: Labour Standards, Health and Safety, Environment, and Business Ethics.

The Sedex system allows members to upload all ethical audit types and it lies with the individual member to decide what audit is acceptable to them. However, Sedex hopes that by providing SMETA BPG publicly, companies will increasingly converge on one international audit protocol.

Outcomes and conclusion

Sedex was formed to directly address the problem of audit and questionnaire duplication. The central concept is that any supplier of goods or services can register on an online system, complete a common questionnaire around Labour Standards, Health and Safety, Environment, and Business Ethics, upload all the relevant certifications and audit reports, and share this with multiple customers.

Procurement professionals can then keep track and run reports on their suppliers’ performance and progress in a standard format that is consistent with the rest of the industry. This not only ensures that there is no need to continuously update an internal system every time there is a change in standards, but it creates an information flow that directly engages with and educates the supply chain, without putting a cost burden on users.

A collaborative approach to ethical supply chain management is a core principle of Sedex and one that has been embraced by Sedex’s 27,000 members. This process is further supported by a global team which has extensive experience in educating and engaging with suppliers from across the world. By enabling suppliers to easily share the same data with many customers, Sedex helps to reduce the need for multiple audits; this shared supply base, with one agreed standard for the industry, makes it easier for suppliers to comply and allows parties to concentrate their resources on driving continuous improvements along the supply chain.

For companies sourcing palm oil and working with complex global supply chains, Sedex can bring much needed transparency by providing visibility of suppliers’ actions through multiple tiers of the supply chain, across the four key areas of responsible sourcing. In turn, Sedex can work to support the implementation and development of a company’s responsible sourcing programme.

Watch the video below by Sedex to learn more.

Prepared by: Emily Pearce
Position: Stakeholder Associate
Organisation: Sedex
Date: September 24 2012