What is ethical sourcing?

Sourcing is the process of identifying, evaluating and selecting suppliers to provide raw materials and services. It is one of the first steps of supply chain management—the handling of the entire production flow of a good or service. Frequently used interchangeably with “procurement,” sourcing is a distinct supply chain process within the procurement department. Due to their interconnection, sourcing and procurement strategies typically share similar goals and metrics, including ethical considerations.

Ethical sourcing is core to the corporate social responsibility (CSR) concept—the idea that businesses should operate according to principles and policies that make a positive impact on society and the environment. It’s also key to organizations who follow the “triple bottom line” framework, which suggests that business outcomes should not be measured by only the financial bottom line. Instead, they must also consider the well-being of people and the planet.

Responsible sourcing is the process of considering the social, economic and environmental impacts of all sourcing activities and suppliers. Organizations that practice responsible sourcing take responsibility for what happens in the product lifecycle—from carbon emissions to workers’ rights.

In sustainable sourcing and sustainable procurement, a greater emphasis is placed on the environmental impacts of suppliers and vendors. These processes fall under the umbrella of responsible sourcing. The same is true for ethical sourcing, which encompasses both the environmental and social impacts of the entire supply chain.

There is not yet a universal, codified set of standards for ethical sourcing; those practicing ethical sourcing might have a wide range of ethical considerations. However, there are some legislative laws and policies that touch on ethical sourcing. For example, the UK Modern Slavery Act, the California Transparency in Supply Chains Act and National Action Plans (NAPs) on Business and Human Rights across several continents including South America, Europe, Africa and Asia.

Although suppliers or vendors can claim to be ethical in one regard (such as being organic, fair trade of cruelty-free certified), they might not be ethical across their entire operations and global supply chains.

In general, an unethical supplier or vendor is one that:

It includes suppliers and vendors who produce high levels of carbon emissions, contribute to deforestation, mistreat animals, mismanage waste and more.

Deceitful suppliers or vendors might purposefully withhold or hide contract information; lie to customers and partners about product quality, origins or ingredients; or engage in bribery and the misuse of trade secrets.

Failure to adhere to fair labor practices can include not paying a fair wage, using human trafficking or child labor as well as not providing adequate or safe working conditions.

Outside of ethical sourcing being good for people and the planet, there are strong arguments for its tangible business benefits as well:

Upholding a strong ethical sourcing policy can boost an organization’s brand reputation. In recent years, customers have become more purpose-driven, choosing products and brands based on how well they align to their values. In fact, they now represent the largest market segment (44%).

These consumers are savvy and willing to examine business practices to ensure that a brand upholds its promises in areas such as sustainability, the fight against climate change and human rights. If consumers are satisfied with what they find, they are more likely to choose that brand over competitors with cheaper price points.

A 2015 report from the World Economic Forum suggests that ethical sourcing practices could decrease supply chain costs up to 16%.¹ Multiple ethical sourcing practices could contribute to this decrease, such as reducing transportation costs by sourcing locally or cutting operating costs by switching to more energy efficient or renewable energy sources.

Ethical sourcing can be a stepping stone toward following new and existing legislation mandating transparency around the impact of an organization’s environmental, social and governance (ESG) initiatives. For example, the European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD) requires that companies disclose their due diligence process for identifying and mitigating the social and environmental impacts in their value chains and supply chains.

Since there are no official standards or codes that guide ethical sourcing practices, the way an organization builds its own ethical sourcing program is unique. However, many organizations start by establishing a strong vetting process and then upholding their standards with ongoing audits.

To develop a vetting process, organizations might look to competitors for examples of similar ethics policies, codes of conduct and best practices. Then, companies can use this information, as well as their own existing policies around practices like sustainability, to build criteria for evaluating potential suppliers.

If there are none, organizations can consult reputable outside policies, such as the United Nations Guiding Principles for Business and Human Rights. Then, organizations can incorporate these standards—and how non-compliance will be addressed—right into supplier contracts.

Organizations should be prepared for the potential that a supplier might engage in unethical practices at any time, no matter their past performance. Therefore, organizations might choose to monitor supplier practices throughout the duration of a contract. Continual audits ensure compliance with contractual agreements around ethics and allow organizations to identify areas for improvement, set goals and initiate corrective action.

Supply chain risk management (SCRM) software helps organizations find the right suppliers and uphold their ethical sourcing policies. SCRM software often provides real-time supplier visibility and incorporates reliable supplier information and data from industry-recognized validators to reduce risk. Some offer powerful analytics and artificial intelligence (AI) capabilities for continuous monitoring of suppliers’ regulatory compliance. Features can include: