Published: 8 January 2024
Contributors: Alice Gomstyn, Alexandra Jonker
Supplier codes of conduct are companies' documented standards for members of their supply chain ecosystems. A supplier code of conduct helps a company ensure that its suppliers, subcontractors and subsidiaries share its values with regard to labor standards, health and safety, environmental impacts and business ethics.
The advent and implementation of supplier codes of conduct are part of a broader emphasis on sustainability and corporate social responsibility (CSR). Businesses, especially publicly held companies, are often expected to make decisions based on both profitability and the effect of their actions on communities and the planet. In an interconnected global market, upholding high supply chain standards with supplier codes of conduct helps corporations fulfill their social responsibilities.
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A values-based approach to business operations dates back decades; in 1953, Howard R. Bowen’s “Social Responsibilities of the Businessman” defined the social responsibilities of executives as “the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.”1
With globalization, expectations grew for such values-based decisions and actions to apply across global supply chains and business relationships. As multinational corporations sourced from manufacturing facilities around the world, concerns arose about worker well-being and child labor in countries with low labor costs. By the 1990s, “multinational corporations started to acknowledge responsibility for working conditions at their suppliers’ factories in developing countries, and codes of conduct emerged as the dominant way to operationalise this extended sense of responsibility.”2
Today, many supplier codes of conduct not only address labor issues but also environmental and anti-corruption standards. According to a United Nations report on sustainable supply chains, “by working together, buyers and suppliers in global supply chains and networks can advance human rights including labor rights, climate resilience, environmental protection, inclusive economic growth and ethical business practices.”3
The UN has been a major influence on companies’ supplier codes of conduct: in creating their codes, various multinational corporations have cited UN agreements and declarations such as the United Nations Global Compact, the Universal Declaration of Human Rights and the United Nations Convention Against Corruption. In addition to UN agreements, supplier codes of conduct often incorporate standards from the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work.
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Standards related to three areas—labor, health and safety, and the environment—figure prominently in supplier codes of conduct. The Responsible Business Alliance (RBA), the world’s largest industry coalition dedicated to responsible business conduct in global supply chains, details standards regarding these three areas as the following:
Labor standards include the requirement of freely chosen employment, meaning suppliers are not permitted to use forced labor, such as modern slavery and workers hired through human trafficking. The use of child labor in any stage of manufacturing is also prohibited. Working hours and wages must comply with local laws, including labor laws. Violence, bullying and verbal abuse are prohibited.
Labor standards also emphasize non-discrimination/non-harassment. In their hiring and employment practices, companies are not allowed to engage in discrimination or harassment based on race, color, age, gender, sexual orientation, gender identity, ethnicity or national origin, disability, pregnancy, religion, political affiliation, union membership, covered veteran status, protected genetic information or marital status.
Companies may not impinge on freedom of association and collective bargaining efforts: companies must respect the rights of workers to form and join unions. Workers may not face retaliation in the work environment for their choices.
Health and safety standards encompass guidelines on occupational safety, emergency preparedness, managing occupational injury and illness, industrial hygiene, physically demanding work and safeguarding workers when machinery presents a hazard.
Organizations must also provide workers with access to clean toilet facilities, potable water and eating facilities. When a company supplies worker dormitories, those are to be maintained to be clean and safe with on-site accommodations such as hot water and adequate lighting.
Companies are also to provide workers with appropriate workplace health and safety information and training.
Environmental standards call for companies to “identify the environmental impacts and minimize adverse effects on the community, environment, and natural resources, while safeguarding the health and safety of the public” according to the RBA.4
The standards cover securing approvals for environmental permits, pollution prevention and resource reduction, hazardous substances handling, solid waste disposal and recycling, water management, air emissions management and monitoring and greenhouse gas emissions reduction.
Supplier codes of conduct may also include sections on ethics and management systems.
Ethics
Ethical standards promote the highest standards of business integrity such as zero tolerance for bribery, corruption, extortion and embezzlement, as well as compliance with anti-corruption laws such as the Foreign Corrupt Practices Act in the US and the Bribery Act of 2010 in the UK. They also emphasize transparency in business dealings; protection of intellectual property rights; fair business practices; fair competition standards free of conflicts of interest; responsible sourcing of minerals, including due diligence on the chain of custody of those minerals; protection for whistleblowers; and the protection of the personal information of everyone with whom a company does business.
Management systems
Companies can monitor their supplier relationships and conformance with supplier codes of conduct—as well as conformance with applicable laws—through management systems. Elements of such systems may include training on implementing procedures aligned with the code, risk management, audits and assessments to check for non-compliance and a corrective action process to address deficiencies. Such systems can facilitate continual improvement by companies as they work to achieve environmental, social and health and safety objectives.
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Footnotes
1 “A literature review of the history and evolution of corporate social responsibility”(link resides outside ibm.com), International Journal of Corporate Social Responsibility, Jan. 22, 2019.
2 “A systematic review of the literature on supplier code of conduct”(link resides outside ibm.com), International Journal of Contemporary Management, 2018.
3 “Supply Chain Sustainability: A Practical Guide for Continuous Improvement”(link resides outside ibm.com), United Nations Global Compact Office and BSR, 2015.
4 “Responsible Business Alliance Code of Conduct”(link resides outside ibm.com), Responsible Business Alliance, 2024.