corporate social responsiblity

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CIPSPracticeGuide

Practice Guide:Corporate Social Responsibility

Contents1. Introduction p3

2. CIPS Position p4

3. Environmental Responsibility p4

4. Human Rights p5

5. Equal Opportunities p5

6. Diversity p6

7. Corporate Governance p6

8. Sustainability p6

9. Impact on Society p7

10.Ethics & Ethical Trading p7

11.Biodiversity p7

12.Hints & Tips p8

13.Summary p9

14.Further Reading p9

15.Useful Websites p9

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Welcometo aguide onCSR

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In the midst of the ongoing debate on how best toachieve good social and environmental performancesupply chains are becoming a defining factor.Few couldhave missed the furore that has erupted over unethicalpractices within global supply chains, such as childlabour and exploitation of migrant workers, for example.However,while the supply chain does bring risks, it

also brings opportunities, for example,organisations areworking with suppliers to identify new energy sources,new power sources for vehicles and an increasingemphasis on minimal environmental footprints.Thesechanges shake out markets and create opportunities inthe supply chain.Among the increasing number of issues raised under

the overall banner of Corporate Social Responsibility(CSR) this Practice Guide will examine the following asthey are most common in supply chains. Environmental Responsibility Human Rights Equal Opportunities Diversity Corporate Governance Sustainability Impact on Society Ethics & EthicalTrading Biodiversity Community Involvement

It is an increasingly popular view that it is no longeracceptable that an organisation continues to operate inisolationwithout consideration of its environment and itsstakeholders.

1. INTRODUCTIONMany business leaders see globalisation as aprimarily economic phenomenon; involving theincreased interaction of national economic systemsthrough the growth of international trade,investment and capital flow.Alongside this we have seen a rapid increase in

cross border social, cultural and technologicalexchange.There has also been a steady growth instakeholder pressure through institutions such asNon Governmental Organisations to encourageorganisations to become good corporate citizens.Advocates of globalisation firmly believe that

inequalities in global income and poverty aredecreasing and that globalisation has contributed tothis turnaround.However, critics would argue theopposite, the gap between rich and poor nations isincreasing.It is an increasingly popular view that it is no

longer acceptable that an organisation continues tooperate in isolation without consideration of itsenvironment and its stakeholders.Business leaders face tough decisions,what social

issues should be supported?What initiatives shouldbe developed that will do the most good for thecompany as well as its stakeholders? Do businesspractices need altering? How do new initiatives getintegrated into current strategies? How do yougenerate internal commitment and passion? How dowe measure success?


2. CIPS POSITIONThe CIPS position on Corporate Social Responsibility(CSR) is intended primarily for P&SM professionals but itapplies equally to anyone who has responsibility formanaging the supply of goods or services from anexternal source.The P&SM professional has aresponsibility to at least be aware, if not have a thoroughunderstanding of CSR, issues in P&SM and to endeavourto ensure that P&SM practice does not have a negativesocial impact on all stakeholders concerned,and thatany issues are addressed in a positive manner. CIPS believes that CSR has become the broadlyaccepted phrase to describe a collection ofinterrelated disciplines all of which combine torepresent an organisations overall ethos, itspersonality,philosophy and character, as regards itsrole in the world in the largest sense.

CIPS believes that CSR is simply good businesspractice. It embraces how organisations are run andtheir commitment to all stakeholders.

CIPS encourages P&SM professionals to consider thelong-term implications of their actions and toquestion objectives that may unintentionally havenegative socioeconomic consequences.

CIPS believes that P&SM professionals should adopt abalanced scorecard approach when assessing asuppliers CSR credentials which brings with itinherent logic that ensures adequate consideration isgiven to the interrelated elements of CSR.

CIPS believes that the following elements areconsidered most relevant within the supply chainand that they relate to,and recognise the importanceof, the various stakeholders concerned (employees,customers, suppliers, the community, theenvironment,and shareholders). Environmental Responsibility Human Rights Equal Opportunities Diversity Corporate Governance Sustainability Impact on Society Ethics & EthicalTrading Biodiversity Community Involvement

CIPS believes that P&SM professionals should play anintegral role in influencing board directors to affectthe desired company position relating to CSR.

3. ENVIRONMENTAL RESPONSIBILITYIn short,new scientific modelling suggests the earth'saverage temperature could rise by 7.8C by 2300 if fossilfuel consumption remains unchanged,with polar icecaps melting and seas rising by seven meters.Environmental issues have been a matter for concern forover 25 years.As knowledge relating to the cause andeffect of environmental damage has become morecomplete, the pressure to change the ways in whichorganisations behave has increased.Until relatively recently, the environmental debate has

been one of rhetoric rather than action. It is becomingincreasingly difficult for most organisations to refute thegeneral need for environmental protection.Organisations are at the core of the environmentaldebate and are central to both the cause and thesolution.Organisations have a legal and a moral obligation to

the environment.The supply chain is an integralfacilitator in supporting the recently signed KyotoProtocol, it is well recorded that organisations, inwhatever sector,public or private, spend 50% or more oftheir turnover on bought-in goods and services. In many,that figure may be 80 or 90%.As raw materialexploitation,processing and manufacturing movesfurther back up the supply chain, so do many (thoughby no means all) of the associated environmentalimpacts.The dispersal of such operations on anincreasingly global basis also creates or amplifiesenvironmental impacts,especially in terms of transport.At the same time, there are in most cases few or noglobally-accepted norms on environmental behaviour,and so suppliers,often at several tiers remove,may beoperating perfectly legally but with environmentalimpacts that would be unacceptable if ourrepresentative organisations or companies were creatingthem.Legislation also has played an important role in

environmental awareness, for example one of the morerecent elements of legislation coming from Europe is theEnvironment Liability Directive.This directive was in response to the Erika oil tanker

sunk off the Brittany coast,causing extensive damage toFrench shores.This is an attempt to apply the polluterpaysprinciple whereby polluters should clean-up theenvironmental damage that they cause.After heateddebates between opposing business andenvironmentalists, the European Parliament and theCouncil of the European Union struck an agreement onthe proposal on 20 February 2004.The final compromiseleaves out references to compulsory insurance,Genetically Modified Organism (GMO) contaminationand nuclear hazards while maritime incidents will bedealt with only six years after the directive comes intoforce.

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The joint text,published in the Official Journal of30thApril 2004 (L143), says that member states nowhave three years from the date of publication toimplement the directive into national legislationP&SM practitioners should not ignore the possibility thattheir own business processes could be transformed toenvironmental benefit.Reduction in paper generation,perhaps by increased use of e-commerce,better powermanagement on computer systems,generally gettingthings right first time, all help to avoid waste.

4. HUMANRIGHTSThe notion of Human Rights violations in the course ofbusiness is gaining ground, in fact organisations arequickly realising that they are not immune to humanrights issues.By way of example some of the first industry sectors

to experience unwanted attention over human rightsviolations in supply chains were retail, including sportgoods, footwear and apparel, toys and food.Further afield,a survey undertaken by ISISAsset

Management plc in January 2004 Waste andWorkers intheTech Sector shows some of the emerging issues thatthe Information,Communication andTechnology (ICT)sector is facing: Significant operational and reputation risks in relationto labour and environmental standards in supply chains

Workers exposed to a toxic cocktail of hazardouschemicals

Reports of low wages,excessive overtime,discrimination and bonded labour

Allegations of destruction of local eco-systems andcomplicity in human rights abuses in relation to theextraction of raw materials

Taking the above into account organisations are nowbeginning to realise that human rights can be upheld intheir supply chains.Voluntary standards such as theGlobal Reporting Initiative or the FTSE4GOOD Index areincreasingly moving towards human rights benchmarks.The Organisation for Economic Co-operation andDevelopment (OECD) Guidelines for MultinationalEnterprises and some governments actively promote theConventions of the International Labour OrganisationHuman rights is a mixture of interrelated but

complex issues such as: Slavery Bonded Labour Child Labour Freedom ofAssociation Working conditions Working wages Exploitation Non Discrimination

5. EQUAL OPPORTUNITIESEveryone shares the right not to be discriminatedagainst.Acts of discrimination take many forms, forexample: Race discrimination Sexual harassment Equal pay Relationships at work Religion Disability Culture Gender

Equal Opportunities is an area steeped in legislation,oneof the most recent is the Race Relations (Amendment)Act 2000 (RRA),which amended the Race RelationsAct1976.This includes important implications for allorganisations as the amended RRA now outlawsdiscrimination in all business functions, including P&SM.The RRA has important implications for public

authorities,however, through trading with publicauthorities it will impact upon the private sector aswell.The RRA puts a legal duty on everyone toeliminate discrimination and to promote equality ofopportunity and good race relations.This will requireP&SM professionals to take a proactive approach topurchasing policies and procedures to ensure thatequality of opportunity is open for everyone within thesupply chain.One of the significant implications of this legislation

is that P&SM professionals need to be aware that if oneor more of your organisations functions have beenoutsourced to an external supplier you will still remainresponsible for meeting the RRA and the duty itimposes.All contracts with suppliers must not lendthemselves to discrimination and suppliers themselvesmust not discriminate,as they too will have the sameduty to promote equality of opportunity.

In short the key outcomes that affect P&SM are: All contracts are to be delivered in a way which isnon discriminatory and promote equality ofopportunity for staff, the general public and business.

The goods,works and services provided by asupplier cater for all usersneeds

There is no difference in the satisfaction rates ofusers, staff from different racial groups

Suppliers are representative of the local population,or of the area from which the businesses are drawn,with respect to ethnic diversity

Suppliers work on a voluntary basis of equality ofopportunity beyond the scope of the contract.


6. DIVERSITYDiversity refers to the idea of variety,a central feature ofthe world that we and other species inhabit. In businesswe see this variety manifest in many different ways:amodern economy comprises different sectors andindustries, firms come in a variety of sizes and havedifferent legal structures,businesses acquire finance andother resources from different sources,most firms have adiverse workforce,with employees of different ages,genders, racial and ethnic groups, religions, sexualorientation and so on.This diversity is both natural andenriching: it provides opportunities and experiences thatwould be missing from a world where everything wastotally homogeneous.As a concept supplier diversity is frequently taken to

mean any initiative to broaden an organisations supplybase, for example by increasing the number of supplierswith whom the organisation does business.While thisperception is understandable, it is not totally correct. Inthe context of the supply chain, supplier diversity (SD)refers to:

Initiatives that aim to increase the number ofdiverse (eg ethnic-minority owned;women-owned)businesses that supply goods and services to bothpublic and private sector organisations, either directlyor as part of a wider emphasis on smaller enterprisesin general. (Ram and Smallbone)In essence the basic idea of such initiatives is to offer

under-represented businesses the same opportunities tocompete for the supply of quality goods and services asother qualified suppliers.From the buyers point of view,SD programmes in the UK do not seek to positivelydiscriminate in favour of specific types of businesses (egbased on the size of the firm, the gender or ethnicity ofits owner), rather they aim to level the playing field soas to allow all firms to have an equal chance of gainingan order.Defined in this way the idea of supplier diversity

clearly fits well with current debates and policypreferences in the UK.For example: It can be seen as an integral part of the CSR agenda It has resonance with current government policies topromote equal opportunities,greater social inclusionand good race relations

It helps to further the idea of think small first inrespect of supply chain relationships developedwithin the public sector

It can contribute to the long-standing practice ofencouraging local economic development throughthe use of the procurement process.

7. CORPORATE GOVERNANCEGood corporate governance in essence, the integritywith which a company is managed is a centralcomponent of a robust CSR management programme.A good corporate governance structure is a working

system for principled and values-driven goal-setting,effective decision-making and appropriate monitoring ofcompliance and performance.Through a flexible anddynamic structure, the CEO, the management team andthe board of directors can interact effectively andrespond quickly to changing circumstances,within aframework of solid corporate values, to provideenduring value to the shareholders who invest in theenterprise.Supply chain governance is an integral aspect of the

overall governance structure of the organisation.P&SMwithin the Social Responsible Investment* market isquickly becoming a measure of organisationalperformance.Because of this it is becoming increasinglyimportant that P&SM professionals,not only understandthe concept of corporate governance,but also have arobust and transparent reporting process across supplynetworksThe reports where little attention has been paid to

supply chain governance make grim reading: the non-compliance with minimum wage laws,working weeks of 86 hours or more

inadequateoccupational health and safetyconditions

endemicabuse of workers rights, includingsuppliers using physical force to prevent workersexercising their right to organise (freedom ofassociation)

children under the age of thirteen being abused andexploited.

These are probably exceptional cases and most goodorganisations would not tolerate them,but where theydo exist, all would agree they must be taken seriously.

* The Social Responsible Investment Market is wheremajor world leading financial institutions monitorand measure the social and environmentalperformance of organisations prior to decidingwhether or not to invest in that organisation.

8. SUSTAINABILITYSustainability is about living and working in ways thatmeet and integrate existing environmental,economicand social needs without compromising the well beingof future generations.P&SM can make a significant contribution to

sustainable development and resource minimisation byensuring that suppliers,contractors and the goods andservices bought achieve optimum environmentalperformance.Furthermore,P&SM has an additional roleto play in minimising any reputational risk of socialexploitation within the supply chain.P&SM, therefore,plays an integral role in promoting environmental andsocial awareness in the wider marketplace through itssupply community.However sustainability is defined within

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organisations,P&SM is engaged in this debate in aunique way.No business function is routinely andprofessionally engaged in resolving the competingdemands of finance,marketing,public image,production, legal compliance and so forth.Nor, in mostcases, is any other function so well positioned to use itsinfluence.If an organisation is serious about integrating

sustainability into its P&SM process it must address anumber of related areas such as: the P&SM strategy integration of sustainability into P&SM training & development supplier development performance measures.

P&SM must also be cognisant of resource impacts andany support framework that may be needed to deliverthe strategy, thereby ensuring that any sustainableprocurement strategy is deliverable in both strategic andoperational terms.

9. IMPACT ON SOCIETY*Many Chief Executives have choices about how theymanage their organisations.For example, the approachthey take to labour and supplier relations can determinewhether or not they are seen as good corporate citizens.Many organisations that are early adopters of CSR

have come to realise that their impact upon society doesnot just mean the area of operations,but that it extendsin some cases globally, this is due to the types of goodsand services that are purchased,as well as the type ofproducts supplied to the market.The best of the worlds organisations are setting high

standards of behaviour in many aspects of business andwider social conduct.Behind these companies liemillions of small and medium-sized local firms in thevalue chain that also create jobs and pay taxes.Goodcorporate citizens have a major impact on how thesebusiness partners in turn run their local businesses.An important aspect of corporate citizenship is the

way in which companies account for the behaviour oftheir business partners in the forward and backwardlinkages of the supply chain.Companies can traceenvironmental impacts from the acquisition of rawmaterials, through all levels of manufacturing,distribution and sale of products.They are similarly beingasked to provide accounts on social issues.Examples of backward linkages include retailers

being asked about the conditions of employment andwages of their suppliers inAfrica orAsia.Businesslinkages to the developing world,where food andproducts like clothing are being sourced from societieswhere low wages,poor conditions,child labour andenvironmental problems are endemic,are a cause forconcern to consumers in Europe orAmerica.

Examples of forward linkages include concernsabout what responsibility the manufacturer or retailerhas for safely disposing of or recycling products onceused. In the social sphere,questions are asked about theresponsibility of drinks companies to help control drinkdriving and under age consumption of their product.* Impact on Society in the context in this practiceguide refers to not only the environment where theorganisation operates but also where it can exert itsreach and influence

10. ETHICS & ETHICAL TRADINGIn a borderless world in which organisations are doingbusiness in diverse cultures, it is necessary to developcore business conduct principles,on which theorganisation, its employees and suppliers can relyworldwide.Ethical supply chain management is one of the

greatest challenges facing organisations. It is becomingunacceptable for organisations to be unaware of howthe workers involved in making their products orsupplying their services are treated.The global nature oftrade often leads to complexity within the supply chain;this alone can make ethical trading a daunting task initself.Ethics and ethical trading are not simply restricted to

activities that occur in developing countries, forexample, the tragic deaths of Chinese cockle pickers inEnglands Morecambe Bay shows that workers inwealthier countries can still be victims of exploitativepractices.CIPS has a Personal Ethical Code by which all

members are governed.The code sets out principles ofintegrity,professionalism,high standards,optimal use ofresources and compliance with legal and otherobligations,and offers guidance in relation todeclarations of interest,confidentiality and accuracy ofinformation, fair competition,business gifts andhospitality.The CIPS Policy on Ethical Business Practices in

P&SM expands on the principles in the code andaddresses business to business ethical and sociallyresponsibility issues within supply chains.

11. BIODIVERSITYOrganisations of all types are key ingredients toeconomic growth and globalisation.They are also centralto biodiversity loss and strategies to conserve andrestore nature.This is not the only area whereorganisations and biodiversity merge.Organisations areengaging in biodiversity and conservation has developedwithin the paradigm of CSR as well as other issueshighlighted within this Practice Guide.Biodiversity as a term refers to the life support

system of our planet so how do P&SM activitiescontribute to the loss of biodiversity? One example of


this is when goods are being purchased globally, it isusually the objective of the P&SM professional to movegoods from one destination to another at the lowestoverall cost,generally that could be by use of ship.Thisuse of transport can cause significant damage to thebiodiversity contained within the sea.Biodiversity is generally discussed in three

distinguished forms:habitat diversity;genetic diversity;and species diversity.Habitat diversity refers to the range of places where

species live - coral reefs,prairie, steppe, tropicalrainforest etc. Many species can only survive and thrivein their particular habitat so when that habitat isdegraded,or disappears as a result of corporate greed orself-interest, then the species suffer as well.The genetic diversity within a species is essentially

the variety of populations that comprise it,with speciesreduced to a single population (eg the albatross)containing less genetic diversity than species comprisingmany populations,eg geese. The smaller the number ofpopulations, the greater the risk of the speciesconcerned disappearing.Within species diversity, there are about 1.5 m named

species on Earth but it is well known that these are alsomany unnamed species with an estimated total numberof between 5 and 15m.Species living in tropicalrainforests would seem to be at particular risk fromcorporate exploitation and other forms of despoliation(each year it is estimated that almost 50,000 sq milesdisappears either through being cut for timber or beingcleared for crops or grazing). Although they cover lessthan 2% of the total area of the planet, they are home toat least 50% (some say as much as 90%) of the specieson Earth.

Suppliers will be involved in meeting the demandsof your own company for energy,materials,goods andservices.All these companies will have their ownimpacts on biodiversity, and the P&SM function has asignificant influence in ensuring that organisationswithin supply chains minimise their impacts onbiodiversity and make positive contributions toconservation where possible.Thorough engagement ofthese issues means,evaluating your impact onbiodiversity through your supply chain and workingwith suppliers to improve their environmentalperformance.

12. HINTS AND TIPSSo how can P&SM professionals create value for theirorganisations when dealing with CSR? Below are somehandy hints CIPS recommends are undertaken tominimise the negative impact and maximise the positiveimpact CSR can have on an organisation through buyinggoods,works and services.

Link with the organisations overall CSR policy andexert influence on its approach from the P&SMperspective

Ensure the CSR sourcing strategy delivers what theorganisation,as a whole, is aiming for and itscommitments are entirely practicable within overallexisting policies in more general terms, such as valuefor money or cost reduction

Identify which aspects of CSR are important to theorganisation overall,particularly within its supplychain

Get high-level corporate buy-in for a CSR policy forthe supply chain and communicate it to suppliers.

Review products/services/suppliers for potentialbenefits or risk from CSR impact, and identify thepotential of risk/reward from each

Prioritise analysis and action on higher risk/rewardareas and check the likely impact through the supplychain

Balance the CSR impact within the organisationsoverall sourcing strategy.For example,a particularcommodity may be identified in the price/costleverage category but if there is a significant CSR,then the saving methodology will need to beadjusted accordingly

Involve suppliers in the analysis. If there is apotentially excellent supplier who is poor on aparticular aspect of CSR then assess whether it isworth working with them to improve this aspect oftheir business

No two organisations will have the exact samerequirements, and therefore a unique risk rank modelwill need to be developed that encompasses social,environmental and economic risks

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13. SUMMARYThis Guide has provided P&SM professionals with a highlevel view of CSR and some of the many issues thatmake up the CSR paradigm.The issues highlighted arenot exhaustive,as CSR matures and more organisationsrealise the strategic importance then more individualissues may arise that are pertinent to organisations,sectors and particular products.It is important that all P&SM professionals

understand that there is not one standard approach toCSR in the supply chain and that the approach takenwhether it is a risk based one or not, should be reviewedalongside other criteria within a sourcing strategy and abalanced scorecard approach developed to identifyappropriate solutions for a supply strategy for eachparticular organisation.

14. FURTHER READING CIPS Executive Insight Guide on CSRThe EthicalDecision

CIPS Executive Insight Guide on Corporate SocialLeadership

CIPS Executive Insight Guide on CorporateGovernance

CIPS Executive Insight Guide on Human Rights CIPS Principles on CSR CIPS Briefing on Supplier Diversity CIPS Practice Guide on Supplier Diversity CIPS Practice Guide on Sarbanes-Oxley CIPS Practice Guide on CSR Codes and Standards CIPS Practice Guide on Sustainability CIPS Practice Guide on the Environment CIPS publication The Practitioner- EnvironmentalPurchasing in Practice

15. USEFULWEBSITESwww.crme-dmu.org.ukwww.cre.gov.ukwww.nmsdcus.orgwww.div2000.comwww.cips.orgwww.societyandbusiness.gov.ukwww.ethicaltrade.orgwww.euractiv.comwww.forumforthefuture.org.ukwww.nottingham.au.uk/business/iccsrwww.ilo.orgwww.biodiversityandbusiness.orgwww.eldis.org

AUTHORDarren Ford, Senior Procurement Specialist

ACKNOWLEDGEMENTSCSR Interest Group

corporate social responsiblity

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