the fight against corruption: insights into ethical ... · the fight against corruption: insights...

The Fight Against Corruption: Insights Into Ethical Performance in Global Supply Chains

Table of Contents

Foreword ...............................................................................................................4

Executive Summary .........................................................................................6

Defining Corruption and Setting the Context .................................... 7

Global Overview ................................................................................................8

Regional Review ............................................................................................... 11

Industry Spotlights ......................................................................................... 16

Best Practices and Recommendations ...............................................20

Study Methodology ..................................................................................... 24

Legal Insight: Anti-Corruption Measurers ..........................................30

ForewordIn 2007, the year EcoVadis was founded, we saw a critical need for a simple, reliable and global sustainability rating platform. Now, in 2018, we assess close to 20,000 companies a year on their environmental, human rights and ethical performance. The need for a collaborative sustainability rating platform proved to be real: All around the world we see players who strive to create a responsible international business community.

One of the major topics we assess is how businesses address anti-corruption risks and fight against fraud and bribery. Academic and management research has shown there is a huge cost associated with corruption. Corruption scandals are a frequent occurrence and 2018 has also seen its fair share, including the so-called “notebook scandal” in Argentina, the investigation and jailing of Brazil’s ex-President Luiz Inácio Lula da Silva and the cost of building a flood barrier in Venice, Italy, skyrocketing in part due to corruption. Corruption is seen by many as a cancer that erodes development potential. The latest Transparency International Index on Corruption Perception has shown that “the majority of countries are making little or no progress in ending corruption, while further analysis shows journalists and activists in corrupt countries risking their lives every day in an effort to speak out.”

We have previously addressed the topic with two white papers: Human Rights Rising on the Corporate Risk Agenda and Anti-Corruption & Anti-Bribery Due Diligence. However, given that there still remains so much work to be done to eradicate the problem, our aim is to help the business community in the fight against corruption by bringing more visibility, data and statistics on what is happening in global supply chains. With some 20,000 companies from more than 100 countries and across over 150 industries assessed between January 2017 and June 2018, this first EcoVadis anti-corruption report is also the first one on this scale globally.

Needless to say, our team will be eager to release future editions and analyze key trends over time. But for the time being enjoy the first edition of this unique study and please do not hesitate to share your comments.

Many regards,

Sylvain Guyoton Senior Vice President of Research

https://www.transparency.org/news/feature/corruption_perceptions_index_2017

https://www2.ecovadis.com/l/151391/2018-11-16/q24sb

https://www2.ecovadis.com/l/151391/2018-11-16/q24sb

https://www2.ecovadis.com/l/151391/2018-11-16/q24s8

6The Fight Against Corruption: Insights Into Ethical Performance in Global Supply Chains 6

Executive Summary

Overall Results• The average Ethics score is 42.21, which according to the EcoVadis scoring scale indicates

an unstructured approach to ethics management. Companies still have a long way to go to improve their anti-corruption practices.

Regional Differentiation • North American companies perform better (45.7) than those in other regions, but the

maturity of their anti-corruption management system can be explained by the fact that they are under more scrutiny and are subject to more penalties.

• Greater China on the other hand is the lowest performing region (32.6). Chinese companies show little formalization of an anti-corruption management system. This is a concern given the high corruption risks present in that region.

Industry Insights • The best performing sector, Finance and Insurance, is also the most exposed to penalties

and fines. It has important disclosure obligations, and as a result companies in this sector typically have formalized anti-corruption programs.

• The lowest performing sectors are also some of the most exposed to corruption risks, e.g. Transport and Construction. Despite these increased risks, their anti-corruption management systems are less formalized than those in other industries.

Best Practices • There are wide disparities in the implementation of best practices. While whistleblowing

procedures are the most common best practice implemented by companies, other anti-corruption measures are still rare. This is especially true for third-party due diligence procedures or anti-corruption risk assessments, which remain exceptional for most companies, regardless of the region, even though they are fundamental actions of any solid anti-corruption program.

• Regardless of the type of best practices, the top performing regions are North America and Europe, while the least performing region is almost systematically Greater China.

Regulations• Our study on the evolution of companies’ performance over the 2015-2018 period shows

that anti-corruption regulations can have a positive effect, as illustrated by the France and Brazil case studies, presented in page on Page 14 and 15.

1 All EcoVadis scores are out of 100.

The Fight Against Corruption: Insights Into Ethical Performance in Global Supply Chains 7

Defining Corruption and Setting the Context Corruption is defined broadly under the EcoVadis methodology as any kind of abuse of entrusted power in the workplace for private gain, taking the form of bribery, conflict of interest, fraud and/or money laundering. As our methodology is aligned with the United Nations Global Compact principles, it is worth a mention that the agency’s tenth principle, adopted in 2004, commits UNGC participants to avoid all forms of corruption and to proactively develop policies to address corruption internally and within their supply chains.

To understand how companies prevent and address corruption risks, the EcoVadis methodology analyzes the quality of their anti-corruption management system. A solid anti-corruption management system should at the very least include the following elements:

� Policies Formalizing policies to address corruption issues allows companies to communicate their commitment, objectives and strategy to prevent corruption to all its stakeholders, including its employees.

� Measures To effectively address the corruption risks outlined in the policies, concrete internal control measures are implemented.

� Reporting Companies then monitor the implementation of these measures through reporting on results.

Finally, these indicators are compared with the results of the EcoVadis 360° Watch. The 360° Watch analyzes the track record of companies, i.e. if they have been sanctioned on ethics issues, which usually shows there are some deficiencies in the company’s management system.

https://www.unglobalcompact.org/what-is-gc/mission/principles/principle-10

https://www.unglobalcompact.org/what-is-gc/mission/principles/principle-10


Global Overview

Distribution of Ethics Scores by Company Size

40

30

20

10

00 10 30 50 70 90

Large Companies

Small and Medium -Sized Companies

Key Findings• The global average score in the Ethics theme is 42.2. This indicates that, overall,

companies still have much progress to make in terms of Business Ethics risk management. Scores below 45 indicate an unstructured, partial approach of a given CSR theme (medium to high risk on the EcoVadis scoring scale).

• A closer look at the global average score breakdown by company size reveals that small and medium-sized companies (26-999 employees), with an average score of 42.4, perform slightly better than large companies (above 1000 employees), who have an average score of 41.2. This result is consistent with the findings of the latest Global CSR Risk and Performance Index results and can be explained by the fact that although small and medium-sized companies usually have a less formalized anti-corruption program, they are also subject to fewer penalities than large companies.

Average Ethics Scores by Region

32.6

38.1

42.2

45.3

45.7

Greater China

AMEA excluding

GreaterEurope

Latin America and the

Caribbean

Europe

North America

42.2

Global Average

https://www.ecovadis.com/library/the-global-csr-risk-and-performance-index-2018/

https://www.ecovadis.com/library/the-global-csr-risk-and-performance-index-2018/


Ethics Score Distribution by Region

40

30

20

10

0

0 10 30 50 70 90

AMEA excluding Greater China Area

Europe

Greater China

Latin America and the Caribbean


Regional Leaders and Laggards • The score breakdown by region shows that North America and Europe lead the ranking

with scores above 45, illustrating that companies based in these regions have a structured and proactive approach to deal with ethics issues.

• China, on the other hand, is the least performing region, with an average score of 32.6, significantly below average, showing that the subject is not a priority for companies based in that region. This also reflects the low level of constraints imposed by legal framework.

• Latin America has progressed on the Ethics theme, with scores aligned with the general average of 42.2. Despite reports from Transparency International2 showing that most Latin Americans believe that corruption is rising, companies seem to be improving their anti-corruption management system, pushed by more strict regulations and pressure from civil society.

2 Transparency International, PEOPLE AND CORRUPTION: LATIN AMERICA AND THE CARIBBEAN – Global Corruption Barometer, 2017, p.9


Business Ethics Score by Industry

Wholesale & R

etail T

rade

Transporta

tion & Sto

rage

Light Manufa

cturin

g

Heavy Manufa

cturin

g

Constructio

n

Pharmaceutic

als,

Chemicals & H

ealthcare

Mining & Q

uarrying

Legal & consultin

g

Info

rmatio

n & Com

municatio

n

Technology

Real esta

te

Finance & Insura

nce

Power Genera

tion

and Transm

ission

60

50

40

30

39.040.5 41.2 41.4 41.5 41.6 41.9

46.447.7 47.7

49.9 50.2Global Average 42.2

Industry Insights • The breakdown of scores by industry identifies sectors that stand out from the average

and those that still have room for improvement.

• The scores reflect a trend that is confirmed in the qualitative analysis of the companies’ anti-corruption management system: With scores above 46, intellectual services (Finance and Insurance, Information and Communication as well as Legal and Consulting) rank among the top performers. The Power Generation and Transmission and Real Estate sectors also perform well.

• On the other hand, companies in the Wholesale, Transport, Construction and Manufacturing sectors show a less structured management system, with scores below 42 and significantly behind the intellectual services sector.


Regional Review

Percentage of Companies With a Formal Policy on Corruption

56

51

45

40

39

North America

Europe



Greater China

48

Global Average

Percentage of Companies With Corruption Measures in Place

50

38

35

32

28

North America

Europe



Greater China

37

Global Average


Key Findings• ● For both anti-corruption policies and measures, North American companies are the best

performers.

• ● Chinese companies rank last among all regions and are less likely to implement policies or internal control measures.

• ● On average, companies are more likely to formalize policies than to implement internal control measures. This shows that many companies still consider that formalizing a dedicated anti-corruption policy or a Code of Conduct is sufficient to cover all corruption risks.

Percentage of Companies Reporting on Ethics Issues

12%

10%

8%

8%

6%

North America

Europe



Greater China

9%

Global Average

Percentage of Companies With Sanctions on Ethics Issues

6%

3%

3%

2%

1%

North America


Europe

Greater China


3%

Global Average


• ● Reporting on ethics issues is still rare: On average, less than 10 percent of companies globally report on ethics KPIs.

• ● North American companies report twice as much on ethics issues as Chinese companies, who are once again lagging behind, compared to other regions.

• ● North American companies are sanctioned twice as much on ethics issues as companies from the rest of the world. These sanctions provide an incentive for North American companies to develop more solid anti-corruption management system, and are one of the factors that help explain why they typically perform better than other regions on policies, measures and reporting.

• ● Although these sanctions may be more frequent for North American companies, it is interesting to note that to this day, the highest Foreign Corrupt Practices Act (FCPA) enforcement actions mostly concerned European companies, while the record fine was imposed on a Brazilian company. The FCPA TOP10 sanctions only includes two U.S. companies.

http://www.fcpablog.com/blog/2018/9/28/petrobras-smashes-the-top-ten-list-and-we-explain-why.html

http://www.fcpablog.com/blog/2018/9/28/petrobras-smashes-the-top-ten-list-and-we-explain-why.html


Case Studies: New Anti-Corruption Regulations and Their Impact on Companies’ Performance

Case Study 1: France & the Sapin II Law

Ethics Score in France

48

46

44

42

40

382015 2016 2017 2018

France

French Companies’ Performance Over Time

2015 2016 2017 2018

Policies

2015 2016 2017 2018

Measures

2015 2016 2017 2018

Reporting

2015 2016 2017 2018

Sanctions on Ethics

44%49%

20%

27%30%

36%

6%13% 12% 13%

6% 8% 1% 2% 2% 3%

• The French Sapin II law, which came into force in 2017, requires companies with more than 500 employees and Euro 100 million annual turnover to implement an anti-corruption program, which includes policies, measures and reporting elements. The implementation of this program is controlled by a new administrative body, the French Anti-Corruption Agency.

• Since the legislation was introduced French companies’ performance improved significantly when it comes to policies and measure indicators, and moderately when it comes to reporting on results. It shows that regulations remain a powerful tool to drive performance, giving companies very concrete incentives to structure and formalize their risk management systems.

• Anti-corruption and bribery penalties have also been on the rise among French companies between 2015-2018, but it is still too early to link this trend to Sapin II.


Case Study 2: Brazil and the Clean Companies Act

Ethics Score in Brazil

48

46

44

42

40

382015 2016 2017 2018

Brasil

Brazilian Companies’ Performance Over Time

2015 2016 2017 2018

Policies

2015 2016 2017 2018

Measures

2015 2016 2017 2018

Reporting

2015 2016 2017 2018

Sanctions on Ethics

45%

36%

29%

39%

33% 33%

19%8%4%4%

8%4%

0% 1% 1% 2%

• ● Brazil has implemented a new legal anti-corruption framework introducing severe penalties for companies involved in corruption issues. They include heavy fines, suspension of the activities and even a compulsory dissolution of legal entities.

• ● Companies may have their penalties reduced if they demonstrate they have a solid integrity program in place. In practical terms, the legislation has created a strong incentive for companies to put in place solid ethics policies and internal control mechanisms such as audits and whistleblowing channels.

• ● The regulation entered into force in 2014 and, already in 2016, a clear performance increase was observed on the Ethics scores of Brazilian companies. It is also clear that companies have developed a more robust management system, with a significantly larger share of companies adopting policies and measures already in 2016, and from 2017 being able to report on the results of the actions taken.

• ● The level of sanctions has also significantly increased and it is almost four times higher than in 2015, although the share of Brazilian companies penalized with regard to ethics issues is still smaller than their North American peers.

• ● A dip in performance in 2018 was also observed on other themes: The general average score of Brazilian companies also decreased from 42.4 in 2017 to 41.5 in 2018. This could be a consequence of the country’s recent deep political and economic crisis, rather than an indication of a weakening on the Brazilian companies’ anti-corruption program.


Industry Spotlights

Anti-Corruption Policy Implementation: Industry Comparison

Wholesale & R

etail

Trade

Constructio

n

Transporta

tion & Sto

rage

Light Manufa

cturin

g

Heavy Manufa

cturin

g

Pharmaceutic

als,

Chemicals & H

ealthcare

Legal & consultin

g

Info

rmatio

n & Com

municatio

n

Technology

Mining & Q

uarrying

Real esta

te

Power genera

tion

and transm

ission

Finance & Insura

nce

80%

70%

60%

50%

40%

30%37%

42%44% 45%

49% 50% 50%

54%56% 57%

76%

83%

Global Average 48

• ● The Finance and Insurance Sector performs significantly above average, both in terms of the formalization of anti-corruption policies and the implementation of internal control measures. It is followed by the Power Generation and Transmission sector.

• ● The least performing sector, somewhat surprisingly, is Wholesale & Retail. The fact that this sector is not typically considered to be particularly exposed to corruption risks may explain why businesses do not consider formalizing policies and implementing measures on these topics a priority.

• ● Sectors typically considered high-risk, such as Transportation or Construction, do not perform well either compared to other industries. This raises questions as to whether they are well prepared to face corruption issues.


Anti-Corruption Measures: Industry Comparison

70%

60%

50%

40%

30%

20%29%

32% 33% 34%38%

40%39%43% 44%

60%

67%

79%

Global Average 37

Wholesale & R

etail

Trade

Constructio

n

Transporta

tion & Sto

rage

Light Manufa

cturin

g

Heavy Manufa

cturin

g

Pharmaceutic

als,

Chemicals & H

ealthcare

Legal & consultin

g

Info

rmatio

n & Com

municatio

n

Technology

Mining & Q

uarrying

Real esta

te

Power genera

tion

and transm

ission

Finance & Insura

nce

Once again, the Finance & Insurance sector performs significantly better than other sectors on reporting. This can be explained by the fact that these sectors are heavily regulated, and legally required to disclose reporting information.

Ethics Reporting: Industry Comparison

40%

30%

20%

10%

0% 6% 6% 7%9% 10% 10%10%

14%

21%

26%

33%

41%

Global Average 9

Wholesale & R

etail

Trade

Constructio

n

Light Manufa

cturin

g

Transporta

tion & Sto

rage

Pharmaceutic

als, Chem

icals

& Health

care

Heavy Manufa

cturin

g

Legal & consultin

g

Info

rmatio

n & Com

municatio

n

Technology

Mining & Q

uarrying

Real esta

te

Power genera

tion

and transm

ission

Finance & Insura

nce


Although it performs very well on policies, measures and reporting on results, the Finance and Insurance sector is also by far the most sanctioned on business ethics issues. This formalization of a more structured anti-corruption management system could therefore also be explained by the higher frequency of sanctions faced by that sector, as well as the existence of more specialized controlling agencies.

Sanctions on Ethics Issues : Industry Comparison

30%

25%

20%

15%

10%

5%

0% 2.6% 2.7% 4.0%3.2%5.1% 5.3%

8.6%

20.0%

27.7%

Global Average 3.1

Constructio

n

Wholesale & R

etail T

rade

Real esta

te

Pharmaceutic

als, Chem

icals

& Health

care

Light Manufa

cturin

g

Heavy Manufa

cturin

g

Legal & consultin

g

Transporta

tion & Sto

rage

Info

rmatio

n & Com

municatio

n

Technology

Mining & Q

uarrying

Power genera

tion

and transm

ission

Finance & Insura

nce

1.5% 1.7% 1.9%


Aerospace: A Strong Performer in a High Corruption Risk Environment

Anti-Corruption Management Systems in the Aerospace Sector

89% 11%

67% 33%

33% 67%

22% 78%

Policies

Actions

Reporting on Results

Sanctions on Ethics

Yes

No

The aerospace sector, although not included in the industry snapshots above, is a unique one and warrants a close analysis. It is is heavily exposed to corruption risks: The industry is very concentrated, often operating with a decentralized organization or with state-share ownership. It typically exports its advanced technology, which increases its corruption risks.

• ● Companies in the aerospace sector perform very well on policies, and relatively well on measures. Reporting is implemented less frequently, but still about three times more than average.

• ● Businesses in the aerospace sector are issued penalties significantly more often than average, with one in four companies being subject to such proceedings.


Best Practices and Recommendations A solid anti-corruption management system requires a number of elements, which are essential in ensuring that risks arising from a company’s daily operations are dealt with effectively. Below are five core elements used by companies worldwide.

Corruption Risk Assessment• A corruption-risk assessment seeks to identify the types of corruption risks companies are

exposed to based on their operations.

• Conducting a risk assessment should be one of the first steps in designing an effective anti-corruption management system. It helps identify areas where companies should invest efforts in preventing corruption risks and what type of internal controls it should implement.

Third Party Due Diligence Process• Recent FCPA enforcement cases show that most situations a third party is involved.

These third parties are individuals or companies who act in the name of the company to obtain or retain a business advantage. They include distributors, brokers, agents, consultants, advisors and freight forwarders.

• Implementing an anti-corruption due diligence process, including background research, questionnaire etc. is key to addressing corruption risks posed by these third parties.

Whistleblowing Procedure• An effective whistleblowing procedure allows employees to report concerns or violations

in a safe framework. To be effective, the procedure should include a dedicated reporting channel, and guarantee both confidentiality and non-retaliation.

Anti-Corruption Training• Anti-corruption training allows companies to ensure that employees who are exposed

to risks are aware of both the operational corruption risks and the internal controls implemented by the company to address them. Regular employee training, either face-to-face or through e-learning, is key to ensuring the anti-corruption management system is actually applied.

Internal Control Audits• Auditing anti-corruption internal controls is the process of verifying the implementation

and the effectiveness of these control procedures. Companies should conduct periodic audits to be able to identify potential non-compliances and improve their anti-corruption management system.


Percentage of Companies With Specific Anti-Corruption Measures

17%

53%

9%

41%

24%

14%11%

Small/Med Large

Whistleblowing Procedure

Small/Med Large

Anti-Corruption Training

Small/Med Large

Internal Control Audits

Small/Med Large

Third Party Due Diligence Process

Small/Med Large

Corruption Risk Assessment

60%

50%

40%

30%

20%

10%

0%1%2%3%

Key Findings • ● There is a significant gap between the performance of large and small and medium-

sized companies, and this is true for all types of best practices. This discrepancy can be explained by small and medium-sized companies’ lack of resources to deploy anti-corruption measures, but also by the fact that they are often less exposed to corruption risks than their large counterparts.

• ● Whistleblowing is the most common best practice, with one out of four companies assessed by EcoVadis having such procedures in place. However, it can only be effective when other core measures are implemented: Employees must be trained to identify corruption cases, and, most importantly, internal controls should be implemented to prevent corruption the first place.

• ● A low adoption, even among large companies, of some specific measures such as third-party due diligence and corruption risk assessment shows that most companies might still be exposed to substantial risks:

- ● Companies which have not performed a risk assessment might not be covering all their risks, or might not be targeting their resources on the highest risks.

- ● More specifically, many companies seem not to have identified risks posed by third parties, and the crucial role third-party due diligence has to play in an anti-corruption management system.


Best Practice Adoption per Type and Region

●

13%

16%

13%

13%

17%

7% 8%

4%

5%

8%

Third Party Due Diligence

Whistleblowing Procedure

Risk Assessment

Training Audits


Europe

Greater China


North America

5%

3%

8%

2%

1%

21%

25%

24%

12%

41%

4% 4%

2% 2% 2%

40%

30%

20%

10%

0%

Focusing on the companies performance per region, the results consistently show that the share of European and North American companies that have implemented one or more best practices is larger than in other regions. The Greater China region, on the other hand, is generally the poorest performing region with a low adoption rate of good practices (e.g. only 12 percent of Chinese companies have a whistleblowing procedure in place compared with 41 percent of North American companies). • ● Corruption-risk assessment is the least adopted measure, with around 4 percent of

companies doing it in Europe and North America. In other regions the figure is even lower, with only 2 percent of companies performing risk assessment on corruption issues.

• ● Anti-corruption training is the most consistently applied measure across all regions, with adoption rates ranging from 13 percent in Latin America, AMEA and Greater China to 17 percent in North America.


EcoVadis Scores and Corruption Perception Index: The Expected and Unexpected Correlations

EcoVadis Scores and Corruption Perception Index:

CP

I cou

ntry

sco

re

EcoVadis average Ethics country score

90

80

70

60

50

40

30

2020 30 40 50 60

Singapore

Japan

Overall, there is a significant correlation for each country between its Transparency International CPI score and its EcoVadis average ethics score (correlation of 0.68).

However, this correlation is not confirmed for all countries. For instance, Japan and Singapore have a relatively high CPI score, but their companies have relatively low EcoVadis ethics scores.

While the CPI country score shows that the business environment at home presents low risks, the lack of formalization of robust anti-corruption management system could still be an issue when these Japanese or Singaporean companies operate abroad, as they are less prepared to address corruption risks.

The country in which a company is headquartered can therefore not be the only indicator to consider: It is important to analyze the quality of its management system to understand how well prepared companies are to face corruption risks.


Study Methodology This study is based on EcoVadis assessment data gathered over the entire 2017 and from January to June 2018. During that time, 19,425 companies from 138 different countries were assessed.

In addition to the Ethics scores (Global Overview), this study also looks in more details into the management indicators present on the anti-corruption programs of the assessed companies (Defining Corruption and Setting the Context ).

The methodology used to analyze those management indicators as seen on Chapters 5 and 6 was the following:

• Formalized policies on corruption: Companies that have at least one formal, specific engagement on corruption issues in place.

• Concrete measures implemented to address corruption: Companies that have implemented at least one valid measure on corruption and bribery. The implementation of those measures is detailed in the Best Practices and Recommendations section.

• Reporting on ethics issues: Companies that have, at a minimum, reported on one recent performance indicator regarding ethics (e.g. number of employees trained on ethics issues).

• Negative track record on ethics issues: Companies that have been issued penalties for at least one major affair regarding business ethics.

We further define the data by three broad parameters:

• Industry divisions: Broad groupings of similar business activities, based on ISIC code;

• Size groups: Either small and medium-sized (26-999 employees) or large (over 1000 employees);

• Regions: geographical location of a company’s headquarters.

Assessments by Industry

Heavy Manufacturing

Pharmaceuticals, Chemicals & Healthcare

Power generation and transmission

Grand Total

Light Manufacturing

Wholesale & Retail Trade

Information & Communication Technology

Construction

Legal & consulting

Finance & Insurance

Real estate

Mining & Quarrying

Transportation & Storage

29.54%

17.83%

11.73%

9.00%

9.07%

6.94%

6.36%

4.40%

2.60%

0.61%

0.44%

0.42%

0.27%


Assessments by Region

Europe


Greater China

Northern America


50%

17%

14%

12%

8%

Assessments by Size

Small and Medium-Sized Companies

Large Companies

50%

17%

Region Divisions

Our region classification references United Nations publication “Standard Country or Area Codes for Statistical Use” (commonly known as M49 standard).

• We use M49’s definition of North America, consisting of five countries: Bermuda, Canada, Greenland, Saint Pierre and Miquelon and United States of America.

• We also use M49’s definition of Latin America (with the Caribbean) and Europe.

• When analyzing Asia, we deviate from M49 and define a region we label “Greater China” that includes People’s Republic of China, its two special administrative regions of Hong Kong and Macau, and the Republic of China. Home to around 20 percent of the world’s population, the scope of Greater China and its unique characteristics that shape global markets warrant a separate, focused analysis, which also allows for clearer insights into the surrounding regions.


• For our Africa, Middle East, and Asia (with Australasia), excluding Greater China region, we use M49’s definition of Asia (which includes Middle East as Western Asia), and include M49’s Oceania, but we exclude Greater China (above).

Industry Divisions

All assessed companies are associated to a business activity defined by International Standard Industrial Classification (ISIC) code. For this study, companies’ practices are gathered into related ISIC groups called industry divisions. 12 are included in this study (some industry sectors are not represented since the sample of companies assessed was too small for a meaningful analysis).

EcoVadis CSR Rating Methodology

For EcoVadis, an effective CSR Management System is composed of the following elements:

POLICIES, ACTIONS and REPORTING ON RESULTS.

These three management layers are separated into seven management indicators: Policies (POLI), Endorsements (ENDO), Measures (MESU), Certifications (CERT), Coverage – Deployment of Actions (COVE), Reporting (REPO) and 360° Watch Findings (360).

POLICIES

1 POLI Policies, objectives, targets, governance

2 ENDO Endorsement of external CSR initiatives and principles (e.g. UN Global Compact)

RESULTS

6 REPO Quality of reporting readily available to stakeholders

7 360 Standpoints of stakeholders, e.g. administrative & judicial authorities, trade unions, NGOs

ACTIONS

3 MESU Actions implemented (e.g. procedures, training, equipment)

4 CERT Certifications, labels, 3rd party audits

5 COVE Level of deployment of certificates or actions throughout the company

When assessing a company’s CSR management system, it is important to define what are


the CSR issues covered by the management system. The assessment considers a range of CSR issues, which are grouped into four themes. The CSR issues are based on international CSR standards such as the Ten Principles of the UN Global Compact, the International Labour Organization (ILO) conventions, the Global Reporting Initiative (GRI)’s standards, the ISO 26000 standard, the CERES Roadmap, and the UN Guiding Principles on Business and Human Rights, also known as the Ruggie Framework.

21 CSR Criteria

ENVIRONMENT LABOR & HUMAN RIGHTS ETHICS SUSTAINABLE

PROCUREMENT

• Energy Consumption & GHGs

• Water

• Biodiversity

• Local & Accidental Pollution

• Materials, Chemicals & Waste

• Product Use

• Product End-of-Life

• Customer Health & Safety

• Environmental Services & Advocacy

• Employee Health & Safety

• Working Conditions

• Social Dialogue

• Career Management & Training

• Child Labor, Forced Labor & Human Trafficking

• Diversity, Discrimination & Harassment

• External Stakeholder Human Rights

• Corruption

• Anti-Competitive Practices

• Responsible Information Management

• Supplier Environmental Practices

• Supplier Social Performance

Interpreting EcoVadis overall CSR Score

0NONE

25PARTIAL

50CONFIRMED

75ADVANCED

100OUTSTANDING

No tangible elements identified.

Not all main criteria activated covered or not sufficiently addressed.

Main activated criteria covered with acceptable practices.

Particularly advanced practices on all activated criteria.

Comprehensive and innovative practices. External recognition.


The scoring of the seven management indicators is based upon strict scoring add a comma after guidelines which are applied by all analysts. Each scoring level is associated to a detailed definition and a database of sample documents. The seven management indicator scores will then generate a score for each theme based upon the weight allocated to each management indicator. The three management layers, policies, actions and results are given the following respective weights: 25 percent , 40 percent and 35 percent .

The overall score is a weighted average of the theme scores. The activation and weight of each theme depends on the company industry, size, and its location. This allows taking into account the characteristics of a company, each theme being more or less critical depending on their activities.

Legal Insight: Anti-Corruption Measurers

The EcoVadis study points out that many companies do not implement adequate anti-corruption policies and measures. Does the content of anti-corruption programs under Sapin II Law properly address these shortcomings?

In 2016, only 27 percent of French companies had implemented anti-corruption policies and 13 percent had anti-corruption measures; by 2018, these figure had respectively reached 49 percent and 36 percent. These figures can be explained by the entry into application of Article 17 of Sapin II Law in June 2017 (Law No. 2016-1691 of December 9, 2016), which introduced an obligation for certain companies to implement an internal system to prevent and detect corruption. Pursuant to this article, anti-corruption programs must for instance include a risk mapping (while 97 percent of companies worldwide do not have any risk mapping in place), training programs for managers and individuals most likely to be exposed to risks of corruption (while 85 percent of companies worldwide do not impose such training) or due diligence procedures for clients and suppliers (while 96 percent of companies worldwide do not have third-party diligence processes).

Are the French anti-corruption programs enforceable outside the French territory?

Yes. For instance, pursuant to Article 17 of Sapin II Law, French companies and foreign subsidiaries of French companies must set up a code of conduct defining the behaviors to be prohibited within the firm for they are likely to constitute acts of corruption or influence peddling (provided these companies employ at least 500 agents and produce a turnover exceeding €100 million). The French Anti-Corruption Agency (AFA) published an opinion in which it added that such a code of conduct must be observed wherever the company operates, whether in France or

abroad, “without prejudice to the application of more stringent anti-corruption references”. Even if these AFA recommendations are not legally binding and only constitute best practices, it is always safer not to ignore them, especially given that the AFA is also the authority which monitors compliance with Sapin II Law. In practice, however, enforcement of such recommendations might become a challenge, especially when combined with the extraterritorial scope of other legislations.

How does the French Anti-Corruption Agency monitor compliance with the obligations to implement anti-corruption practices and, when needed, sanction entities for breaching Sapin II Law?

The AFA is vested with an administrative power to assess the reality and efficiency of anti-corruption compliance programs. At the end of an investigation, the AFA’s director may report the facts to its Sanctions Committee so that the latter may, in turn, (i) require that the entity adapt its internal compliance program, (ii) impose a financial penalty of up to €1 million for legal persons, and/or (iii) order the publication of its decision at the expense of the sentenced entity. Between June 1, 2017 and December 31, 2017, six investigations were carried out by the AFA, without triggering a report to the Sanction Committee.

The AFA claimed that it would carry out over 100 controls over the course of the year 2018.

To carry out their mission, AFA agents can (i) obtain any professional document and any information relevant to the investigation and (ii) interview any person whose assistance appears necessary in order to verify the accuracy of the information transmitted, including external stakeholders. However, the agency holds no coercive powers and may not, for instance, carry out on-site inspections.

Per the AFA’s Charter of the rights and duties of the parties involved in the control, the controlled entity and the persons interviewed may be assisted by the counsel of their choice but may not invoke professional secrecy nor the existence of trade secrets to refuse to respond to AFA agents. However, the latter should ensure the confidentiality of their exchanges with the persons interviewed and, even though it is not expressly mentioned, documents covered by attorney-client privilege should remain protected.

Is the French Anti-Corruption Agency solely focused on sanctions?

The AFA is not only entrusted with a repressive mission but also with an advisory role. The agency has recently published its business support charter in which it details the three levels of support the agency can provide to entities falling under the scope of Sapin II Law.

As part of a generic support, the AFA develops, updates and shares the French anti-corruption legal framework of reference (including its own recommendations, its practical guidelines, etc.). Also, as part of its specific support attributions, the AFA organizes sector-specific or issue-specific workshops in order to shed more light on its expectations in terms of compliance. Finally, the AFA offers individual support schemes whereby it provides practical answers to economic actors’ enquiries as well as tutoring sessions with those responsible for creating and implementing the anti-corruption program within an entity.

The EcoVadis study shows that, globally, the best performing sectors in the fight against corruption are finance and insurance. The poorest performing sectors, meanwhile, are transport and construction. How do you explain that for France and Germany?

In France, these results can be explained by the anti-corruption legislation, which, before the recent enactment of Sapin II Law, already targeted specific sectors, among which the finance and insurance sectors. Pursuant to Articles L. 561-1 et seq. of the French Monetary and Financial Code, affected entities must set up due diligence mechanisms for identifying and assessing the risks to which they are exposed and a policy adapted to these risks. In particular, before entering into a new business relationship and throughout said relationship, they must collect sufficient documentation to allow the identification of their clients and their beneficial owners as well as the financial operations in which they participate. In addition, affected entities must report any suspicion of money laundering, tax fraud or illegal activities to the French anti-money laundering unit (Tracfin).

In terms of German companies, since they export a lot, they often find themselves in situations where the relevant standards in the customer’s country do not match theirs. Business executives must decide between getting the deal through at the expense of their anti-corruption policies (meeting the customer’s expectations, for instance by involving third parties) or renouncing a compelling business opportunity. The temptation to favor the business opportunity

will be higher if the company’s top management does not vigorously advocate for anti-corruption compliance and if sales operatives are remunerated on success fees. The more “hands-on” an industry acts (encouraged by a rather removed and lenient regulatory regime), the higher the risk of corruption. However, it is rather likely that this situation will change throughout all sectors, though slowly. The reigning Coalition of the Federal Government agreed in its Coalition Agreement of February 2018 to implement a law enabling enforcement agencies to impose sanctions directly on non-compliant companies. The Coalition also agreed to make sure companies receive cooperation credits for disclosing and cooperating with enforcement agencies. This is going to be a “big deal” in the German legal regime and might further help changing the culture of doing business.

What have been the most recent developments in the fight against corruption under German statute or case law?

In November 2015, with the enactment of the Second Law on Combatting Corruption, Germany expanded the scope of the criminal provision dealing with bribery in business transactions (Sec. 299 of the German Criminal Code – StGB). Until then, the applicable provisions mostly focused on the potential harm to competition lato sensu, whereas the new provision implemented an alternative model focusing on the principal of the business operations (principal model).

According to this new model, is considered bribery the violation of his or her employment duties by an employee in the context of the purchase of goods or commercial services, regardless of the potential distortion of competition. In addition, the Second Law on Combatting Corruption expanded the territorial scope of the German Criminal Code to encompass certain situations abroad, enabling German enforcement agencies to investigate and prosecute under German law cases with a strong international nexus (Sec. 5 no. 15 of the German Criminal Code).

In terms of recent case law, the most prominent decision is a much-expected judgment dated May 9, 2017 in which the German Supreme Court stated that for the computation of a fine, competent agencies may take into account the extent to which the company complied with its obligation to implement a “Compliance Management System” as well as its reaction after its wrongdoings were detected (File no.: 265/16 BGH – 1 StR). The German legal community considers this decision to be the confirmation that compliance efforts help reduce companies’ liability.

Fabrice Fages

Partner

Latham & Watkins

Thomas Grützner

Partner

Latham & Watkins

About EcoVadis

EcoVadis is the world’s most trusted provider of business sustainability ratings, intelligence and collaborative performance improvement tools for global supply chains. Backed by a powerful technology platform and a global team of domain experts, EcoVadis’ easy-to-use and actionable sustainability scorecards provide detailed insight into environmental, social and ethical risks across 190 purchasing categories and 150 countries. Industry leaders such as Johnson & Johnson, L’Oréal, Nestlé, Schneider Electric, Michelin and BASF are among the more than 50,000 businesses on the EcoVadis network, all working with a single methodology to evaluate, collaborate and improve sustainability performance in order to protect their brands, foster transparency and innovation, and accelerate growth. Learn more at ecovadis.com, Twitter or LinkedIn.

www.ecovadis.com

EcoVadis ContributorsSebastien Arokeum, CSR Analyst

Melina Goncalves, CSR Analyst

Bettina Grabmayr, Senior CSR Analyst

Sylvain Guyoton, Senior Vice-President Research

Anna Kapica-Harward, Senior Content Lead

David McClintock, Marketing Director

External ContributorsFabrice Fages, Partner, Latham & Watkins

Thomas Grützner, Partner, Latham & Watkins

© copyright EcoVadis 2018With special thanks to Krzysztof Soński, FlyHigh.pro

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