There are many challenges to creating an ethical supply chain. Almost all multinational companies are currently embroiled in making decisions about how to manage operations considering an international crisis with the Russian war in the Ukraine, its allies, global warming, decent labor conditions and anti-corruption. Approximately 88% of consumers state that the ethical standards of companies are important to them, according to Forbes. This is definitely compelling from a profitability standpoint, but companies need to adopt this philosophy from the top down and be consistent or it will fail to achieve ESG reputability. So, how should a company navigate the decisions on having an ethical supply chain? Here are five ways of addressing the ESG challenge:

• Take a political position when it can make an impact.

While carriers such as FedEx and UPS stopped delivering to Russia back in February, many companies had shareholder pressure to stop business altogether such as McDonald's, Coca-Cola, Starbucks and Heineken. So, beyond the fact that shipments might not reach the end consumers or that payment might be difficult or impossible to obtain from Russia, Belarus and the sanctioned regions of Ukraine, these companies have made a political statement that they will not support Russian aggression against Ukraine. This is a departure from the traditional ESG path but effective and important when the political climate is unstable.

• Create a code of conduct for your company and demand it from your suppliers.

A code of conduct is a statement that serves as a framework for ethical decision making within an organization. The Code of Conduct is a communication tool that informs internal and external stakeholders about what is valued by a particular organization, its employees and management. This is a statement that should include regulatory compliance as well. Going back to the Sarbanes-Oxley Act of 2002, individuals serving on boards and organizational leaders of public companies must comply with laws and regulations so there’s no mistaking illegal activity. Your company should use marketing methods to communicate your code of conduct to consumers as well to suppliers and other partners so they are aware of your company’s efforts and stand on ethical matters. And your company should encourage its employees to always use your code of conduct as the base from which they operate.

• Use suppliers who can back their labor practices.

This means suppliers must support their employees from a health and well-being standpoint but also ensure they are not employing child labor, have safe and hygienic working conditions, and pay appropriate and equitable wages. Your suppliers should recognize and respect the right of employees to freedom of association and collective bargaining. Your suppliers should have effective grievance procedures which resolve disputes, employee complaints, and ensure effective, respectful, and transparent communication between employees, their representatives and management.

• Reduce your Company’s carbon footprint.

Carbon reduction is a constant topic for creating an ethical supply chain. Global warming has been a hot topic for the last 20 years. It has become easier to simulate, manage and reduce environmental impact through software offerings and reporting. A company can now track, measure, and optimize CO2 and energy consumption across warehousing and transportation. Routing can be optimized to reduce mileage and conserve fuel. Another measure of your company’s carbon footprint has to do with employee Business travel, waste disposal, and third-party waste disposal. Another way to reduce carbon footprint is to support and enable a remote work force. It’s valuable to be able to track and report your company’s footprint.

• Train your employees about the Foreign Corrupt Practices Act (FCPA).

Illegal payments and corruption occur around the globe and is a well-known method of increasing sales when business becomes difficult. The FCPA is a federal law, enforced by the U.S. Department of Justice, which prohibits U.S. persons or companies’ payments, gifts, or even offers of anything of value to a foreign official gaining or maintaining business. Employees need to be trained on acceptable business behavior based on your company’s code of conduct. This could cost your company huge penalties if avoided. For instance, Goldman Sachs paid more than $2.9 billion to settle SEC charges that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA in connection with the 1Malaysia Development Berhad scandal. So, basic training is clearly worth the investment.

Hopefully we’ve shed some light on this hot topic. Let BPE Global know if we can help you with any of your trade compliance needs. BPE Global is a global trade consulting and training firm. Julie Gibbs is a Director of BPE Global. You can reach Julie by email at jgibbs@bpeglobal.com or by phone at 1-415-595-8543.

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