Why should retailers care about human rights in their supply chains?
Prior to the last decade, supply chain behaviors were largely off the radar for most retailers. Undoubtedly, retailers have always wanted the best-quality suppliers at the cheapest price and goods delivered in accordance with pre-agreed timetables. However, what has changed is the transparency of understanding how those suppliers were able to achieve all three of these prerequisites. Retailers’ reputations are damaged when they stock products from companies that have been shown to receive goods from suppliers that harm others.
The old-fashioned view of competitive advantage in the retail industry is one where retailers are consistently able to sell high-margin products that their competitors cannot match if there is differentiation in either the product itself or product delivery. What we are seeing today is a new generation asking different questions: where did that product come from? How was it manufactured? How does it impact the environment?
"This is more than just doing the right thing; it’s protecting the company’s reputation and brands." - Richard Karmel, Partner, Head of Mazars social performance and human rights reporting team
The only way retailers can answer these questions is through a deep understanding of their suppliers. Paul Polman, the CEO of Unilever, said, “We cannot choose between [economic] growth and sustainability—we must have both.” By addressing the risks of the impact of human rights on the supply chain, one addresses most sustainability issues.
What can retailers do to protect themselves against adverse human rights behavior in their supply chain?
The first step is for all retailers to adhere to the United Nations Guiding Principles on Business and Human Rights, which consist of 31 clear and concise principles that establish how all businesses should address and guard against negative human rights impacts.
In this respect, Mazars has collaborated with Shift, a non-profit center for business and human rights that largely consists of the UN team that drafted the Guiding Principles, to propose a standard for companies to report on their compliance with the UN Guiding Principles and a standard for auditors to be able to provide independent assurance on these reports. This project is officially supported by the UN Working Group for Business and Human Rights.
If retailers follow through with their adherence to the UN Guiding Principles, there will be a positive answer to the question, “Do your suppliers, and your supplier’s suppliers, trust you?”
We started by evaluating the impact of transparency on retailers. We found that if retailers want to take full control of their risks, maximize their contribution to society, increase their competitive advantage and thereby increase their profits, they need to move their culture away from that of legal compliance to one of moral compliance. Not such an easy job when Western business is full of lawyers and litigation! However, a number of retailers are already leading the way in human rights risk management and are reaping the benefits. Others need to catch up before consumers and investors fully grasp the issues and react accordingly.
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Retail and consumer products companies face a number of challenges: intensified competition, strong pressure on margins, commodity price inflation, issues related to global sourcing, reinforcement of brand identity and the implementation of a differentiation strategy while improving the shopping experience and developing a multichannel approach, etc. The players involved are faced with major structural transformation issues. Mazars understands these issues and has gathered a global team of experts in accounting, finance, taxation and consulting with firsthand industry knowledge to help companies handle these challenges while providing added value.
Across the world, Mazars works with retail companies of every size, from growing private businesses to some of the largest international groups. By combining vast industry knowledge and considerable expertise in a variety of fields, Mazars’ team provides invaluable commercial insight and technical ability. Our approach is always hands-on and collaborative.