As non-financial reporting frameworks and requirements for organisations evolve, so does the need for transparency throughout supply chains. There is an ever increasing emphasis within current and upcoming regulations on being able to demonstrate a deeper understanding of your suppliers and vendors.
Most recently we have seen evidence of this advancing mood through the UK Modern Slavery Act, the EU corporate disclosure directive, and of course the Dodd Frank Act covering conflict minerals.
This summer David Cameron further clarified the criteria surrounding the UK government’s commitment to anti-slavery and supply chain transparency in a speech in Singapore.
The prime minister stated: 'From October, we will also require all businesses with a £36 million turnover or above to disclose what they are doing to ensure their business and supply chains are slavery free. This measure is one of the first of its kind in the world and it will be a huge step forward, introducing greater accountability on business for the condition of their supply chains'.
Whilst the guidance for compliance with the Modern Slavery Act has yet to be published, businesses that have a turnover of greater than £36 million can do a number of things to prepare. These include involving internal buyers and procurement departments so that they are aware of any potential implications of the Modern Slavery Act, and can prepare to embed it in their processes. As well, as including the requirements into any current audit practices.
Transparency is also being driven by the EU Directive 2014/95/EU on disclosure of non-financial and diversity information, which by 2017 requires companies concerned (all companies based in the EU with over 500 employees) to disclose in their management report, information on policies, risks and outcomes as regards environmental matters, social and employee aspects, respect for human rights, anticorruption and bribery issues, and diversity in their board of directors.
Even though there are already mandates around CSR reporting in some EU countries, and many large enterprises already report on their environmental and social impact, the new directive will demand further commitment as it also requires disclosure on the supply chain.
On the other hand The Dodd Frank Act, known as the conflict minerals law, has been in operation for over two years. Under the law, over 1000 U.S. listed companies report their conflict minerals status to the Securities and Exchange Commission.
The law is designed to reduce the risk that the purchase of minerals from Central Africa contributes to conflict or human rights abuses. It places a responsibility on companies to be able to trace the designated minerals throughout their supply chain, something that can only be achieved through increased transparency of information at all levels.
Companies have struggled to accurately disclose information through their conflict minerals reports, and they may also struggle with the Modern Slavery Act and the latest EU Directive. Like organisational level non-financial reporting before it, supplier information disclosure and transparency is a new way of working for many businesses. Those that address this area now will be creating robust processes that ensure a competitive advantage, as well as being well positioned for future legislation.
At Greenstone, we are increasingly seeing organisations turning to software solutions, not only to drive transparency in the supply chain, but to enable organisations to handle the burgeoning reporting requirements, and stakeholder expectations, efficiently.
Previously, supplier compliance has been a box ticking exercise for organisations, where the processes of data gathering were ill conceived and incomplete. The information that was gathered was rarely interrogated and almost certainly not used for reporting purposes. This leads to disillusionment amongst suppliers, and therefore even lower levels of engagement.
However, we are now seeing that users of SupplierPortal are utilising the analytical tools available to manage suppliers and their data. The increasing emphasis on transparency and reporting, means that organisations are no longer ticking boxes, but adopting new processes and procedures in order to identify and manage non-compliance. What is more is that this doesn’t have to consume a great deal of additional resource, but rather for organisations to acknowledge a new way of working and realign current practices.