What is an ethical supply chain?

What is an ethical supply chain? It’s a supply chain designed with ethical considerations in mind, usually motivated by the desire to cater to extended groups of stakeholders. 

In modern governance, an ethical supply chain usually embodies environmental, social, and governance criteria, and understanding them forms part of a director’s ESG education. 

Here are the basics:

It’s a supply chain in which managing the flow of goods and services incorporates most or all of today’s primary ethical considerations. In other words, it’s a supply chain designed to positively—or at least neutrally—impact areas like human rights, labour practices, resource extraction, and pollution.

Generally, ethical supply chains ensure that production processes, from raw materials to finished products, uphold the highest standards of ethics and sustainability.

An ethical supply chain is supposed to reflect values the modern corporate world deems highly important: fairness, transparency and accountability in all work areas. 

In the past, these issues were less important at the leadership level, and the desire for profit was the primary concern. Nowadays—in many circles at least—priorities are more balanced; it’s not about pursuing healthy profit as much as it is about ensuring healthy profit while respecting every stakeholder group the company impacts. 

Supply chains are a key to this effort, especially in industries with a large global footprint, which extract resources from one part of the world, manufacture in a second, and sell in a third.

It all comes back to stakeholders like investors, consumers and regulators. Increasingly, these groups consider ethical supply chains a crucial feature of sustainable business going forward. And if they’re passionate about it, your company should be, too. 

This translates to the following advantages:

• Remaining relevant in business – your company can adapt to fundamental shifts in working. 
• Lessening risk – refusing to get on board with an ethical supply chain may result in a loss of custom, investment, or increased public criticism… it could even lead to boycotts or financial penalties from regulators. 
• Demonstrable sustainability—An ethical supply chain is a basic but powerful way to show how your company is successfully adapting to major market changes. Ensuring it works well sends a message to stakeholders that your business has a plan for the future and is worth an investment.
• You keep stakeholders happy – every stage of your supply chain receives far more attention and commitment to higher standards when you design it ethically. This could potentially mean significant benefits for various groups of stakeholders around the world, from employees to communities impacted by pollution.

Directors play a pivotal role in establishing and upholding ethical supply chains. 

Remember that, as a board member, you’re both the final check on strategic direction and a significant source of expertise and advice around implementation. Regarding supply chains, which permeate every business area, your leadership is crucial. 

Your practical responsibilities include overseeing decisions on ethical practices and ensuring these practices are incorporated into procurement policies, environmental goals, and labour practices. 

Always be involved. Ensure you understand the risks and opportunities from all angles, whether it’s not having an ethical supply chain, accepting an ethical supply chain, or transitioning to an ethical supply chain. You should also ensure robust monitoring and reporting mechanisms to communicate these risks and opportunities to the relevant stakeholders. This is the difference between good and bad governance.  

Furthermore, you should foster a corporate culture that values ethical practices and sustainability, encouraging employees and suppliers alike to adhere to these standards. Have you ever heard the phrase “culture eats strategy for breakfast” before? It matters hugely in a case like this. 

Prioritising ethical considerations in supply chain management enhances your company’s reputation and compliance with international norms. It also contributes to sustainable development and the well-being of communities and environments impacted by its operations.

Here are some general steps for many industries, but it’s a good idea to examine your company and any unique situations requiring additional steps. 

1. Conduct thorough audits of suppliers to assess their labour practices, environmental impact, and adherence to ethical standards. This step vastly increases your knowledge of your supply chain and helps you follow increasingly strict supply chain legislation, especially in jurisdictions like the EU. 
2. Quantify your practices and use them to obtain certifications that align with international standards, such as ISO 26000 for social responsibility, Fair Trade for equitable trading practices, and the LEED certification for sustainable buildings.
3. Ensure your reporting is top-quality. This involves having the right expertise at all levels of corporate leadership and committing your company to Enhance transparency by disclosing supply chain practices and progress towards ethical and sustainable goals in annual or sustainability reports.
4. Engage with all stakeholders, including employees, suppliers, communities, and customers. Ensure you can confidently say what impact your supply chain has on the ground. 
5. Implement a continuous improvement process to regularly assess and enhance the ethical performance of the supply chain.

Absolutely. There will always be challenges. 

Specific hurdles associated with implementing an ethical supply chain include the complexity of monitoring suppliers across different regions, ensuring consistency in ethical practices, preventing cost inflation during transitions, and keeping up with reporting and adaptation to keep stakeholders happy. 

Your solutions include leveraging technology for better supply chain visibility, building long-term relationships with suppliers based on mutual ethical commitments, and integrating ethical considerations into corporate strategy.

There will always be debate about whether an ethical supply chain is a moral obligation in modern business. Stakeholders and corporate leaders increasingly see it as such, and that trend will likely continue. 

But in the meantime, it remains a strategic asset that can enhance a company’s worldwide reputation, ensure compliance, and meet the evolving expectations of consumers and society.