Stakeholder expectations that businesses will operate according to best-practice environmental, social and governance (ESG) standards have soared over the past few years and will continue to do so. For shoppers, sustainability has become a major criterion in purchase decisions. GlobalData’s 2021 global consumer survey showed that 76% of the 21,000 respondents interviewed were influenced by a brand’s ethical or environmental credentials. This may have tailed off in the short-term due to biting inflation and constrained household budgets, but the sentiment remains.    

Having ESG commitments and practices that are embedded in a company’s structures and processes is an asset and can be a competitive advantage. Conversely, failure to have a strong ESG approach or deficiencies in an ESG approach can have detrimental commercial and reputational consequences.

From ‘soft’ standards to ‘hard’ law

While certain issues such as food safety, restricted chemicals and health and safety have been legislated for decades, responsible business conduct and due diligence are largely still managed through soft law standards, voluntary initiatives and individual company’s codes of conduct. But this is changing – and social accountability is the area most likely to catch out organisations, according to food certification and compliance firm QIMA WQS.      

Anouschka Jansen, sustainability solutions director at parent firm QIMA says a number of new laws and regulations in the US at a federal and state level and in Europe are ramping up requirements for businesses to identify, report on and address the human rights impacts from activities across their operations and supply chain.

In the US, the Uyghur Forced Labor Prevention Act introduced in 2021 blocks US imports from the Xinjiang in Northwestern China, assuming goods manufactured there are made by forced labour.

In Europe, a landmark corporate sustainability directive will be introduced in 2024, forcing in-scope companies into greater ESG disclosures. Social and human rights factors, including gender equality, diversity and inclusion, work-life balance and respect for human rights through the value chain will be areas targeted in the new directive.

Exact reporting requirements are expected to come to light in June 2023, with the EU’s largest firms, those that already have to disclose ESG information under the Non-Financial Reporting Directive, in the line of fire.    

“The new rules will ensure that businesses address adverse impacts of their actions, including in their value chains inside and outside Europe,” the European Commission said in a statement. QIMA’s Jansen says that food companies should use the forthcoming reporting obligations to shape a due diligence framework based on OECD guidelines across operations and supplier networks.

“What is interesting is, in the food industry, 30 years ago when ESG was known as sustainability, it all began with the ‘S’ and concerns about child and forced labour, excessive worker hours and low wages,” Jansen says. “Then over the past few years the focus shifted heavily on to environmental due diligence, decarbonising and now biodiversity is in the spotlight. Of course, a lot of work has been – and is being – done by food companies to meet net-zero targets, but at the same time, the battle to protect worker rights hasn’t been won. There is still a lot to do.”

The role of social audits to root out supply chain risk

The food supply chain can be complex, opaque and fragmented. Traceability of risk can be a big challenge. Jansen says this is where globally recognised social audit and certification programmes, like SMETA and the Rainforest Alliance, have a critical role to play in supporting food businesses unearth risks, emerging risks and potential risks relating to human rights abuses.

SMETA (Sedex Members Ethical Trade Audit)is the world’s most widely used methodology for social audits and allows suppliers to share one audit report with multiple customers through the SEDEX platform. It uses the Ethical Trading Initiative (ETI) base code, local law and other elements aligned with the conventions of the International Labor Organization (ILO). It can be conducted against either two or four pillars but the two mandatory pillars are labour standards and health and safety.

“Unlike in the past where you would either pass or fail an audit like SMETA, today it is more about continuous improvement,” says Jansen. “SMETA offers one tool in the toolbox to identify and prioritise risk in a supply chain, which can get very deep very quicky. It is a snapshot in time. It’s not a real-time tracker of what happens in the supply chain, and so its effectiveness depends on how the remedial recommendations are executed, which the QIMA Group can help with.  

“We are seeing a big rise in SMETA requests since the pandemic, evidence of how critical ethical business practices are becoming to customers as well as to regulators and lawmakers.”

Find out more about the SMETA audit service and how QIMA WQS can help your business achieve its social compliance goals in the free guide below.