Our Ethical Trading Approach
Supporting decent labour standards in Tesco’s supply chain. Last updated: 12/05/2016
Our strong belief is that a sustainable business needs a sustainable supply chain, one which is underpinned by fair working conditions for all those involved in the manufacture and supply of our products. As founding members of the Ethical Trading Initiative, we have been active in this area since 1998. We support our suppliers to comply with the ETI Base Code and seek to use our business for good, helping suppliers to improve and adding our weight to collaborative initiatives which improve conditions for workers across industries.
Tesco’s ethical trading programme is a core element of our promise to buy and sell our products responsibly. Our customers want to know that everything they buy is produced under decent conditions, and everyone involved is treated fairly.
Ethical Trade is fully integrated within Tesco's operations, forming a key part of our broader strategy for corporate responsibility. Its objectives and activities are delivered by a wide range of commercial staff, overseen by a specialist responsible sourcing team including dedicated local staff in 10 key supplying countries.
Our approach is based on four pillars:
- Values - ensuring we work with suppliers who share our values
- Monitoring - getting to the truth about conditions for workers in our supply chains
- Improvement - supporting our suppliers to improve
- Transparency - being open and honest, working with others
The programme extends to everything we source for our own-label including Tesco-exclusive brands in UK stores, services and goods not for re-sale to customers.
The ETI Base Code
We are a founder member of the Ethical Trading Initiative (ETI) and expect all of our suppliers to apply the standards set out under the ETI Base Code and ensure their workers the rights within it. For more information see www.ethicaltrade.org
We recognise that our suppliers in some countries face significant challenges in meeting all the standards set out in the ETI Base Code in full. We want to help our suppliers, wherever they are based, achieve the high standards that we expect. To do this we balance our efforts on monitoring with help for suppliers and workers to address entrenched problems and improve conditions. However, it is important that we stand behind our policy on ethics – our commitment to our customers and to the workers in our supply chain – and this means that we discontinue business with suppliers who fail to demonstrate the necessary commitment or improvement.
The first of the four principles of our ethical trade programme focuses on selecting suppliers who share our values and ensuring that we retain them. Our work under ‘Values’ is organised around three key themes: ‘Communicate our values’, ‘Set Strong Standards’ and ‘Approve New Suppliers’
a) Communicate our Values
Our Values focus on two main areas; how we ensure we meet the needs and expectations of our customers, and how we work with others. Since the launch of our ethical trading programme in 1998, we have worked hard to ensure that these Values are reflected in all aspects of our Ethical Trade programme. Our core company value of “treating people how we like to be treated “is, of course, central to how we expect workers to be treated.
b) Set strong standards
Setting, communicating and enforcing strong standards is a cornerstone of our ethical trade programme. We will only work with suppliers who share our values and can demonstrate commitment to the ETI Base Code.
In practice we promote Tesco’s commitment to ethical trading in a number of ways throughout our business and to our suppliers:
- Tesco commercial personnel involved in sourcing products are trained to understand the Tesco approach and ways of working.
- All our suppliers receive a practical, accessible Tesco ethical trading requirements document so they can be clear on our programme and expectations.
- All suppliers receive a ‘Supplier Starter Pack’, a user-friendly guide on our requirements and processes in relation to Ethical Trading. This supplement to the Ethical Trading Requirements document pulls together pertinent information to help suppliers implement our requirements.
These standards are implemented by Tesco Buyers and Technical Managers supported by the central and in-country Responsible Sourcing Teams, all of whom are formally trained on and supported by robust policies and procedures covering our ethical trade practices.
c) Approving new suppliers
All potential new suppliers are evaluated to ensure that they understand the standards we require and have the ability to meet them. In practice this means that all new suppliers are risk-assessed before supply begins, with appropriate action being taken to resolve any serious issues prior to commencing supply. We categorise issues found as either Critical, Major or Minor and will not work with a supplier if we identify Critical problems at this initial screening stage and cannot resolve them.
The second pillar of our ethical trading programme is monitoring. Monitoring helps identify issues in the supply chain on which we and our suppliers must focus.
a) Assessing site level risk
All sites which supply directly to Tesco are risk-assessed in relation to ethical standards before supply begins.
SEDEX is a powerful tool in this process, containing information on each supplier site across several hundred criteria ranging from geographical location and sector, to workforce gender and the proportion of temporary workers. Information from SEDEX supplemented by insights from on-going dialogue with a range of external partners including NGOs, Trade Unions and the ETI, helps us assess risk and determine supplier audit requirements.
Regular visits by our own staff help us better understand the broader context of the challenges our suppliers and their workers face.
Sites are monitored according to their risk rating. High-risk supplier sites are subject to annual ethical audits, medium risk sites are audited once every two years, and low-risk sites are required to review their self-assessments every six months.
b) Due diligence
As well as direct site level risks, we know that there are also challenges further down our supply chains so we have been developing a due diligence framework to identify and address these risks. This framework is built around 5 metrics which we know have the potential to increase the vulnerability of workers:
- Country of origin – assessing the enabling environment of the supply chain
- Type of work – assessing whether a role requires a skilled, semi-skilled or unskilled worker
- Type of labour – identifying whether a role is permanent, seasonal, through agency or using seasonal labour
- Know cultural or community issues – identifying any endemic challenges like gender discrimination
- Supply chain capability – assessing the understanding and capacity suppliers have to address supply chain risks
These risk metrics are then mapped end to end in our supply chains, allowing us to identify the most salient supply chain risks, wherever they occur.
We then seek to work collaboratively with our suppliers, wider industry, civil society and, where appropriate, policy makers to address these systemic challenges, rather than just relying on an audit model to drive compliance and good practice.
Case Study: Working with Unicef and the Ethical Tea Partnership to address issues of child labour at estate level. See more here.
c) Audit and report accurately
Ethical audits are conducted in accordance with SMETA (SEDEX Members Ethical Trade Audit) guidelines. SMETA, a SEDEX initiative, helps consumer brands and their suppliers reduce duplication and ensure better quality auditing by setting out a robust methodology and a common format for the audit report and its corresponding corrective action plan.
Audits are conducted by specialists who are recognised as competent to audit and interview workers in their own languages. The size and composition of the audit team and duration of the audit are tailored to the supplier/site, and reflect the gender profile of the workforce and the main languages spoken.
During the closing meeting all non-compliances are discussed and a Corrective Action Plan Report (CAPR) agreed between the Supplier and the auditor. If any Critical non-compliances are found, the Audit Company will notify Tesco directly. They will also inform Tesco of any issues that the supplier refused to acknowledge or that could not be verified. Any attempt to pervert the course of the audit through fraud, coercion, deception or interference is treated as a Critical non-compliance and reported to Tesco.
Following the audit suppliers are required to resolve all corrective actions identified in the audit report, addressing non-compliances with the ETI Base Code and local law. The supplier is responsible for completing all corrective actions on the CAPR within agreed timescales, and for obtaining verification of closure from the independent auditors — normally within six months. The whole process — from planning through supplier completion to final auditor verification — is tracked through SEDEX, enabling our Commercial teams to have oversight of progress and take action where necessary.
d) Announced and semi-announced audits
Announcing the date of audits to suppliers in advance helps ensure that all necessary records are present for inspection during the audit, and helps build ownership of ethical issues by the supplier’s management team. This practice can however present an opportunity for some suppliers to prepare sites and coach workers prior to an audit in an attempt to manipulate findings.
To address this risk we operate ‘semi-announced’ audits for all high risk sites supplying our UK Business, a process where suppliers are given a one-month window during which the audit will take place as opposed to an exact date. This enables suppliers to ensure that the relevant records are present on site, but that there is less chance for manipulation.
In addition, unannounced audits of sites across a range of risk profiles allow us to cross-check our main audit findings, and validate our broader audit and risk assessment process.
In some cases the unannounced audits re-confirmed the findings of earlier announced or semi-announced audits, whereas in other instances additional issues were identified which were then subject to the normal improvement process.
e) Auditor Recognition Programme
Maintaining the quality of audits across our supply chain is vital in ensuring we identify the issues and support our suppliers in addressing them. A key element of this is our Auditor Recognition Programme (ARP) under which a tight group of audit bodies, schemes and individual auditors are accepted to audit sites supplying Tesco. In some key sourcing countries we operate an “approved” auditor system, where every auditor has had additional training and assessment by Tesco before being allowed to audit on our behalf. And in some of the highest risk locations we are moving to using only our in-house experts to assess sites and drive improvement, as we have found that they are more successful in getting to the truth on complex issues such as working hours and wage payments.
Their on-going performance is monitored through a process of regular reviews, including complaint investigations and witnessed audits.
f) Understand workers
Gathering information through workers about workplace concerns is a powerful adjunct to intelligence gathered through other routes including audits, participatory interviews and links with local stakeholders on the ground. Recognising the importance of good workplace communication and the benefits of resolving workers concerns before they escalate, we have worked with South African partners, Harvard University and the UN Special Representative on Business and Human Rights to pilot principles which could underpin a robust and effective grievance mechanism. This pilot has seen business, Government, NGOs and Trade Unions work together as part of the project’s Oversight Stakeholder Body.
We piloted a farm-level grievance mechanism which gave over 3,000 workers the opportunity to voice their concerns and know that these concerns will be listened to and acted upon.
This work has also supported wider learning. In March 2011 the UN Special Representative on Business and Human Rights, Professor John Ruggie, presented a new global framework on the duties of states and companies for human rights. This framework included guidance on grievance mechanisms that have been tested against, and refined in the light of, Tesco’s South Africa pilot and pilots with three other companies globally.
We complement this work with dialogue with global and local unions, and participation in collaborative initiatives in key sourcing locations to help improve working conditions and increase worker voice. Examples include the Accord on Building and Fire Safety in Bangladesh, a joint initiative between brands and the global union IndustriALL, which we were the first UK retailer to sign up to, the World Banana Forum which we helped establish which includes regional unions, and our collaboration with the union Community in our UK garment supply chain.
g) Response to allegations
In addition to reports by independent auditors and visits from our own staff, breaches of the ETI Base Code — or related concerns — can also be reported in confidence to us by suppliers themselves, workers, NGOs and trade unions. We investigate any such reports immediately and provide confidentiality for complainants where requested.
In addition, our team of in-country responsible sourcing managers is increasing our ability to find out about local concerns, through dialogue with a range of stakeholders. They will investigate any issues of concern and will take appropriate remedial action.
Internally we also provide a dedicated, confidential helpline for any staff concerned about ethical trade issues — whether about the actions of Tesco staff in their relationships with suppliers, or events at one of our supplier’s workplaces — and investigate any reports.
Externally, workers, supplier and other interested groups can use our Protector line to report any concerns.
Case study: Addressing problems with falsified documents and wages in Asia
Falsifying records to hide excessive working hours and underpayment is an entrenched practice in many Asian countries, particularly Bangladesh, Cambodia and China. It is common knowledge in the industry that external audit companies often find it hard to establish the full facts on such issues, partly because factories can be reluctant to open up to people who do not directly work for their customers and the auditors themselves have no commercial relationship to use as leverage with more intransigent partners.. Our internal audit team is highly skilled and has in many cases successfully convinced factories to show us the real records.
An specific example of how we have dealt with the issues like this in Asia, is in 2015when we found 27 factories had excessive hours issues in Bangladesh. To overcome this issue, we supported the factories to build internal monitoring systems and rules to control working hours in a sustainable way. Among these factories, 19 factories have made improvements and reduced working hours successfully, while 8 are still making progress. We have similar programs in other countries like Pakistan and India. Overall in our Asian non-food supply base in 2015:
- 349 sites were found to have transparency issues.
- 254 factories became open with us and, depending on the specific issues they have, we supported them to reduce working hours and/or arranged back payment of avoided wages to workers.
- 35 factories were delisted for refusing to be open with us.
- We continue to work with 60 factories to build transparency.
- 873 sites have been found with excessive hours issues. 767 of these factories resolved the issues to a satisfactory extent. We stopped working with 34 and are currently on track with the others to resolve the issues.
We have ensured back payment of a total of USD 1,309,413 to 18,624 workers in 108 factories in Cambodia, China, India, Malaysia, Pakistan, Thailand.
h) Identify trends
The identification of trends is an important element of ensuring we focus our resources towards areas which present the greatest risk in terms of code compliance, and where our efforts can achieve the greatest leverage, delivering the best results.
Given the dynamic nature of supply chains and the impact of socio-economic, political and environmental impacts on labour standards in our supply base and associated local communities, our programme is subject to regular review to ensure its focus remains appropriate.
The third of the four pillars of our ethical trade programme focuses on Improvement. Our work under this pillar is the most important as the process of monitoring does not by itself drive improvement that is sustainable in the longer term, only serving to flag up issues that require further focus and attention. This pillar is also where we would look to understand what remedy may need to take place in order to mitigate any adverse impacts on workers or their communities and how this is best achieve, for example through initiatives that provide access to remedy or through supplier or Tesco led initiatives.
We require all breaches of the ETI Base Code and/or local law at our suppliers’ sites to be corrected.
The method of verifying these breaches is determined either by the audit company or our own ethical specialists on a case-by-case basis, depending on what is needed to be confident the improvement action has been carried out. This may involve a follow-up verification audit or site visit.
Where we have identified issues that are industry wide, we will look to collaborate with others to effect broader industry change.
Case study: Structural Safety and Fire Safety in Bangladesh
The structural safety of buildings and the protection of workers in the event of a fire are major issues of concern following the recent tragedies in Bangladesh in which my workers lost their lives. While none of our suppliers were involved, we view it as our responsibility to ensure the high standards are maintained across our sites and we lend our weight and support to initiatives which improve standards for garment workers across all sites in Bangladesh.
We have 50 colleagues in Dhaka whose job is to support and help to improve standards at the 60 garment factories we work with. We try to build relationships with our supplier so that we can earn each other’s trust. We have commissioned and paid for structural checks on all the factories we work with in Bangladesh using qualified engineers. We are also members of the multi-stakeholder Accord on Fire and Building Safety, which is inspecting around 1600 factories for structural, fire and electrical safety, working together to improve standards. The Accord is a strong programme involving around 190 buying companies and global unions, chaired by the UN International Labour Organisation.
We also want to ensure we are going further and faster with our own supply chain, where our reach and responsibility is greatest, so we also published our own commitments about how we will do that, including some changes we’ve already made over the last 12 months. They are based on the principles of safety, partnership, transparency and improvement and apply to all factories (not just garment makers) we work with in Bangladesh, complementing the Accord principles.
We are in the top 10 of members of the Accord in terms of supplier factories completing their improvements required. For detail of these commitments and our latest work, please click here.
a) Build long, strong relationships
We know that our best supplier partners tend to be well run, profitable enterprises with strongly embedded practices that respect, invest and engage their workforce. Recognising this fact, we have invested significant effort in engaging with suppliers in key regions through audit, training and through collaborative programmes to help them improve their management capacity, capability and productivity, delivering commercial benefits which support their continued investment in improving their businesses.
Each year we conduct training sessions for our suppliers on how best to address common non-compliances, improve communications between workers and management, and improve productivity.
Case study: Bananas
Every week about 250,000 boxes of Tesco bananas travel to the UK from the Americas. We have changed our sourcing model, so that we are now sourcing bananas directly from suppliers, rather than going through middle-men. The shortened supply chain has allowed us to improve the technical quality of our bananas as they get to our customers much quicker, and has also allowed us to commit to paying a sustainable cost of production. In 2014 we committed to ensuring that, by 2017, all workers on banana farms that only supply Tesco (around 50% of supply) would be paid the living wage, and remain on track to achieve this.
b) Develop skills
Supplier Training is an important element of Tesco’s Ethical Trade Strategy. It is delivered in-country direct to groups of suppliers by Tesco Responsible Sourcing Managers supplemented where necessary by external subject matter experts. Wherever possible, Tesco Commercial and Technical staff are also in attendance so that any questions relating to the more general business and its impact on Ethical Trading can be answered. A one-day workshop format is used to communicate Tesco’s expectations and includes a focus on specific challenges relevant to the suppliers attending, covering issues such as migrant labour or working hours.
These sessions also provide an opportunity for Suppliers to feedback views on a confidential basis in the absence of Tesco personnel under the ‘Do more, do less, do different’ programme. Supplier feedback is collated and anonymised before being fed back to Tesco, and is a useful adjunct to our annual strategic review.
The training of Tesco staff in Ethical Trading is important in ensuring that those in operational roles with a direct supplier interface are properly equipped both to execute our Ethical Trade policy, and support suppliers in ensuring labour standards are respected. Functions currently included in training include all buying and technical staff across Food, General Merchandise, Clothing, Procurement and our International Businesses.
We have an in-house expert approved by Sedex to deliver system Training. We deliver training to staff across the business, ensuring they are properly equipped to interrogate Sedex and effectively manage all ethical aspects of new and ongoing supplier relationships.
Ethical Champions are Technical or Buying Managers who work to embed ethical trade knowledge, practices and decision making within their commercial teams. They are particularly effective at working with suppliers to understand the challenges they are facing and then supporting them address them.
Delivering our human rights strategy is linked to the remuneration of the Responsible Sourcing Director who drives this work in the business, and some Senior Buying Managers’ remuneration is linked to delivering specific ‘responsible sourcing’ programs. This also ensures that ethical trading is embedded in good business practices and initiatives.
Case study: Stronger Together
Stronger Together is a multi-retailer initiative which aims at reducing modern slavery in the UK agriculture supply chain by raising awareness amongst suppliers and brands. They also provide resources to help suppliers and auditors identify potential indicators of modern slavery, and manage any cases they find.
We have provided the opportunity for all suppliers to attend a Stronger Together session free of charge.
c) Product Partners
Building long-term relationships with suppliers whom we know and trust is a key part of how we ensure our supply chains are well managed and protected. As part of this work, we have identified 29 ‘Product Partners’ who are of strategic importance to our business.
We are working closely with these suppliers to set out a comprehensive Responsible Sourcing strategy, which goes ‘beyond audits’ to tackle challenges at the industry or regional level, as well as looking at any business practices or models which may impact negatively on worker welfare.
Partners’ performance in Responsible Sourcing will feed into a scorecard system which has been developed to give a broad overview of supplier performance, so also including commercial and technical metrics. This will ensure that ethical performance is embedded into how we do business with suppliers.
A good technical, commercial and responsible sourcing performance, sustained over time, will result in increased business for the supplier and similarly, sustained poor performance will ultimately result in a reduction in business with Tesco.
The final pillar of our ethical trading programme is transparency. This is essential both to maintain customer and stakeholder confidence in our work, and to enable effective collaboration and convergence with other retailers, suppliers and civil society.
We source in over 70 countries today and we want to be the partner of choice in every one. We are investing in the skills and insights to create transparency and respond to changing markets. For example, the Tesco Supplier Network launched in June 2012 and now has over 5000 members worldwide. Members join, and often lead, seminars and online discussions in which producers share knowledge and solutions to enhance quality, access more markets and resolve production challenges – as well as sharing insights from Tesco on customer trends and developments in our business to improve efficiency.
a) ‘Work with others and Build Awareness’
As a significant player in the multiple retail sector, we recognise that we have a responsibility to take a leading position on addressing labour rights issues in our supply chains and where our influence is not sufficient to affect change alone, to work with other industry bodies and competitors.
A fundamental aim of our strategy on ethical trading is to drive convergence of international approaches to monitoring and remediation which otherwise remain fragmented, resulting in unnecessary duplication and wasted effort for both retailers, suppliers and other stakeholders. We seek to achieve this through the most appropriate formal and informal groupings, supporting those which are most likely to drive and deliver sustained improvement in approaches and working conditions.
We are an active participant in a range of different ethical trade forums, both in the UK and Internationally.
In the UK we work closely with the ETI Food Group, ETI General Merchandise Group, The Gangmasters Licensing Authority (GLA), and the Equality and Human Rights Commission. We continue to play a leading role in the development of Supplier Ethical Data Exchange (SEDEX).
At an international level we co-Chair a working group of the Consumer Goods Forum, aimed to develop collaboration and best-practice on Ethical Trade across shared forced labour issues in international supply chains.
At a local level we work closely with both sector and country-specific fora through in-country Responsible Sourcing Managers embedded within our local sourcing hubs. Based in key supply countries where suppliers and workers face significant and persistent challenges in meeting the ETI Base Code, their role is to work closely with our supply chain to understand the challenges and identify what assistance and resources will be needed to support sustained improvement in conditions for workers.
In addition to helping co-ordinate our interface with key in-country initiatives, our local Responsible Souricng Managers help support suppliers facing entrenched problems develop robust and sustainable solutions, either on an individual basis or through collaborative sector or issue-specific groups.
In the Indian sub-continent and supported by our local Responsible Sourcing Managers, we have worked closely with The National Home workers Group, the Bangladesh Buyers Forum, the Indian Brands Ethics Working Group, the Apparel Exporter Promotion Council and SEWA (the Self-Employed Women’s Association).
Through our local Responsible Sourcing Manager in South Africa we have established an Ethical Steering group with membership drawn from key exporters, audit bodies and industry associations. It meets on a monthly basis to review discuss and inform Tesco’s Ethical Trade strategy in South Africa.
Case study: Working with Community
We became aware of some significant problems within the UK garment sector. These have included allegations of under payment of minimum wage, non-payment of wages, excessive working hours, worker abuse and unauthorised sub-contracting.
Tesco and Community, a IndustriALL Global Union affiliate, formed a partnership to work with suppliers to address labour issues in the supply chains and ensure none of these practices exist at our own suppliers’ factories. This included joint visits and training. In return for secure business, suppliers committed to ongoing communication with the Union.
The next step of the initiative is to build representation within the supply chain to ensure worker’s rights are driven from within the supply chain by the workers. We expect to have official Union Representatives, representing workers onsite by the end of 2016.
b) Public reporting
Each year Tesco provides an update on its ethical trade programme as part of its broader Corporate Responsibility Update and regularly updates online information as key developments happen. We also report annually to the ETI and our report can be seen by ETI members, including NGOs and trade unions.
c) Supplier transparency
All suppliers to Tesco are required to be transparent about their ethical trade status and performance. This begins with the requirement to register full details of their workforce, sector, gender balance and other issues on the Supplier Ethical Data Exchange (SEDEX), and continues with the requirement for all ethical audits and records of remediation to be loaded on to SEDEX where they can be viewed by any retailer sourcing from that supplier.
Our ethical trading training courses for suppliers are designed to enable them to share the challenges they face and examples of good practice in finding solutions. By way of example, our Workshops with UK food and agriculture suppliers and their agency labour providers enabled suppliers to compare notes on common problems and talk about what has worked well in addressing them. We support this process with our own knowledge and with the input of our expert presenters, many of them external.
We also run more general supplier conferences across different categories and countries in which we operate. These frequently cover ethical trade priorities, and enable both suppliers and Tesco staff to discuss challenges and potential solutions.
In the years ahead we will continue to further develop and refocus our ethical trading programme, targeting our support for suppliers facing challenges to improve using intelligence gathered through Sedex and our global dialogue with key stakeholder groups.
A focus for this coming year is to develop our due diligence approach to addressing systemic industry issues, ensuring that we are targeting our resource on the highest risk areas rather than just relying on an audit model. A key part of this will be looking at how we can strengthen worker representation as a means to improve conditions across the range of labour standards challenges.