STATE OF ETHICAL TRADING 2016...| State of Ethical Trading 2016 Danish Ethical Trading Initiative | 3 COMPANIES ALDI * Bent Vangsøe Natursten A/S BRICpro ApS Cocio Chokolademælk

STATE OF ETHICAL TRADING 2016

APRIL 2017

| State of Ethical Trading 2016 Danish Ethical Trading Initiative | 3

COMPANIESALDI *Bent Vangsøe Natursten A/SBRICpro ApS Cocio Chokolademælk A/SCodex Company ApS *COFFEEPRINT *Coop Danmark A/SDagrofaDansk Supermarked A/SDansk Cater A/S *DK Company A/SDONG Energy A/SE. Nielsens Mekaniske Stenhuggeri A/SFairStylesFlying Tiger Copenhagen (Zebra A/S)Froosh ApSH&M *IC Group A/SIKEA A/SITP Group A/SJYSK A/SKABOOKI A/SKluntz A/SLanghoff Promotion A/SLauge Food Selection A/SLEGO KoncernenLEO Pharma Lidl DanmarkMatterBy ApSNeutral.com ApSNordic Fruit A/SNovo Nordisk A/SPeter Larsen Kaffe *PIC PAC Scandinavia A/SPolar Seafood Danmark A/SPWT Group A/SReitan Distribution A/SSociability ApSSourcing House ApSToms Gruppen A/SZibra A/SZurface A/S

BUSINESS ASSOCIATIONS

Danish Fashion InstituteDansk ByggeriDansk ErhvervDansk Mode og TextilDe Samvirkende KøbmændHåndværksrådetLandbrug & FødevarerLegetøjsbranchen – LEG *WEAR

CIVIL SOCIETY ORGANISATIONSAmnesty International, dansk afdelingCARE DanmarkDanish Forestry Extension/SkovdyrkerneDyrenes Beskyttelse *Folkekirkens NødhjælpForbrugerrådet TænkFairtrade Mærket DanmarkIDSN - The International Dalit Solidarity NetworkMellemfolkeligt Samvirke/ActionAid *MSC DanmarkRed Barnet *Sex & SamfundTransparency InternationalVerdens Skove *WWF – Verdensnaturfonden

TRADE UNIONS3FHK HandelLOUlandssekretariatet

PUBLIC INSTITUTIONSAalborg Universitet, Center for Industriel ProduktionCopenhagen Business School (CBS)Danmarks Eksportkredit (EKF)Frederiksberg KommuneInvesteringsfonden for Udviklingslande (IFU)Københavns KommuneOdense KommuneStaten og Kommunernes Indkøbs Service A/S (SKI)

OBSERVERErhvervsstyrelsen

MEMBERS

I am not referring to the current President of the USA or his “alternative facts,” but to a member of the Danish Parliament, Søren Kjær (1827–1893), who, by doubting the account of facts stated by the opposition avoided taking a position on whether or not the statement was true.

That many might associate this quote with the newly elected leader of a superpower demonstrates the great challenge to and obligation of the private sector and its lea-ders. When alternative facts and post-factual interpretations are legitimised as anything but nonsense or falsehood, then the responsible conduct that characterises the ambition of DIEH members is in greater demand than ever. DIEH’s very foundation is “to join forces and support companies and organisations in establishing ethical trade and responsible production practices.” This calls for a thorough understanding of and plans to mitigate the risks inherent in global value chains in relation to basic human rights, labour rights, and other fundamental rights. This requires that we do not relate to these issues as spin to be disputed, denied, or covered up, but as facts that can and must be dealt with.

With increased populism on the right and left, isolationism, disregard for human and workers’ rights and women’s rights, repressive regimes, and political laissez-faire, the obligation of enterprises grows stronger to take the lead and engage in transparent and ethically responsible business practices, which can contribute to security and dignity for people worldwide.

PREFACE

”Well... if that is said to be facts, then I dispute facts!”*

Mads Øvlisen Chair of the Danish Mediation and Complaints-Handling Institution (NCP)

Members indicated with a * have joined DIEH after the latest member reporting and therefore do not appear in the statistics in the report.

*for Danish readers: ”Jo, hvis dét skal kaldes Fakta, så benægter a Fakta!”

4 | Danish Ethical Trading Initiative | State of Ethical Trading 2016 | State of Ethical Trading 2016 Danish Ethical Trading Initiative | 5

For the second year in a row, we are proud to present State of Ethical Trading – taking the temperature of the challenges faced by DIEH members, as well as their progress, in the field of ethical trade. This report will provide insight into how the work of DIEH members is progressing and where common obstacles exist.

“Doing ethical trade” is much harder than it sounds. Modern supply chains are vast, complex, and global. For example, labour issues are challenging enough by themselves. What should a company do if it discovers that children are working at a suppli-er’s production site? Paradoxically, evicting children from the workplace can make their lives worse. Collaborating in a mul-ti-stakeholder setting, such as DIEH, provides a firm grasp of the complexities of ethical trade and offers inspiration to reach for better solutions in supply chain management, production, and buying practices.

Global trade continues to expose poor and unacceptable work-ing conditions, environmental degradation, and human rights violations around the world. In a globalised world, we are chal-lenged daily with the responsibility to strive for more sustainable development. And ethical trade plays a fundamental role in

ensuring sustainable growth and development. The United Nations’ Sustainable Development Goals (SDGs) present a unique opportunity in the coming 15 years to shape the efforts of governments, businesses, trade unions, and civil-society or-ganisations around the world to create a sustainable future for all. Companies with a robust ethical trade programme will find they already contribute to achieving the Goals.

We extend our thanks to all DIEH members for their loyal con-tribution to our work. We acknowledge their continuous efforts to combat violations of human and workers’ rights, improve working conditions, and minimise environmental footprints across global supply chains.

We look forward to a continuing collaboration with our growing membership to advance ethical trade and create positive impact that benefits people, planet, and profit.

Welcome to State of Ethical Trading

CONTENTS

WELCOME TO STATE OF ETHICAL TRADING 2016 5

DRIVERS OF ETHICAL TRADE IN DENMARK 6-13 WHAT IS ETHICAL TRADE? 6 FOCUS ON ETHICAL TRADE IS ON THE RISE – BUT NOT AT ALL LEVELS 6

RAISING THE BAR THROUGH REGULATION 6

PUBLIC PROCUREMENT 9 INVESTORS ARE GETTING INVOLVED 11 WALKING THE WALK – ALLOCATING RESOURCES TO ETHICAL TRADE 12

LESS FOCUS ON KPIs 13

KEY CHALLENGES AND OPPORTUNITIES IN ETHICAL TRADE 14–23

GEOGRAPHICAL HOT SPOTS 14 SUPPLY CHAIN CHALLENGES 16 HUMAN RIGHTS DUE DILIGENCE: A WORK IN PROGRESS 17 RISK MAPPING 18 AUDITS AND IMPROVEMENTS 18 FOCUS ON PURCHASING PRACTICES 20 SUPPLIER DIALOGUE AND SUPPORT 20

CASES AND RESULTS 24-33 SDGs – A UNIVERSAL AGENDA 24 RESULTS AND ACHIEVEMENTS REPORTED BY DIEH MEMBERS FOR 2016 25

CASE: PROMOTING SUSTAINABILITY THROUGH A MULTI-PARTNER-DRIVEN 26-29

IMPACT ASSESSMENT

CASE: PROMOTING SUSTAINABLE BIOMASS PRODUCTION IN RUSSIA 30-33

AND THE BALTICS

A FUTURE PERSPECTIVE ON ETHICAL TRADE 34

Secretariat:Mette Boye, DirectorPi Bjerregaard, Head of AdministrationLayanna Martin, Head of CommunicationJanine Dortmundt, Project Consultant Responsible Sourcing & Partnerships, Dortmundt.dk Julie Bundgaard, Student Assistant

Photographers: Brendan Bannon, CARE, CM Biomass, DIEH, Dong Energy, Mikkel Østergaard, Shutterstock, Skovdyrkerne, Jakob Carlsen. Design: LARSEN LABEditing: Fine Point CommunicationPrinting: 3F TrykkeriPrinted on: The Nordic Eco-label paper

A REPORT BY THE DANISH ETHICAL TRADING INITIATIVE, BASED ON ANNUAL REPORTING BY DIEH MEMBERS IN 2016

The findings presented in State of Ethical Trading 2016 are based on DIEH members’ mandatory annual reporting to DIEH undertaken in December 2016–January 2017, as well as external publications and articles related to the topic of ethical trade in Denmark. The member data and percentages are based on an 82% response rate before the reporting deadline (55 out of 67 members). Graphs and percentages in this publication may be based on fewer respondents, because not every question in the reporting framework was equally important to each of our member groups. DIEH is not responsible for, and cannot be held liable for, any misleading or incorrect reporting on behalf of its members.

Mette Boye, Director

Collaborating in a multistakeholder setting, such as DIEH, offers inspiration to reach for better solutions in supply chain management, production, and buying practices.


WHAT IS ETHICAL TRADE?

Ethical trade refers to responsible production, responsible pur-chasing practices, and responsible supply chain management in global value chains. Ethical trade means taking responsibility for human and labour rights and the environment, and facilitating positive change and benefits in every part of the supply chain. The topic is relevant to all companies, organisations, and insti-tutions that work with suppliers, have their own production sites, and purchase goods and services, locally or globally. But ethical-trading dilemmas are absolutely pertinent to those who operate globally. Improving responsible global supply chain management is certainly central to what brings DIEH members together. This publication reflects the trends and developments in this field.

FOCUS ON ETHICAL TRADE IS ON THE RISE – BUT NOT AT ALL LEVELS

According to two-thirds of DIEH members, ethical trade is in-creasingly becoming a priority within their company or organi-sation. In 2015, customer and primary stakeholder demand was the chief force driving ethical trade. This group is now ranked as an important second, mentioned by 60% of the respondents These priorities were confirmed by a study in the UK, which concludes that the foremost driver of company action on ethical trade and human rights is reputational risk (97%), with human rights (86%), customer engagement (85%), and investor con-cern (25%) also cited as important 1.

Growing pressure from abroad was cited as an important influ-ence in Denmark, a change from last year. According to DIEH members, Germany, Sweden, Holland, Norway, and the UK play an important role in driving Denmark in an increasingly respon-sible direction and setting examples of ways to improve the

ethicaltrade landscape. On the other hand, members are less incen- tivised or impressed by Danish and EU policies than they were the previous year; only 17% believe that the topic is prioritised in national politics.

The municipal level still lags behind, but a small increase is ap-parent: 9% now believe that municipalities promote and prioritise ethical trade, compared with 6% last year.

RAISING THE BAR THROUGH REGULATION

More than 65% of DIEH members mentioned the UN Guiding Principles for Business and Human Rights (UNGPs) as an impor-tant guidance to their work in ethical trade. Documents also mentioned include: UN Global Compact, EU directives, Danish Law on CSR Reporting, ISO26000, BSCI Code of Conduct, OECD Guidelines, ILO Conventions, Sedex Member Ethical Trade Audit, and SA8000. Only 4% makes no use of guidance or legislative documents at all.

DRIVERS OF ETHICAL TRADE IN DENMARK For companies and organisations operating on an international level, engaging in ethical trade and sustainable sourcing is no longer an optional “add-on” to the operation. Awareness is growing constantly, and companies, public institutions, and other organisations in Denmark now realise that the stakes are high if ethical challenges are not addressed appropriately.

1. Lake, MacAlister, Berman, Gitsham and Page 2016. Corporate Leadership on Modern Slavery. How have companies responded to the UK Modern Slavery

Act one year on? London: Hult International Business School and the Ethical Trading Initiative.

“At the municipal level, there is a rising interest in this area. However, this is not the case at the national level to the extent that proper policies towards the issue have been adopted. But overall, we are seeing an increased demand and focus on ethical trade.”

Katrine Pape Huldahl, Danish Central Purchasing

Body (SKI)

FIGURE 1:

According to DIEH members, ethical trade is prioritised*

FIGURE 2:

Guidance documents and/or legislation used in relation to ethical trade*

0% 10% 20% 30% 40% 50% 60% 70%

At the municipal policy level

At the national policy level

Among smaller Danish companies

At the EU level

Abroad

Among larger Danish corporations

In the company / organisation

Total 2016 Total 2015Increased CSR and ethical trading demands

from our primary stakeholders

65%

58%

46% 46%

35%

4%

EU directives Other (ISO26000, BSCI, OECD Guidelines, ILO Conventions, SMETA,

SA8000)

None

Guidance documents and/or legislation used in relation to ethical trade*:

UN Global Compact Danish Law on CSR reporting

(Årsregnskabslovens §99a)

UN Guiding Principles for Business and

Human Rights

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

42%

44%

44%

49%

61%

64%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

spm15 Guidance documents and/or legislation used in relation to ethical trade*:

Forced labour

Corruption

Working hours

Child labour

Working environment

Environment

Top 6 most most frequently listed ethical-trade issues in 2016*:

DIEH members' risk mapping in 2016:

47%

Companies that performed risk mapping Organisations that performed risk mapping

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

* Multiple responses possible

Total 2015 Total 2016

51% 47%

67% 63%

44%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

We undertake corrective actions if we find deviations from our guidelines.

We conduct internal and/or external audits.

We offer regular trainings for our staff.


64%

Lorem ipsum



Documents prepared by DIEH company members in relation to their work within ethical trade*

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% 88%

72%

60%

48% 44%

12%

74%

48% 44% 44%

41%

15%

22%

Supplier Code of Conduct

CSR Policy Company Codeof Conduct

Strategy on ethical trade

Policy for human rights

Green procurement policy

Strategy on SDG's / Global Goals

74%

0% 10% 20% 30% 40% 50% 60% 70%




At the EU level

Abroad





65%

58%

46% 46%

35%

4%


SA8000)

None





Human Rights

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

42%

44%

44%

49%

61%

64%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


Forced labour

Corruption

Working hours

Child labour

Working environment

Environment



47%


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



51% 47%

67% 63%

44%

0%

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20%

30%

40%

50%

60%

70%

80%

90%

100%





64%

Lorem ipsum




0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% 88%

72%

60%

48% 44%

12%

74%

48% 44% 44%

41%

15%

22%







74%


Internationally, we see a gradual trend towards more “hard law.” Countries are adopting legislation to ensure that businesses respect human rights in all of their activities. As shown in the table be-low, different legislative initiatives have been adopted at a national level in the past years, requiring transparency or setting obliga- tions to conduct human rights due diligence in line with the UNGPs. More countries are set to follow, with legislation likely to emerge next in Switzerland 2. Although civil-society groups have advo-cated for enhanced legal standards on this topic from the European Commission, this has hardly led to results. In March 2017, however, the European Parliament adopted regulations on supply chain due diligence for European importers of tin, tantalum, tungsten, and gold originating in conflict-affected and high-risk areas. As more legislative initiatives referring to the

UNGPs follow, it is reasonable to expect a growing focus on supply chain due diligence. In 2015, the Modern Slavery Act was ratified in the UK. According to a study by the Ethical Trading Initiative (ETI-UK), CEO engagement with modern slavery has doubled as a result of the Act, and the feeling of responsibility within companies for ethical trade has increased tremendously. For example, interest in ETI training in responsible buying has skyrocketed, with companies stating, “addressing modern slavery is becoming a busines- critical issue.” Communication between companies and their suppliers has increased 58%, and companies are collaborating 50% more with peers, NGOs, and multi-stakeholder initiatives 3. This exemplifies the enormous influence that legislative requirements can have by putting ethical trade on the agenda.

PUBLIC PROCUREMENT

According to Denmark’s Central Purchasing Body SKI (Staten og Kommunernes Indkøbsservice), a DIEH member, the Danish pub-lic sector spends approximately DKK 300 billion every year on goods and services provided by private companies 4. This gives public institutions a great opportunity to shape the private sec-tor’s practices and use their leverage to implement higher ethical standards in global supply chains. In the case of SKI, all suppliers sign a contract commitment to follow SKI’s Framework Agreement, which requests that suppliers perform due diligence based on the OECD Guidelines for Multinational Enterprises 5.

EU procurement directives determine the legal framework for public procurement in Denmark. In 2016, the European Union introduced new rules on this: Public authorities may now con-

sider social and environmental criteria when evaluating tenderers. This important development allows public institutions to play a much larger role in facilitating and promoting ethical trade.

It has been noted that public buyers often do not include social and environmental criteria to avoid litigation by tenderers. Small- and medium-sized enterprises (SMEs) that have invested in CSR and social value report that public buyers continue to base their decisions on price (and quality) alone. According to the Danish Institute for Human Rights, more comprehensive legal require-ments and policies are needed, combined with better guidance and training for public buyers 6. For their part, DIEH public-sector members are starting to implement such training and collaboration to increase their leverage on businesses’ social responsibility.

2. European Coalition of Corporate Justice 2017. The French Duty of Vigilance Law.

3. See Footnote 1.

4. SKI website, https://www.ski.dk/Viden/Sider/Facts-about-SKI.aspx

5. and 6 Methven O’Brien, Mehra and Vander Meulen 2016. Public Procurement and Human Rights: A Survey of Twenty Jurisdictions. Copenhagen: The Danish Institute

for Human Rights.

Mini-case: Odense Municipality and the SEE-Initiative

The SEE-Initiative (socio-economic enterprises) was introduced by the municipality of Odense to facilitate consideration of socio-economic enterprises for local authority contracts. In acord-ance with the EU Public Procurement Directive, the SEE-Initiative makes socio-economic enter-prises visible through a vendor portal that en- ables public authorities to reserve contracts to certain services.

So far, the municipality has used the SEE list for one reserved contract with excellent results, and more are in the pipeline. The initiative serves as an example of how local authorities can use their public purchasing power to embrace a more ethical and socio-political agenda in Denmark and abroad.

“Labour and social clauses are a standard part of the contract paradigms. In relation to our fight against social dumping, we monitor salaries and working conditions ourselves.”

Marie Peuliche, Municipality of Copenhagen

LEGISLATION RELATED TO HUMAN RIGHTS

California Transparency in Supply Chains Act

US Dodd-Frank Act rule on conflict minerals

Transparency in Supply Chain Clause of the Modern Slavery Act, UK

Corporate Duty of Care (Le Devoir de Vigilance), France

Child Labour Due Diligence Law (Wet Zorgplicht Kinderarbeid), Holland

DATE AND SCOPE

2010, for retail sellers and manufacturers

2012, focus on transparency and due diligence for conflict minerals from the DRC

2015, for companies with annual turnover in the UK of £36 million or more

2017, for companies with 5,000 staff in France or 10,000 staff in combined French and foreign offices

2017, scope to be determined (pending Senate approval; to be effective from 2020)


INVESTORS ARE GETTING INVOLVED

From a financial standpoint, investors are playing a larger role in stimulating corporate responsibility for human rights issues. At the global level, the community of responsible investors is growing; ten years after being launched in 2006, the United Nations Principles for Responsible Investment (UN PRI) now counts more than 1,600 signatories. Responsible investment strategies are considered influential and encourage companies to formalise commitments to human rights, to be aware of risks and oppor-tunities, and to adequately tackle the challenges they face 7.

Recently, Danish NGOs and citizens (e.g. pension fund members) have advocated a more proactive role for investors, especially pension funds. Although many Danish pension funds have a clear ambition to respect human rights, uncertainty in the sector remains about how proper due diligence should be carried out according to the UNGPs. Some experts emphasise the need for a more systematic and open approach to active ownership by investors. To facilitate this, NGOs could share relevant knowledge with companies and investors about the potential risks and mar-ket needs they encounter in certain investment countries 8.

7. Vigeo Eiris, 2017. The human rights responsibilities of business in a changing world. How companies across the globe are addressing key areas of human rights.

8. CSR.dk 2017. Selvom pengene er ansvarlige er det stadig forretning.

9. CSR.dk 2017. Sværvægter i branchen tror ikke på investorers engagement strategier.

10 | Danish Ethical Trading Initiative | State of Ethical Trading 2016

“We definitely see a clear tendency towards a stronger focus on responsible investment, also in Denmark.”

Troels Børrild, ActionAid Denmark

Increased commitment to responsible investment practices

Dansif is an independent Danish forum of insti-tutional investors and advisors. A 2015 Dansif survey revealed that 44 of the 50 largest institu-tional investors in Denmark have a responsible investment (RI) policy. What this means in prac-

tice varies from case to case, and critics pointout that often an ad hoc approach is taken to engaging with companies, thus questioning to what extent this contributes to actual change 9. Nevertheless, the trend is moving increasingly towards greater transparency, with 86% of investors now making their RI policy publicly available.

Sources: Dansif 2015, The Current State of Responsible Investment in Denmark and CSR.dk

LESS FOCUS ON KPIs

Although key performance indicators (KPIs), if used correctly, are helpful in measuring progress in ethical-trade activities, this appears to be less of a priority for some DIEH members. This year, fewer DIEH members used KPIs or other indicators than last year: Although 33% claims to have set either qualitative or quantitative indicators, 44% does not use them at all. This may reflect the fact that DIEH also has a large number of SMEs that tend to work with ethical trade on a project or ad-hoc basis, whereas larger companies tend to integrate ethical trade more systematically throughout their operations, enabling them to measure and report progress.

WALKING THE WALK – ALLOCATING RESOURCES TO ETHICAL

TRADE

Regardless of the organisation or company type, experts have pointed towards a lack of internal resources as one of the major obstacles to implementing ethical trade and sustainable supply chain programmes 10. This is confirmed by DIEH members, with only 46% reporting that top management have allocated funds for ethical trade in the budget. It is an increase over last year, when 40% of top management allocated funds, but it also means that more than half of the respondents see no funds allocated to the subject matter at all. Some DIEH member organisations, especially those representing SMEs, point out that they simply depend on public funds to invest in ethical trade.

Regarding human resources, it is important to note that this aspect has improved substantially. Currently, more than 40% of DIEH members engage more than two employees in CSR, sustainability compliance, and ethical trade. Some larger companies engage up to 15 full-time employees in CSR, whereas others indicate that the subject matter is so integrated with core busi-ness operations that all functions are engaged in different aspects of ethical trade. For SME members, it is an entirely different story. They tend to have fewer resources available and less than 0.25 full-time employees (reported by 26% of the respondents). At the same time, the trend among top management of DIEH members is to get more involved. The percentage of membersresponding that top management is following up on ethical-trade efforts grew from 55% to 63%.

• Social compliance officer

• CSR consultant

• Sourcing manager

• Ethical Trade Supervisor

• Social Compliance & Human Rights Manager

• Corporate Responsibility Manager

• Compliance Manager

• CSR officer

• Head of CSR and Compliance

• Supplier Code of Conduct Manager

• Head of CSR

• Social Compliance assistant

• CSR auditor

• Public Affairs and Communication Director

• Head of Responsible Sourcing

“The Executive Board itself is involved in our CSR work, including company and supplier codes of conduct, social responsibility, environment, animal rights, and strategic development efforts for the UN Global Compact and the 17 Sustainable Development Goals.”

Christian Rask-Jepsen, Reitan Distribution

10 HEC and Ecovadis 2017. Scaling Up Sustainable Procurement: A New Phase of Expansion Must Begin.


“As an organisation for SMEs we are quite dependent on external funds when it comes to implementation of social responsibility. The Danida funding programmes we previously could apply for are now either cancelled or require co-funding, which is basically impossible for us or for our SME members.”

Jens Kvorning, Danish Federation of Small and Medium-Sized Enterprises

“As assessments of environmental and social issues are a natural part of the business processes at EKF, ethical tradeforms part of our internal employees’ daily life.”

Rikke Mandrup, Danmarks Export Credit Agency (EKF)

46% of DIEH members report that top management have allocated funds for ethical trade


46%

THE ETHICAL TRADE JOB Ethical-trade efforts are run and managed by a variety of functions in Danish companies and organisations:

Source: DIEH member reports 2016


GEOGRAPHICAL HOT SPOTS

Bangladesh, Turkey, and China are among the hot spots listed most frequently by DIEH members. All of the countries are particularly important for garment and textile companies, and China is a hot spot for the toy-production industry. For other sectors and industries, geographical hot spots are much more diverse. For example, Europe, Kenya, Malawi, South Africa, Madagascar, and Thailand are highlighted as hot spots for food and beverage and the retail industry. In some cases, investigative journalists and the media have been influential by spotlighting certain countries and products 11.

For example:• Danwatch’s investigations have shed light on vanilla from Madagascar and coffee from Brazil and Guatemala. In both sectors, unacceptable practices were exposed, including modern slavery and child-labour abuses. These issues occur in supply chains that are potentially linked to private companies and supermarkets as well as public buyers. • The Lake Turkana Wind Project in Kenya has received attention related to issues of land rights and indigenous populations, as investigated by Danwatch and reported in the media. Various Danish investors are involved in the project.

KEY CHALLENGES AND OPPORTUNITIES IN ETHICAL TRADE Seventy-four per cent of DIEH members operate globally, either in trade or through their presence. Furthermore, two out of three indicate that the company or organisation has focused specifically on one or several countries. The map illustrates in which countries and regions DIEH members currently see particular challenges or opportunities with ethical trade.

High focus country/region for DIEH members Focus country for several DIEH members Focus country for individual DIEH members

FOCUS AREAS FOR ETHICAL TRADE AS LISTED BY DIEH MEMBERS:

In some cases, investigative journalists and the media have been influential by spotlighting certain countries and products


• Amnesty International exposed harmful labour conditions at seven palm-oil plantations in Indonesia, including instances of forced labour, child labour, and the use of hazardous chemicals. • Other media hot spots for 2016 were the South African wine sector (on which a highly critical Danish documen- tary reported unacceptable working conditions), modern slavery practices in Thai fishery and poultry sectors, and rights violations of Syrian refugees in the Turkish textile sector.

11. Danwatch website, DIEH dialogue meetings, and DIEH member reports.


The media’s role was addressed during several DIEH dialogue meetings. Most members agree that stories and articles about production practices in global supply chains are important and raise awareness of the need for ethical trade. However, many have indicated that they would like to see the stories and infor-mation presented in a more constructive manner. This discussion will definitely continue in the coming years.

SUPPLY CHAIN CHALLENGES

How supply chain challenges are identified and addressed varies greatly from one company and organisation to another. Although some DIEH members are still in the phase of mapping or “creating an overview of potential risks and issues,” others have gone beyond that and have a clear picture of which issues are of primary importance for their operations. Among the to-pics related to ethical-trade issues in 2016, those listed most frequently are the environment (including issues related to climate, water, chemicals, and energy), working environment, and child labour (see the graph below).

Other international business surveys also make climate change a top priority. In this respect, managing energy use and green-house gas (GHG) emissions in operations is by far the most important focus of climate-mitigation efforts. Yet, it was mentioned that achieving actual change on climate action throug-hout the value chain is the number-one barrier to businesses wishing to improve in this area 12 .

DIEH members’ most important ethical-trade issues are shown in the figure below. Most of these issues have seen an increase in priority over the previous year (with the exception of corruption). Other topics gaining ground are forced labour (from 32% to 42%), freedom of association and collective bargaining (from 25% to 37%), regular employment (from 17% to 32%), and marginalised populations (from 19% to 31%). This increased attention may reflect a better general knowledge of the most pressing issues in global supply chains. It may also be a result of the increasing focus on human rights and climate change prompted by the Paris Climate Agreement (COP21), stories in the media, and the SDGs.

Several DIEH members affirm that they prefer to focus on risk sectors and risk countries rather than on specific issues. Others point out the difficulty in pinpointing the most pertinent issues, because they deal with so many countries or supply chains, each featuring their specific challenges. A common challenge for all, however, remains the lack of transparency throughout the supply chain. A sustainable procurement barometer study conducted among 120 (primarily European) companies disclosed that only 15% have complete supply chain visibility into the CSR and sustainability performance of both Tier 1 and Tier 2 suppliers, and only 6% report having full visibility into Tier 3 suppliers and beyond 13.

12. BSR/GlobeScan State of Sustainable Business Survey 2016

FIGURE 3:


0% 10% 20% 30% 40% 50% 60% 70%




At the EU level

Abroad





65%

58%

46% 46%

35%

4%


SA8000)

None





Human Rights

0%

10%

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40%

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42%

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61%

64%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


Forced labour

Corruption

Working hours

Child labour

Working environment

Environment



47%


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51% 47%

67% 63%

44%

0%

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64%

Lorem ipsum




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72%

60%

48% 44%

12%

74%

48% 44% 44%

41%

15%

22%







74%

When asked how they address the aforementioned issues, most DIEH members emphasise collaboration with stakeholders (60%) and partnerships. Just under half refer to their own pur-chasing practices and/or responsible buying as an approach. The following graph illustrates the different characteristics and qualities of the DIEH membership base, by outlining the different approaches.

HUMAN RIGHTS DUE DILIGENCE: A WORK IN PROGRESS

With 65% of DIEH members referring to the UN Guiding Prin-ciples for Business and Human Rights (UNGP) to guide their

ethical-trade efforts, human rights due diligence is now cer-tainly on the agenda. At the same time, a survey of more than 3,000 companies listed in 35 countries worldwide revealed that only a minority of companies commit to all areas associated with human rights for which they are responsible 14. The Orga-nisation for Economic Cooperation and Development (OECD) has developed supporting documents that can help different sectors (e.g. textile, agriculture, minerals) implement the UNGPs. This is being warmly received by the many businesses that are still slightly unsure about exactly what is expected of them.

FIGURE 4:

Main approaches of DIEH members to addressing supply chain issues*:

BUYING PARTNERING OTHER

Responsible buying(40%)

Own purchasing practices

(48%)

Ethical-trade partnerships

(41%)

Collaboration with other

stakeholders(60%)

Lobbying(31%) Training and

education(59%)

Other research, capacity building, investments, certification support, project management, site visits

(24%)

12 HEC/EcoVadis 2017, Scaling Up Sustainable Procurement: A New Phase of Expansion Must Begin.

11. Vigeo Eiris, 2017. The human rights responsibilities of business in a changing world. How companies across the globe are addressing key areas of human rights.

Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector

Recently, the OECD published a guidance docu-ment that helps garment and footwear compa-nies scope risks across their entire supply chain, including risks related to subcontracting and homeworkers. The guidance was prepared by

a wide range of stakeholders and experts, and will help companies manage global operations consistently, by meeting customer and market expectations regarding responsible supply chains in the garment and footwear sector. The com-pany assessments need to move beyond audit-ing to not only identify labour, human rights, and environmental impacts, but also to under-stand why they are occurring.

Source: OECD Insights, 2017. A Responsibility Revolution in the Fashion Industry: How OECD’s new Due Diligence Instrument can Transform the Global Garment Industry.


RISK MAPPING

Seventy-four per cent of DIEH members indicated that they conducted risk mapping of both the company and the supply chain to identify and prioritise problems related to human and workers’ rights as well as the environment. Slightly less than half of the organisations performed risk mapping (see figure 5); several public institutes and NGOs reported that risk identifica-tion occurs on a more ad hoc or project basis.

Risk mapping forms an important part of due diligence. When done properly, it helps identify the primary areas for improve-ment in the entire value chain. A company is ultimately respon-sible for all impacts caused directly by its own operations or indirectly as part of a (global) supply chain. Although it makes good practical sense to prioritise top-tier suppliers, greater risk may exist further down the supply chain. In practice therefo-re, companies need to prioritise their efforts based on the risk profile and then gradually extend the scope based on their ex-periences 15.

Risk mapping is clearly an area that occupies DIEH company members, and several respondents stated that they were cur-rently updating or improving their risk-identification processes. The OECD Guidelines and the UNGPs are mentioned as impor-tant references.

AUDITS AND IMPROVEMENTS

Conducting audits is listed more often this year than in the previous year as a key instrument for DIEH members to im-prove their ethical-trade efforts; 63% reported auditing as a key approach, and 67% reported taking corrective actions to continuously improve their efforts.

Although audits can be useful in identifying (certain) areas of concern, experts warn about the potential pitfalls of auditing, especially when used as a stand-alone tool. A study based on interviews with ethical auditors, business executives, NGOs, and supplier firms published in 2016 encapsulates the down-sides of audits: “Focusing on Tier 1 suppliers, most audits tend to exclude labour agencies and subcontractors further down the supply chain in low-value activities such as harvesting, pro-cessing, dyeing, and mining. Evidence from food, clothing, and other industries indicates that the most exploited workers (e.g. forced and child labour) tend to be found in sites with complex subcontracting arrangements. Some evidence suggests audits have worsened conditions by shifting problems further down the supply chain 16.”

It is positive that DIEH members report their use of auditing as a tool for improvement among primary suppliers, and so demon-strate a shift from pass/fail compliance to continuous improve-ment programmes. In line with this trend, there is an increased tendency to share responsibility between buyer and supplier and collaborate to achieve the necessary improvements in pro-duction or sourcing countries.

FIGURE 5:

DIEH members’ risk mapping in 2016:

0% 10% 20% 30% 40% 50% 60% 70%




At the EU level

Abroad





65%

58%

46% 46%

35%

4%


SA8000)

None





Human Rights

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

42%

44%

44%

49%

61%

64%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


Forced labour

Corruption

Working hours

Child labour

Working environment

Environment



47%


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



51% 47%

67% 63%

44%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%





64%

Lorem ipsum




0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% 88%

72%

60%

48% 44%

12%

74%

48% 44% 44%

41%

15%

22%







74%

15. DIEH Principles for Implementation, Principle 2 – Identification. Accessible via www.dieh.dk

16. 2016, SPERI Global Political Economy Brief No.1. Ethical Audits and the Supply Chains of Global Corporations

“At Coop Danmark we have a risk-based approach to our suppliers, and this defines our follow up process. We look at suppliers based in risk-countries, whether they receive materials from risk-countries and whether the value chain of a product could possibly be connected to certain risks with regards to workers’ rights, human rights and the environment. This informs us which suppliers and topics we should pay extra attention to.”

Kathrine Lykke Kirk, Coop Danmark A/S

FIGURE 6:

Top 3 approaches to how DIEH members ensure continuous improvement of ethical trade efforts *

0% 10% 20% 30% 40% 50% 60% 70%




At the EU level

Abroad





65%

58%

46% 46%

35%

4%


SA8000)

None





Human Rights

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

42%

44%

44%

49%

61%

64%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


Forced labour

Corruption

Working hours

Child labour

Working environment

Environment



47%


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



51% 47%

67% 63%

44%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%





64%

Lorem ipsum




0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% 88%

72%

60%

48% 44%

12%

74%

48% 44% 44%

41%

15%

22%







74%


FOCUS ON PURCHASING PRACTICES

Purchasing practices form a crucial part of ethical trade. Suppliers’ experience and insights reveal that purchasing prac-tices can have negative consequences and undermine relationships with suppliers. For example, insufficient lead-times and last-minute changes to orders may force suppliers to require their workers to put in overtime. In the race to remain competi- tive, suppliers may cut corners or neglect to improve ethical standards, and workers may suffer harsh labour conditions and unfair pay.

A unique supplier survey conducted by ILO and the Joint Ethical Trading Initiatives17 provides valuable insight into how current buying practices affect suppliers worldwide. One important finding demonstrated the prevailing imbalance of power in the supply chain: The buying organisation typically has the upper hand. This is validated by the following: In 2015, 36% of sup-pliers accepted orders worth less than the cost of production, which some suppliers attributed to customer pressure (see the box below). The survey also found that buying practices are often at odds with requirements in supplier codes of conduct.

DIEH company members are concentrating more on staff training in purchasing and buying departments, with 44% reporting

that they invest in this area. Specifically, almost half of DIEH members (48%) report that they now focus on their own buying practices when addressing ethical-trade issues. Another indicator of progress is that several DIEH members report they are devel-oping or updating a buying or procurement policy.

Nevertheless, action in this area is still in its infancy; quality, price, and lead-time remain decisive in negotiating with suppliers. Often, aspects of ethical trade have yet to be integrated in the process, for example by providing suppliers commercial incentives to improve social performance, such as price, volume, duration, and preferred supplier status18. This takes time and commitment and requires a trusting, direct, and honest relationship between buyer and supplier.

SUPPLIER DIALOGUE AND SUPPORT

Supplier or company codes of conduct are high on the list of ethical-trade documents used by Danish buyers. Codes of con-duct that were drafted to conform to an industry-wide initiative, such as the Business Social Compliance Initiative (BSCI), were also mentioned frequently. The use of BSCI’s Code of Conduct by DIEH members could possibly explain the decrease in the reported supplier or company codes of conduct.

“DK Company is aware that we cannot put any requirements on our suppliers without looking at our own approach and sourcing methods. To keep becoming better and better at ethical sourcing, we are currently building up capacity within our company to make everyone aware of their influence in achieving a more ethical supply chain.”

DK Company (website)

Key Findings of the joint ETI-ILO supplier survey on purchasing practices (conducted in 2016):

• 36% of suppliers accepted orders worth less than the cost of production, which some suppliers attributed to customer pressure.• Nearly 80% of respondents said that only 10% (or less) of buyers reward them for making ethical improvements. Although some training is provided, many respondents reported not receiving any support from their customers in meeting the standards set out in their code of conduct.• The determining factors in buyer–supplier negotiations are product quality, price, and lead- time. Price is the main reason that a buyer might terminate a supplier relationship, with social compliance named last after product quality and delivery.

17. The Joint Ethical Trading Initiatives, 2016 Guide to Responsible Purchasing Practices. Pilot Edition December 2016

18. ILO, IOE, 2015, How to do business with respect for children’s right to be free from child labour: ILO-IOE child labour guidance tool for business

Quality, price, and lead-time remain decisive in negotiating with suppliers. Often, aspects of ethical trade have yet to be integrated in the process.

Source: The Joint Ethical Trading Initiatives, 2016 Guide to Responsible Purchasing Practices. Pilot Edition December 2016


Grievances and complaints:

Over the past few years, more attention has been given to the role of grievance mecha-nisms in improving social performance, in addition to the role of trade unions. Forty per cent of DIEH members report that they

have a procedure or mechanism in place that addresses grievances and complaints, up from 34% last year. Some state that this is part of a certification or external auditing procedure, whereas others state that internal whisle-blower functions exist within the company or organisation.

18. ILO, IOE, 2015, How to do business with respect for children’s right to be free from child labour: ILO-IOE child labour guidance tool for business

Source: DIEH Member reports 2016

19. The Joint Ethical Trading Initiatives, 2016 Guide to Responsible Purchasing Practices. Pilot Edition December 2016

The Business Social Compliance Initiative (BSCI)

Twenty-two per cent of DIEH company members are also members of BSCI, an initiative open to retailers, importers, and brands engaged in improving working conditions in their global supply chains. The initiative supports the integration by buying companies, among others, of BSCI’s Code of Conduct in their supply chain, thus reducing audit fatigue and increasing efficiency and leverage. Complementary to social auditing, the initiative focuses on capacity building and establishing relationships with all stakeholders across the supply chain. Peter Nielsen from the Danish promotion company Kluntz explains,

“We are a small company and therefore not a primary customer of our suppliers, which means it can be difficult to make demands of them. This is why BSCI is a good solution for us.”

FIGURE 7:

Documents prepared by DIEH company members in support of their work in ethical trade*

0% 10% 20% 30% 40% 50% 60% 70%




At the EU level

Abroad





65%

58%

46% 46%

35%

4%


SA8000)

None





Human Rights

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

42%

44%

44%

49%

61%

64%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


Forced labour

Corruption

Working hours

Child labour

Working environment

Environment



47%


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



51% 47%

67% 63%

44%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%





64%

Lorem ipsum




0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% 88%

72%

60%

48% 44%

12%

74%

48% 44% 44%

41%

15%

22%







74%

“We have developed an internal evaluation tool specifically for the furniture/interior sector, known as the dialogue tool. We use this tool locally with our collaboration partners. The tool focuses on health and safety in the factories and has proven to work extremely well in identifying dangers and risks.”

Signe Mørk Sørensen, BRICPro

Noting the preferred use of codes of conduct, it is interesting that most suppliers participating in the joint ETI-ILO survey stated that their customers provided little or no support for implementing codes of conduct. This is an important gap in the global ethical-trade field; and although some actors are taking steps here, Danish buyers still need to acquire more experience in this. According to the suppliers in the survey, the following types of support are considered valuable.

• Training suppliers’ staffs• Rewarding suppliers when improvements are made• Providing financial assistance for improvements• Co-funding social audits• Conducting joint projects to identify breaches19

Almost half of DIEH members (48%) report that they now focus on their own buying practices when addressing ethical-trade issues

46%


CONCRETE RESULTS AND CASES

Danish actors see increased global awareness of and debate surrounding ethical-trade issues, but they also note that solutions receive more focus. This constructive attitude is illustrated by the 45% of DIEH members that use DIEH actively to engage in dialogue with other members. It is also at the core of the two case studies presented later in this section.

Results and achievements reported by DIEH members for 2016This overview of concrete results achieved by DIEH members clearly demonstrates a strong diversity in approach.

OTHER INDUSTRIES (FOOD, FURNITURE, MEDICAL, NATURAL STONE, ENERGY, TOYS, IT, AGENCIES)

• We have conducted a materiality map and updated our CSR strategy. More than 200 audits were carried out in Asia to assess social compliance indicators, and a CAP management system was implemented with indicators. We also launched training programmes for suppliers. • We agreed on detailed corrective action plans and roadmaps with direct suppliers on working hours. • In 2016, we built our own online system for our audits.

• We have set up local bodies that now operate independently, to monitor and combat child labour.

• We have developed freely accessible educational material on global value chains to promote the ethical-trade agenda.

TEXTILE SECTOR

• We have audited our top 100 suppliers (80% of our turnover), and we now have a clear insight into the risks we face in the different countries

• We identified all of our Tier 1 and Tier 2 suppliers and investigated their performance in the area of CSR. This resulted in dismissing two-fifths of our supplier base. Afterwards, we collaborated with the remaining suppliers to improve their efforts.

• We have assisted our suppliers and clients in becoming certified.

• We take part in the project “Step Up” in Bangladesh.

• Our auditing programmes in Turkey and India have led to improvements, either by relocating the factory to a safer building or investing in the factory’s safety measures.

• We invested a lot of time and effort in recycling our waste at all locations, with the aim of reusing as much as possible.

• We have co-established the database Fabric Source, a physical library with samples of sustainable materials by suppliers in developing countries.

PUBLIC SECTOR:

• We have established a control unit to prevent social dumping.

• In one case, we rejected a supplier’s documentation. Consequently, the supplier developed processes for due diligence.

• We have ensured that our investments meet our sustainability policy, which includes implementing a management system, hiring a qualified CSR employee, ensuring responsible supply chain management, etc.

RETAIL

• We have met our target to map and conduct a risk assessment for 95% of our supplier base, and we have initiated three new partnerships with local suppliers.

• In 2016, we specifically followed up on 150 European suppliers that had been identified as possibly delivering risk products. Based on evaluations, individual improvement plans have been initiated to ensure a better compliance level with our code of conduct.

• We are working on a packaging (and environmental) policy that reduces negative environmental impact in the production process.

• We have set concrete KPIs for our supplier audits.

• To improve living and working conditions for women in factories in Bangladesh, we have initiated, in collaboration with a development organisation, an educational programme on various topics such as finance, career options, women’s rights, nutrition, and health. We also implemented facilities to take care of their children during work hours.

SDGs – A UNIVERSAL AGENDA

An important development for the ethical-trade agenda is the recent global commitment to the United Nations Sustainable Development Goals (SDGs) or Global Goals agreed in 2015. The SDGs aim to guide governments, civil society, and businesses to “end poverty, protect the planet, and ensure prosperity for all.” SGD 8 (decent work and economic growth), SDG 12 (responsi-ble consumption and production), and SDG 17 (partnerships for sustainable development) all apply directly to global supply chains and ethical trade.

The early response from business has been promising: International business surveys20 reveal that one in three compa-nies use the SDGs to set corporate targets or are communicating about the SDGs in their corporate non-financial reporting 21. In Denmark, 22% of DIEH members have developed a strategic document on the SDGs. They use them either to map their activities to the goals or as input to their strategy.

A recent WWF report on the SDGs stated, “Achieving the SDGs represents a business opportunity. Poverty, inequality, water scarcity, climate change, and the degradation of natural resour-ces and services are all ultimately bad for business. Conversely, investing in meeting the SDGs can unlock new markets and opportunities and secure a company’s long-term prosperity22.”-Such benefits are exemplified in the two case studies of DIEH members in multi-stakeholder collaborations as presented in the next section of the report. Case 1 relates directly to SGD 2 (End hunger, achieve food security, and improved nutrition and promote sustainable agriculture). Case 2 demonstrates action to achieve SDG 13 (Take urgent action to combat climate change and its impacts).

20 BSR/GlobeScan 2016. State of Sustainable Business Survey 2016

21. WBCSD 2016. New research shows that the Sustainable Development Goals matter to leading global businesses.

22. WWF 2017. SDGs mean business: How credible standards can help companies deliver the 2030 agenda.

NGOS AND UNIVERSITIES

• Our partnership with an investment fund has resulted in the formation of important analyses of why, how, and to what extent companies focus on health and human rights.

• We have implemented procedures to examine our suppliers’ ethical and social responsibilities. We did this because our banking business was put out for tender. The socially responsible profile of the bank was a major assessment area, prioritised on the same level as economy, quality, service, and IT solution systems.

• We have replaced some of our most risky suppliers, because they cannot be influenced through dialogue to meet our standards.

• We have influenced several companies to increase their focus on CSR and human rights.

• We have been in dialogue with investors about UNGP compliance with a particular emphasis on Danish investments in the occupied territories in Palestine and with regard to land rights in Lake Turkana.

• We have established partnerships with companies in Denmark and Bangladesh to integrate a better working environment and greater productivity.


Aim: An impact assessment of the potential adverse effects of developing and introducing a new dairy product to the local market in Ethiopia. It was carried out in the early planning phase of a multi-stakeholder, value-chain project, “GAIN access to better dairy Ethiopia,” supported by Danida’s Market Development Partnership for the period 2017–2020.

Approach: partners in the GAIN Nordic platform (Arla Food Ingredients Group P/S, Global Alliance for Improved Nutrition, DanChurchAid, and the Danish Confederation of Industries) conducted the assessment. GAIN Nordic is a multistake-holder platform developing solutions that contribute to food security and nutrition based on SDG 2. DanChurchAid’s role is to pro-mote solutions that are sustainable, responsible, and pro-poor.

Location: Ethiopia

Why this case: When businesses, civil society organisations (CSOs), and other stakeholders work together in multi-stake-holder partnerships, numerous opportunities, dilemmas, and risks arise. Global supply chains pose great risks to people and the environment, but can also be a significant leverage point for creating positive impacts in line with the SDGs. With this impact assessment, GAIN Nordic partners wanted to “walk the walk” and assess how to reduce harm and create social value in a combined approach. Partners used the assessment process to identify potential impacts in their own proposed activities, and agree on follow-up actions and mitigation measures through joint knowledge, leverage, and resources.

The methodology was based on the Human Rights Impact Assessment guidance and toolbox developed by the Danish Institute for Human Rights. The report added a new layer to the analysis, linking the impact assessment methodology with the SDGs, through a comprehensive value-chain approach.

THE ADDED VALUE OF LINKING AN IMPACT ASSESSMENT

WITH SDGs

GAIN Nordic partners found that the SDGs proved to be an important strategic framework for identifying and assessing key issues in the impact assessment, and for maintaining a focus on sustainable development throughout the process. For example, the SDG lens concentrated attention on people most at risk in dangerous situations in the analysis, for example on the role of women and children in milk production and consumption. The reference to specific SDG targets allowed partners to assess risks, as well as identify where to create positive leverage in the Ethiopian dairy value chain. Partners are now able to demon-strate their contribution, however small, to the global agenda through follow-up actions and mitigation measures.

GAIN Nordic partners recognise that more work is needed to further develop the methodology, and hope to exchange know-ledge and collaborate with other stakeholders interested in co-herently linking the UNGP and SDG frameworks.

CASE:

PROMOTING SUSTAINABILITY THROUGH A MULTI-PARTNER-DRIVEN IMPACT ASSESSMENT

PARTNERS

GAIN Nordic partners wanted to “walk the walk” and assess how to reduce harm and create social value in a combined approach.


Arla

Foods Ingredients

Arla Foods Ingredient

s

“When you conduct an impact assessment, you identify where in the supply chain you make an impact, both positive and negative. As a result of this process, we have increased our awareness about our responsibility as a company. We have learned that we are more than a supplier, we are also an influencer.”

Charlotte Sørensen from Arla Foods Ingredients Group A/S


“By conducting an impact assessment together, we were able to integrate the mindset of responsible business conduct into the design and planning phase of proposed project activities. It served as a catalyst to understand and apply human rights due diligence thinking into the on-the-ground activities. It facilitates a strategic discussion on partners’ roles and responsibilities to increase their leverage to limit risks and increase social impact through responsible supply chain management, taking into consideration the various actors and issues at play in a local development context.”

Gitte Dyrhagen Husager from DanChurchAid

KEY LESSONS FROM A MULTI-PARTNER-DRIVEN APPROACH TO

IMPACT ASSESSMENTS

The process facilitated a change within the partnership, creating more awareness about risks and opportunities. An empowering factor was the trusted atmosphere and open space for dialogue that exists in the GAIN Nordic partnership on key issues and challenges, as well as hands-on field exposure to the situation in the team.

In a multi-partner setup, each partner comes with a different background, skillset, and perspective. This can provide a wealth of information and resources, but can also be challenging because roles are being mixed. A key lesson from the impact assessment was therefore that it is important to distinguish between the roles and responsibilities of different partners, e.g. in MoU/agreement documents, to ensure clarity and accounta-bility internally among partners and externally in the process and project design.

An empowering factor was the trusted atmosphere and open space for dialogue that exists in the GAIN Nordic partnership on key issues and challenges, as well as hands-on field exposure to the situation in the team.



Collaboration for sustainable solutions: DONG Energy is collaborating with peer companies, suppliers, and independent auditor NEPCon through an industry-led partnership initiative to promote the development of resilient and sustainable woody biomass supply chains.

Aim: To document regulatory compliance and promote sustainable biomass supply chains that contribute to a low-carbon economy.

Approach: Proactive engagement of biomass suppliers to achieve certification through industry collaborative initiatives. Location: The Baltics and Russia.

Background: The Baltics and Russia are increasing biomass pro-duction capacities and are lead exporters of woody biomass to Denmark.

Why this case: This case demonstrates the importance of co-creating solutions to systemic sustainability challenges. DONG Energy has had to overcome the challenge of a lack of common European regulation for sustainable, solid biomass production and to reach key suppliers. The challenge required a collabora-tive approach to move forward.

Renewable energy is a critical part of reducing global carbon emissions and facilitating the transition to a low-carbon eco-nomy. DONG Energy wants to lead the energy transformation and believes sustainable energy can assist societies to develop and thrive without compromising the health of our planet.

Since 2006, DONG Energy has reduced its coal consumption by 73% by reducing capacity and converting its central power plants into multi-fuel plants and replacing coal with sustainable solid biomass. This includes sustainable wood pellets and chips made mainly from residue products such as twigs, branches, and sawdust. Since 2006, DONG Energy has achieved a 52% reduction in its CO2 emissions from its total power and heat generation. DONG Energy now aims to phase out coal completely and achieve CO2 reductions of 96% by 2023.

CASE:

PROMOTING SUSTAINABLE BIOMASS PRODUCTION IN THE BALTICS AND RUSSIA

PARTNERS

DONG Energy wants to lead the energy transformation and believes sustainable energy can allow societies to develop and thrive without compromising the health of our planet.

To reach this goal it is essential that biomass be sustainable. DONG Energy wants to ensure:

• Regeneration of forest stands, • Stable or increasing carbon stock in forests, • Inventoried and protected ecosystems and biodiversity,• Respect for social and labour rights.

“We work with our suppliers to ensure the biomass we source originates from forests that are sustainably managed and regenerated.”

Erik Elingaard-Larsen, Forester and biomass procurement officer, DONG Energy,

Bioenergy and Thermal Power



The cross-border collaboration between industry, biomass sup-pliers, and different kinds of stakeholders drives structural pro-gress in improving sustainability performance and generating positive outcomes for societies, the environment, and business.

SUSTAINABLE BIOMASS PARTNERSHIP (SBP)

In 2013, DONG Energy and other energy companies came to-gether to address the lack of common European regulation and co-developed, based on all existing national requirements and available experience, sustainability criteria for biomass sourcing, the Sustainable Biomass Partnership (SBP). The SBP was developed to complement existing certification schemes such as FSC® through a comprehensive process, which included stakeholder hearings and consultation with key experts.

Since 2015, SBP has provided a certification system that allows biomass operating companies to meet the increasing demand for green energy while demonstrating compliance with regula-tory and sustainability requirements associated with the produc-tion of woody biomass. One feature of SBP is that greenhouse gas emissions from production and transport throughout the supply chain are documented, reported, and audited.

Since then, DONG Energy has introduced the SBP to its suppliers. The certification entails:

• An assessment of suppliers’ compliance with applicable sustainability requirements; the assessment is performed by an independent certification body, NEPCon; suppliers receive certification only if they meet the requirements;• An annual surveillance audit by NEPCon to ensure that suppliers continue to comply with all sustainability requirements;• Recertification every five years based on a new assessment.

PROMOTING SUSTAINABLE BIOMASS PRODUCTION

The growth and impact of the SBP initiative demonstrate a clear desire among companies and stakeholders for coordinated action to drive positive change on the ground.

“The introduction of the SBP has promoted sustainable approaches to forest management and biomass production. The demand for SBP-certified biomass has resulted in the mapping of key biodiversity areas in Latvia and multi-stakeholder country assessments in the Baltics, Denmark, and Portugal. It is also driving more producers to achieve FSC certification,” says Peter Kofod Kristensen, Lead Sustainability Advisor, Bioenergy and Thermal Power.

WORKING COLLABORATIVELY

The expansion of SBP into key biomass production areas was only possible through the collaborative efforts from across the biomass value chain. For example, CM Biomass, a large Danish commodity trader, invested extensive time and effort in helping many biomass producers understand the importance of sustainable production and achieve SBP certification.

In 2013, DONG Energy and other energy companies came together to address the lack of common European regulation and co-developed, based on all existing national requirements and available experience, sustainability criteria for biomass sourcing, the Sustainable Biomass Partnership (SBP).



STATE OF ETHICAL TRADING HIGHLIGHTS

With the recent legislation and guidelines promoting supply chain responsibility, it is impossible to evade ethical trade if com-panies and organisations wish to maintain their “license to operate.” Among other things, the subject of human rights due diligence is increasingly on the agenda, and top-level involve-ment is rising, with 63% of top management closely engaged in efforts related to ethical trade. In addition, 46% of DIEH members report that top management have allocated funds in the budget for ethical trade.

Investors and the public sector have also begun to recognise their role in ethical trade. The influence that public buyers can exert on ethical procurement practices is substantial. However, too often price remains the determining factor in the buying process, a practice that especially affects SMEs at home and abroad. An emphasis on price alone prevents them from initia-ting ethical-trade practices on a scale similar to larger Danish companies and suppliers. Although they are aware of and wish to address the ethical challenges that exist across their supply chains, they are often faced with financial-resource constraints.

Moving forward, responsible buying practices will become more significant as companies and organisations increase their aware-ness of the positive and negative impacts of their purchasing processes. Already, they rely less on social audits as a stand-alone check in assessing their ethical trade practices. Instead, they are focusing on building long-term relationships with suppliers as a way of integrating ethical trade in global supply chains.

The SDGs also present opportunities for companies and organi-sations to organise their CSR programmes around the SDG framework. Twenty-two per cent of DIEH members have already integrated SDGs into their ethical-trade strategies. We look forward to facilitating a greater knowledge exchange about concrete actions and results related to SDGs with our members and the business community.

Thank you for reading.

A FUTURE PERSPECTIVE ON ETHICAL TRADE

”State of Ethical Trading 2016” reveals that cross-sector collaboration on ethical dilemmas is gaining traction across the DIEH member base. Companies, NGOs, business associations, public institutions, and trade unions are coming together to discuss common solutions to create sustainable development in global supply chains.

The Danish Ethical Trading Initiative is

a multi-stakeholder alliance that strives

to develop tangible improvements in

global value chains.

We gather companies, NGOs, trade

unions, business associations and

public institutions; and support our

members through a unique network,

tools and concrete solutions. At the

same time, we work to reinforce

support for ethical trade across the

public domain.

Dansk Initiativ for Etisk Handel

Overgaden Oven vandet 10. st

1415 København K

www.dieh.dk