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Managing social and ethical risks

As the proud brand guardian of premium brands, we must protect their reputation by carefully managing social and ethical risks.

Our approach

We have a four-stage process for managing social and ethical risks and embedding guidelines into our supply chain.

  1. Initial screening: a series of key risk-based questions which our procurement team applies to all current and potential suppliers. Criteria for identifying high risks include analysis of country of origin, type of goods or service, potential impact on a global brand and use of temporary or casual labour.
  2. Pre-qualification: a questionnaire that focuses on any areas of concern raised in stage one.
  3. Qualification: any potentially high-risk suppliers are required to register with the Suppliers Ethical Data Exchange (SEDEX) (see below), and to take the SEDEX self-assessment questionnaire.
  4. Audit: suppliers who represent the highest risk are independently audited against the SEDEX Members Ethical Trade Audit (SMETA) audit protocol. We agree corrective actions to address any gaps, and work with suppliers to help raise their sustainability standards. In addition to covering human rights, core labour standards, and health and safety, we have now adopted the ‘SMETA 4 Pillar’ audit protocol, which also includes business ethics and integrity, and environmental issues.

Working with industry partners and trade associations

In an effort to reduce assessment fatigue for our business partners, we work collaboratively with SEDEX, a not-for-profit organisation that enables global suppliers to share assessments and audits on ethical and responsible practices with their customers. Suppliers pay for their participation as this allows them to own their data and share their reports with many customers.

We are also an active member of AIM-PROGRESS, a forum for leading consumer goods companies to promote responsible sourcing practices and sustainable supply chains. With 31 companies including Unilever, The Coca-Cola Company, Nestlé and Colgate Palmolive involved, AIM-PROGRESS aims to develop and promote the use of common evaluation methods, and drive efficiencies for all companies by collecting, assessing and sharing non-competitive information on supply chain sustainability performance.

David Lawrence, Diageo’s compliance and ethics programme director is the current chairman of AIM-PROGRESS. Read an interview with David about the initiative.

Focusing on human rights

We aim to promote and protect human rights and freedoms in everything we do. Our supplier standards set out the minimum we expect from our suppliers, namely that they meet all applicable legislation and the International Labour Organisation core conventions along with standards for safe working conditions, fair pay and reasonable hours. We also encourage them to endorse and promote the Universal Declaration of Human Rights.

Our suppliers have access to SpeakUp, our whistleblowing line, as set out in our Partnering with Suppliers standard. This is a particularly important element of our work to protect human rights, and it helps us uphold our other policies and standards. This year we received 10 anonymous calls from suppliers through SpeakUp, and we are working to address concerns raised about human rights, discrimination and harassment, and fraud.

Building capability

To help ensure compliance with our standards and expectations, we aim to build not only the capabilities of our own procurement team, but also those of suppliers, through sessions on social and ethical risk management and environmental sustainability. This year, as part of AIM-PROGRESS, we supported a series of webinars for suppliers in North America and Europe as well as workshops in Kenya, and South Africa to share best practice in responsible sourcing.

Performance

Initial screening and pre-qualification

All procurement-controlled spend was screened to assess the risk of not meeting our Partnering with Suppliers standard. For all new contracts drafted, we aimed to include a clause that referenced compliance with our Partnering with Suppliers standard or our even more comprehensive Code of Business Conduct for those suppliers who act on our behalf.

Qualification

We asked those suppliers deemed potentially high risk to register with SEDEX. To date, 875 supplier sites have done so and linked to Diageo, the first step in engaging suppliers to complete their self-assessment, up from 734 last year.

This year SEDEX upgraded their system, which meant all suppliers had to re-submit their questionnaires. As such the number of suppliers with completed self-assessment questionnaires increased only slightly this year, from 519 to 588.  However we are confident that this upgrade will increase the efficiency and effectiveness of the process.

Audit

For additional due diligence, over the past three years, 105 of our highest risk supplier sites have been independently audited, commissioned either by Diageo (13 audits) or accessed through SEDEX and AIM-PROGRESS (92 audits). This is up from 64 last year. Suppliers in Asia and Africa accounted for almost two-thirds of these audits, with the most common issues of concern relating to health, safety and hygiene, followed by working hours and wages.

In general, we consider merchandising materials to be one of our highest risk categories due to the fact that manufacturing is often in high-risk countries. We purchase the majority of materials through agents, and therefore lack visibility on the original manufacturing source. We have begun to work with some of our key merchandising suppliers to support the development of their ethical sourcing practices, build capability and drive assurance further down the supply chain.

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