What are supplier codes of conduct?
Supplier codes of conduct are companies’ documented standards for members of their supply chain ecosystems. A supplier code of conduct helps a company ensure that its suppliers, subcontractors and subsidiaries share its values concerning labor standards, health and safety, environmental impacts and business ethics.
The advent and implementation of supplier codes of conduct are part of a broader emphasis on sustainability and corporate social responsibility (CSR). Businesses, especially publicly held companies, are often expected to act based on both profitability and the effect of their actions on communities and the planet. In an interconnected global market, upholding high supply chain standards with supplier codes of conduct helps corporations fulfill their social responsibilities.
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A values-based approach to business operations dates back decades. In 1953, Howard R. Bowen published “Social responsibilities of the businessman.” He defined executives’ obligations as aligning policies and actions with society’s objectives and values.1
With globalization, expectations grew for such values-based decisions and actions to apply across global supply chains and business relationships. As multinational corporations sourced from manufacturing facilities around the world, concerns arose about worker well-being. Further worries focused on child labor in countries with low labor costs.
By the 1990s, multinational corporations began to acknowledge responsibility for working conditions at their suppliers’ factories in developing countries. Codes of conduct then emerged as the dominant way to operationalize this responsibility.2
Today, many supplier codes of conduct not only address labor issues but also environmental and anti-corruption standards. According to a United Nations report on sustainable supply chains, buyers and suppliers in global supply chains and networks can work together.
As the report states, “by working together, buyers and suppliers in global supply chains and networks can advance human rights including labor rights, climate resilience, environmental protection and inclusive economic growth.” They can also promote ethical business practices.³
The UN has been a major influence on companies’ supplier codes of conduct. In creating their codes, various multinational corporations have cited UN agreements and declarations. These agreements include the United Nations Global Compact, the Universal Declaration of Human Rights and the United Nations Convention Against Corruption. In addition to UN agreements, supplier codes of conduct often incorporate standards from the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work.
Standards related to three areas—labor, health and safety, and the environment—figure prominently in supplier codes of conduct. The Responsible Business Alliance (RBA), the world’s largest industry coalition dedicated to responsible business conduct in global supply chains, details standards regarding these three areas as described here:
Labor standards require freely chosen employment. Suppliers are prohibited from using forced labor, including modern slavery or workers recruited through human trafficking. The use of child labor in any stage of manufacturing is also prohibited. Working hours and wages must comply with local laws, including labor laws. Violence, bullying and verbal abuse are prohibited.
Labor standards also emphasize non-discrimination or non-harassment. In their hiring and employment practices, companies are not allowed to engage in discrimination or harassment. This prohibition covers race, color, age, gender, sexual orientation, gender identity, ethnicity or national origin, disability, pregnancy, religion, political affiliation, union membership, covered veteran status, protected genetic information and marital status.
Companies must not impinge on freedom of association and collective bargaining efforts: companies must respect the rights of workers to form and join unions. Workers cannot face retaliation in the work environment for their choices.
Health and safety standards encompass guidelines on occupational safety, emergency preparedness, managing occupational injury and illness, industrial hygiene, physically demanding work and safeguarding workers when machinery presents a hazard.
Organizations must also provide workers with access to clean toilet facilities, potable water and eating facilities. When a company supplies worker dormitories, those facilities are to be maintained to be clean and safe with onsite accommodations such as hot water and adequate lighting.
Companies are also to provide workers with appropriate workplace health and safety information and training.
Environmental standards call for companies to “identify the environmental impacts and minimize adverse effects on the community, environment and natural resources.” According to the RBA, they must also safeguard the health and safety of the public.4
The standards cover securing approvals for environmental permits, pollution prevention, resource reduction and the handling of hazardous substances. They also address solid waste disposal and recycling, water management, air emissions management and monitoring and greenhouse gas emissions reduction.
Supplier codes of conduct often also include sections on ethics and management systems.
Ethics
Ethical standards promote the highest levels of business integrity, including zero tolerance for bribery, corruption, extortion and embezzlement. They require strict compliance with anti-corruption laws such as the Foreign Corrupt Practices Act in the United States. They also mandate adherence to the Bribery Act of 2010 in the United Kingdom. These principles ensure that organizations operate with honesty and accountability in all aspects of their business conduct.
In addition, ethical standards emphasize transparency in business dealings, protection of intellectual property rights and adherence to fair business practices. They uphold fair competition free from conflicts of interest and encourage responsible sourcing of minerals with due diligence on the chain of custody. They also safeguard whistleblowers. Furthermore, they mandate the protection of personal information for all individuals with whom a company engages, reinforcing trust and respect in professional relationships.
Management systems
Companies can monitor their supplier relationships and conformance with supplier codes of conduct—as well as conformance with applicable laws—through management systems. Elements of such systems can include training on implementing procedures aligned with the code, risk management, audits and assessments to check for non-compliance and a corrective action process to address deficiencies. Such systems can facilitate continual improvement by companies as they work to achieve environmental, social and health and safety objectives.
Resources
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Footnotes
1 “A literature review of the history and evolution of corporate social responsibility”(link resides outside ibm.com), International journal of corporate social responsibility, 22 January 2019
2 “A systematic review of the literature on supplier code of conduct”(link resides outside ibm.com), International journal of contemporary management, 2018
3 “Supply chain sustainability: A practical guide for continuous improvement”(link resides outside ibm.com), United Nations Global Compact Office and business for social responsibility (BSR), 2015
4 “Responsible business alliance code of conduct”(link resides outside ibm.com), Responsible Business Alliance, 2024