L4M8- LO4- Application of ESG principles Flashcards
What is due dilligence?
The process of ensuring a prospective supplier is who they claim to be and is capable of delivering the services the the standard required.
Includes:
Financial checks
References
Legal set up
What is ESG?
Environment Social Governance
A measurable sustainability assessment. It refers to the principles, procedures and activities that can impact on people and/or the wider natural environment as well as the governance that determines the organisations values and behaviours.
Need to consider not only your own organisation but also those that you will be working with
What are the key ESG considerations?
Bribery
Corruption
Fraud
Cartels
Child Labour
Modern Slavery
Sustainability (Triple bottom line)
Environment
ED&I
Values
Human Rights
What is bribery?
Offer of a gift or financial gain to persuade, influence or incentivise a decision
What is corruption?
Dishonest conduct often by senior members within an organisation. Can include bribery
What is fraud?
Financial deception
What is a cartel?
A group of organisations that work together to prevent competition, raise prices and gain control of a market
Think about milk pricing across major grocers where they agreed to raise the price of milk impacting consumers and ultimately fined £116m
Why is ESG important to each sector?
Private sector- Policy is scrutinised by investors and consumers so failure to consider ESG could result in reputation damage, reduced investment and reduced sales
Public sector- media and public scrutiny may result in unjustifiable use of public money
Tertiary- exist to promote social, environmental or cultural objectives and failure to adhere to ESg ultimately contradicts their purpose
What is sustainability?
Holistically considers the governance of an organisations environmental, social and economic viability to ensure they exist for the long term whilst meeting the needs of the present
Often encompassed by the triple bottom line or 3Ps- People, profit, planet
what is ED&I?
Equality Diversity & Inclusion
Defined as equality ensuring that every individual has fair and equal treatment in opportunities regardless of their background, identity or experience.
What are human rights?
Principles based on shared values that are accepted as belonging to all individuals, regardless of background
How can the 3 dimensions of the triple bottom line be measured?
Profit: Amount of money made, organisations net worth
E.g. a vegetable packing operation generates enough money to expand and increase its number of employees
People: Social value, perception in the community/globally
e.g. A large call center donates its end of life computers to a local youth club
Planet: Impact on environment, policies on recycling/sustainability
e.g. A driving instructor uses a hybrid car to reduce emissions
What is a social impact and give factors that measure it
This is the effect an organisation can have on the community and its stakeholders. Overall, organisations should strive to make a positive social impact and can be formed of many elements.
Impact investing-Impact investing involves making investments to help create beneficial social or environmental effects while also generating financial gains.
Health
Social entrepreneurship- a person who pursues novel applications that have the potential to solve community-based problems
Human and civil rights
Education
Public sector and public policy
Corporate social impact
International development
Environmental sustainability
Non profit and social enterprise
EXAMPLE: Ocado have a policy called ‘Planet Together’ which is focusses on net zero by 2040, making healthy eating easier, supporting food charities, responsible packaging and future proofing of the supply chain
An organisations social impact is made up of what?
Ethical behaviour
Environmental behaviour
Sustainable behaviour
Political and legal behaviour
Economic
Cultural
Technological
Donations
All sectors should have a positive social impact
What is social value?
The output from a contract that benefits society at large rather than the purchaser or end user
How does Ethical behaviour contribute to social value?
Good ethical conduct, compliance with a code of ethics, international standards and any regulations will result in an organisation behaving in an appropriate way, resulting in good for the society
Good ethics results in lower staff turnover as it will be considered a better place to work
If you have a bad reputation you will find it hard to recruit and maintain a workforce. For a charity it may also affect donations
How does environmental behaviour contribute to social value?
Society expects organisations to take responsibility for its waste
Environmental behaviour is demonstrated through its approach to pollution, how it deals with waste and its recycling policy
If you create pollution then it will have a negative social impact on the local or even global community.
If products are in non recyclable packaging they may not be purchased- EXAMPLE- think about packets of crisps on the floor
Many third sector organisations exist with the purpose of tackling environmental issues
What is a third sector organisation and what is a tertiary sector?
Third sector organizations (TSOs) are non-governmental, non-profit organizations that are not part of the public or private sectors. They are also known as the voluntary and community sector, civil society, or charities.
Tertiary sector organizations are businesses that provide services to consumers and businesses. The tertiary sector is also known as the service sector, and it is the third sector of the economy.
How does sustainable behaviour contribute to social value?
Relates to the triple bottom line.
If being sustainable the organisation shows the community that it is actively replenishing the resources and will have a favourable impact on society
Those removing or damaging natural resources will likely have a negative impact and therefore a damaging reputation
How does economic behaviour contribute to social value?
Economic behaviour includes pricing and inflation/interest rates
In the private sector the aim of an organisation is to make a profit but should be competitive (EXAMPLE- think about price matching).
If prices are perceived to increased for unjustifiable reasons then it would have a negative impact on consumers (EXAMPLE- think about profiteering)
If you charge unfair prices you often see negative media coverage (EXAMPLE- think about exploitation of farmers)
How does political and legal behaviour contribute to social value?
Politicians influence or create legislation which organisations must adhere to. These include taxes, salary, working hours, trade regulations, quality standards
If an organisation is not paying its taxes it is likely going to get a bad reputation. EXAMPLE in 2013 Global firms such as Starbucks, Google and Amazon have come under fire for avoiding paying tax on their British sales.
If organisations are associated with political parties there could also be a culture of negative social value as people may feel forced or unable to purchase
How does cultural behaviour contribute to social value?
The way an organisations culture is portrayed is through 6 elements.
if these elements are deemed to be unacceptable within the community then the impact would be a negative one
If there is support for workers, training knowledge, offering apprenticeships, sponsoring positive events then it can demonstrate they care about current and future employees
What are the 6 elements of culture? SPORCS
Symbols (logo)
Power structures (who has power)
Organisation structure (e.g. finance tends to be hierarchical)
Control systems (how are staff rewarded and governed)
Rituals and routines (When is the lunch hour, national behaviours e.g. in spain a siesta is normal)
Stories (history, background, legacy)
How does technological behaviour contribute to social value?
Organisations are often under pressure to keep up with the numerous technological advances which can be seen as a positive social impact as it could create jobs in technology
However, technology can also result in a lack of requirement for human input so jobs could be lost (example- self scan checkouts)
How does donating/giving behaviours contribute to social value?
This is not just down to the third sector. Actively working in the community and being involved in projects and events that contribute towards a positive social impact
EXAMPLE ocado supporting community shop
What is the result of poor social value?
Reduced brand loyalty
Difficulty in recruiting
Negative media coverage
Reduced sales/profit
Reputational damage
What is the result of good social value?
High employment
Fair wages
Low pollution
Sustainability of resources
Engagement and involvement with local people and organisations
With good social value results it is likely that you will keep a good customer base and maintain a good reputation. Third sector can continue to get donations and public sector will receive less public scrutiny/bad media coverage
Give some examples of sectors and how they could measure social value/impact?
Agriculture- higher yields through technology and training
Education- Greater number of learners wishing to get qualifications
Training- more skilled workforce in the community
Pollution- Lower noise, smell and emissions
Average wage- more money in the community
Employment- greater number of people in work
Give examples of accreditations that suppliers could have that show a commitment to ESG?
A statement could be provided during supplier identification, evaluation or selection which demonstrates the commitment. May want to check the professional register of an organisation which is a list managed by the awarding body detailing all the individuals/ organisations who are members or hold an accreditation
Carbon trust
CIPS
Fairtrade
Rainforest alliance
IEMA
ILO
Red tractor
LEAF
ETI
Anti slavery international
What is the Bribery Act 2010 and who does it apply to?
Applies to:
Companies registered and trading in UK
Companies registered in UK and trading overseas
International companies trading in the UK
Offences:
Offering, promising or giving an advantage
Bribery of a foreign public official
Failure to prevent a bribe from being paid
Which procedures can be put in place to prevent bribery?
Procedures should be clearly defined and documented and made available to every individual
Top level commitment from high level executives
Risk assessments- regular checks on the likelihood of bribery
Due diligence- documented procedure should cover and be enforced throughout the supply chain
Communication- ongoing training and updates
Monitoring and reviewing
What is a facilitation payment?
A form of bribery in which a sum of money is payable to speed up or secure the performance of an action. In some cultures it is normal practice
What affects does bribery have on the marketplace?
Markets do not function properly (eg. think about PPE scandals and VIP lanes which have been subject to questioning)
Competition is reduced
Transparency is reduced
Suppliers lose business
Buyers make decisions that do not add value
Prices are often higher
Give examples of how bribery can present itself?
Applies to all sectors:
Securing of a contract
gaining knowledge
Winning of an order
Ignoring poor performance
Obtaining falsified documentation
What is a kickback?
A kickback is an illegal payment intended as compensation for preferential treatment or any other type of improper service received. The kickback may be money, a gift, credit, or anything of value. Paying or receiving kickbacks is a corrupt practice that interferes with an employee’s or a public official’s ability to make unbiased decisions. Kickbacks are often referred to as a type of bribery.
Give examples of what corruption may include?
Bribery
Deception- deliberate effort to present false information, withhold information or influence ay stage of the procurement cycle which would be detrimental to certain parties
Abuse of power
Embezzlement- taking of money or property by a person to whom it has been entrusted (e.g. think of captain toms daughter)
What are the 6 styles of influencing? CUREAI
Coalition- united approach supported by team members
Upward appeal- requesting input for senior management
Rational persuasion- Bringing in logic and facts to clarify
Exchange- trading favours
Assertive- forceful, directive, using deadlines
Ingratiating- charm/flattery
What are French and Ravens types of power?
Reward: Involves offering something the other party wants, such as a contract, access to markets, or other benefits
Coercive: Involves the threat of negative consequences, such as withdrawing from a deal, imposing sanctions, or damaging reputation
Legitimate: A base of power
Expert: Involves using knowledge, technical expertise, or unique insights to sway the other party
Referent: Involves building rapport and trust with the other party
Informational: Also known as persuasion,
Give an example of embezzlement?
The taking of money or property by a person to whom it has been entrusted
Questions over Nicola Sturgeons husband, Peter Murrell who was chief executive of the SNP and misuse of SNP funds of £667k which was meant to be used for independent movement
The daughter of Captain Sir Tom Moore admitted her family kept profits from three books he had written - reported by The Sun to be £800,000. Hannah Ingram-Moore told TalkTV’s Piers Morgan, in an interview due to air on Thursday evening, that her father wanted them to get the profits from book sales
What are some examples of fraud?
Kickbacks- money or gifts paid to the bribe taker for services performed
Corrupt influence- accepting or ordering more than what is genuinely required
Collusion- Groups of suppliers working together to submit multiple bids and splitting the profit between them
Bid rigging- contract has been pre agreed to the supplier prior to the RFQ or tender process
Invoice fraud- charging suppliers or customers a higher labour cost than what was actually done
Subs- changing the product or service to something under the agreed contract
False claims- filing false documentation for damages to suppliers, tax returns or governments to insurance companies
What are human rights?
Statutory ways in which an individual expect and should be treated. These should be carefully examined when assessing the ESG of procurement
Include:
Dignity
Fairness
Respect
Equality
Freedom
Relate to the following:
Sexual orientation
Gender
Religious beliefs
Cultural values
Ethnicity
Nationality
5 basic rights are:
Right to equality
Freedom from discrimination
Right to life, liberty and personal security
Freedom from slavery
Freedom from torture
What are the 5 basic rights according to the universal declaration of human rights?
Procurement professionals should investigate suppliers policies and practices in relation to the treatment of their workers and associated supply chains.
Right to equality
Freedom from discrimination
Right to life, liberty and personal security
Freedom from slavery
Freedom from torture
What is Modern Slavery?
Modern slavery is the illegal exploitation of people for personal or commercial gain through force, coercion, or other means.
Includes:
Human trafficking
Bonded labour- aka debt bondage
Forced labour
Child labour
Domestic slavery
Common examples are found in UK in car wash companies, hospitality and thing like nail bars
EXAMPLE- think about workers in berry picking and seasonal workforce
What is ISO 14001?
an international standard for environmental management systems that helps organizations reduce their environmental impact
What 4 factors should be considered when thinking about environment impact?
Pollution- think about emissions, noise, smell, logistics, waste disposal
Renewable energy- produced from rain, wind, sun, water, (example with DGM when they put solar panels on top of the office)
Recycling- dont want everything going to landfill, packaging that can be recycled (think about IFCO or paper packaging with berryworld, or reuse concept for pasta and rice on Ocado)
Sustainability- malthusian trap, may be a paper company that replants trees
What is the Malthusian trap?
Suggestion in 1798 that increased population would eventually hit a tipping point where resources are extracted quicker than they can be replenished
How can ESG practices be monitored?
KPIs
Scorecard/dashboards
Regular reviews
Up to date accreditations
Up to date with legislation
Media awareness
Give some examples of KPIs that can measure ESG practices
How many complaints have you received around diversity
How much packaging you use is recyclable
What percentage of your energy is renewable
How many employees leave each year
How many additional deliveries are there per order? Awareness of pollution related challenged
Give examples of behaviours that negatively impact ESG
Inhumane working conditions
Recyclable waste dumped at landfill
Unequal treatment
Disposal of hazardous waste in water ways
Unacceptable living conditions for animals
Give potential outcomes of negative ESG behaviours
Suppliers closing down
Shortage of products
price rises
Reputation by association
stakeholder backlash
Loss of investment
Reduction in sales/profit
What is a reporting framework?
A set of criteria used to measure an organisations performance. Often they are based on financial reporting e.g.
Cash flow statement
Profit/loss
Statement of financial position
Shareholder value
Predicted versus achieved sales
Future budget
However, organisations will not be judged solely on financial outcomes. The impact it has on the environment, social factors, governance are also important.
E.g. social value will impact brand reputation, pollution, potential for higher yields, better community training.
Give qualitative and quantitative measures of ESG
Qualitative:
Stakeholder perception
reputation
good ethical practices
Benefit to the economy
Quantitative:
Reduction in emissions
Funding donated
Training courses delivered
Percentage of resources replaced
Think of NPS scores for Ocado
Why would a JIT model have a negative ESG impact?
Although the organisation will benefit from lower stock holding (storage and insurance), help cash flow and there will be less waste in terms of materials, there can be negatives for example the need for more deliveries and packaging
Ocado use a JIT model, meaning in theory we have lower stock holding costs but higher number of deliveries
What would be some negative effects of holding too much inventory?
Cost of storage
Wastage/spoilage
Insurance
Sunk costs
Reduced flexibility
Risk of obsolescence
Lower profits- Excess inventory can impact profit margins.
With increased international trade organisations are looking for global standard. Give different ISOs for ESG standards
ISO14001 environmental management
ISO26000 for social responsibility and sustainability
ISO20400 sustainable procurement
ISO37001 for anti bribery
UK have the BSI- British standards institute
America has ANS- American national standards
What is ETI?
Ethical trading initiative
We support businesses to identify and reduce human rights risks in supply chains, through support, guidance, and collaboration across our membership.
By removing waste from the supply chain organisations can improve environmental aspects of ESG. Give examples of how this could be done?
Transport
Inventory
Motion
Waiting
Over processing
Over prod
Defects
Skills
What are the key things that someone in procurement needs to consider to ensure ESG is covered?
Engaging stakeholders
Collaboration and cooperation
Analytics/KPIs
WLAM
Social impacts
Ethics
Sustainability
Environment
Value for money
Governance
Antibribery and corruption
Compliance
What was the UK governments resources and waste strategy in 2018?
Reduce waste: The strategy sought to minimize waste and promote resource efficiency.
Support recycling: The strategy aimed to support a well-functioning recycling infrastructure and increase recycling rates.
Tackle food waste: The strategy sought to halve food waste by 2030.
Address plastic pollution: The strategy aimed to address the environmental impacts of plastic packaging.
Extend producer responsibility: The strategy aimed to ensure producers pay the full costs of recycling or disposing of packaging.
Introduce a deposit return scheme: The strategy aimed to increase the recycling of single-use drinks containers.
Encourage longer-lasting products: The strategy aimed to encourage manufacturers to design products that last longer.
What is a code of ethics?
A set of morals, principles and values set out by an organisation to state what it deems as acceptable behaviour and conduct. It can outline the values and missions of the organisation to show how professionals should perform within their role
What is Nolan’s 7 principles in public life? ALOOSHI
Many organisations adopt the seven principles into their code of ethics to establish the principles on which values and behaviours should be based
Accountability
Leadership
Openness
Objectivity
Selflessness
Honesty
Integrity
What social aspects would a code of ethics cover?
Modern slavery
Human rights
Bribery, fraud, corruption
ED&I
Mission statement and values
Conflicts of interest
Whistle blowing
Non compliance
What is a conflict of interest? How do you deal with them?
Conflicts of interest can affect any sector and cause reputational damage
This is where a person within an organisation stands to gain something personally from a business transaction or opportunity.
This could be financial, professional, materialistic, personal or prejudicial
Best way to deal with them is to include detail in the code of ethics:
Disclose any suspected conflict of interest to management
Avoid situations where conflicts of interest occur
What is the CIPS code of conduct?
Expected that all CIPS members are expected to follow. It outlines the actions and behaviours that CIPS members must follow.
It promotes ESG principles and responsible, ethical sourcing in the procurement and supply chain
Enhance and protect the standing of the profession- No unethical or irresponsible sourcing
Maintain the highest integrity in business relationships- act professionally and disclose any conflicts of interest
Promote the eradication of unethical business practices- conduct due diligence on suppliers and report any concerns
Enhance the proficiency and stature of the profession- gain knowledge and setting positive examples
Ensure full compliance with laws and regulations- comply with the countries laws
Give detail about the CIPS code of conduct stage 1: Enhance and protect the standing of the profession:
Summary: Never engaging in unethical or irresponsible sourcing and related activities
Never engaging in conduct, both professional and personal, which would being CIPS into disrepute
Not accepting gifts or inducements
Not allowing offers of hospitality or with a vested interests to influence my business decisions
Understand that behaviours outside of work may influence how I am perceived as a professional
Give detail about the CIPS code of conduct stage 2: Maintain the highest standard of integrity in all business relationships:
Summary: Always acting in a professional manner, disclosing any concerns or conflicts of interest and keeping the confidence of all parts of the supply chain
BCDE
Be truthful
Confidential
Declare conflicts of interest
Ensure accurate info given
Reject improper business behaviour
Never use my position of authority for financial gain
Declare any conflicts of interest
Ensure information I give is accurate and not misleading
Never breaching confidentiality
Striving for genuine fair and transparent competition
Being truthful about my skills, experience and qualifications
Give detail about the CIPS code of conduct stage 3: Promote the eradication of unethical business practices
Summary: Regularly and thoroughly conducting due diligence on suppliers, reporting any concerns and keeping up to date with regulations by expanding my knowledge
Foster awareness of human rights, fraud, corruption
Responsibly managing any business relationships where unethical practices come to light
Undertaking due diligence on supplier relationships in relation to forced labour and human rights abuses
Continually developing my knowledge of forced labour, human rights, fraud, corruption
Give detail about the CIPS code of conduct stage 4: Enhance the proficiency and stature of the profession:
Summary: Continually striving to gain knowledge through professional development and setting positive and ethical examples
Develop knowledge and increase personal skills
Foster the highest standards of professional competence
Optimising the responsible use of resources which I have influence over
Give detail about the CIPS code of conduct stage 5: ensure full compliance with laws and regulation
Summary: Complying with the countries laws to which the procurement function has agreed and if there is no agreed law, ensuring that the CIPS code of conduct is followed at all times
Adhering to laws
Fulfilling contract obligations
Follow CIPS guidance of professional practice
