Over recent years, there has been a growing emphasis on Environmental, Social, and Governance (ESG) among businesses, investors, and auditors, as sustainability practices increasingly become a central part of the business landscape. The concept of ethical sourcing is closely connected to ESG.
Ethical sourcing is about ensuring your products or raw materials are sourced from suppliers that adhere to sustainable, ethical standards even when they aren’t required to do so by law.
These standards may encompass their carbon footprint, biodiversity, human rights, and social impact.
Ethical sourcing is based on the principle that you can’t detach yourself from the bad practices of your suppliers. If the suppliers’ employees or contractors are forced to operate in a hazardous work environment, this will affect your brand as well.
According to the OpenText Survey, purchase decisions are increasingly driven by ethical considerations. Almost 90 percent of the respondents said that they’d rather buy products from companies dedicated to ethical sourcing. Ethical sourcing supports a sustainable supply chain in the following ways:
1. Positive reputation
Ethical sourcing is good PR. Regardless of whether your customers/investors are firm believers in ethical business or are mostly not interested, there’s an undeniable feel-good factor in buying from a business that shows commitment to ‘doing the right thing’.
The influence of ethical sourcing on a company’s reputation extends beyond just customer appeal. It resonates within the broader market and industry, and encourages other businesses to follow suit — creating a ripple effect that can lead to industry-wide improvements.
This proactive approach to ethical sourcing can position a company as a leader in corporate responsibility, attracting not only ethically-minded consumers but also top talent who want to work for a company that aligns with their values.
Moral credentials can be an important competitive edge. More than 90 percent of customers will abandon a brand due to unethical actions.
2. Increased market share
Consumers who’re really passionate about ethical sourcing can be extremely loyal. They have no qualms about paying considerably more for a product if that’s what it takes for them to support sustainable practices.
This deep-rooted loyalty forms a dedicated customer base that values principles over price, making them less sensitive to cost increases tied to sustainable practices.
A commitment to ethical sourcing also drives transparency and improvement, pushing companies to consistently evaluate and enhance their supply chain practices — contributing to sustainable business growth.
Aligning your business automatically makes you a magnet for this consumer base. A recent study says that 34 percent of consumers will pay more for sustainable products.
3. Reduced costs
Ethical sourcing has come a long way from a time when the cost of implementation was a major impediment. As more companies adopt ethical sourcing, sustainable practices are becoming the default. And with that comes a reduction in overall supply chain costs. The mentioned OpenText Survey found ethical sourcing can:
- decrease supply chain costs by 9 to 16 percent;
- increase revenue by as much as 20 percent;
- raise the brand value by 15 to 30 percent.
Handling heavy loads manually can put excessive strain on both human workers and the materials being moved. By utilizing lifting aids such as vacuum lifters, companies can ensure a safer working environment, minimizing the occurrence of accidents, injuries, and potential damage to goods or equipment.
This reduction in workplace accidents not only safeguards employees’ well-being but also saves on costs associated with medical expenses, worker compensation claims, and potential legal liabilities.
4. Reduced waste
Ethical sourcing can significantly cut not just your own company’s waste but that of your suppliers as well. This can happen in a number of ways, including:
- Suppliers reusing and recycling materials — When a company commits to ethical sourcing, it often influences its suppliers to adopt more sustainable practices, such as reusing and recycling materials. Suppliers might start repurposing scrap materials or defective products, leading to reduced environmental footprint. This minimizes waste generation and reduces the demand for new raw materials, lowering the environmental impact of manufacturing.
- Suppliers making changes to their fleet — Another aspect of ethical sourcing is reassessing and improving transportation methods. This might involve upgrading to more fuel-efficient vehicles or integrating electric or hybrid vehicles into suppliers’ fleets. This not only contributes to a decrease in the carbon footprint of the supply chain, but can also result in cost savings due to lower fuel consumption, and potential tax incentives for using greener technologies.
5. Reduced risk of business disruption
Ethical suppliers are more likely to operate within the straight and narrow. On the other hand, working with unethical suppliers comes with an elevated risk of disruption. A supplier associated with irresponsible resource extraction, heavy pollution, or exploitative work conditions is always in danger of being shut down or severely disrupted by:
- Law enforcement: Suppliers engaging in illegal activities may face legal actions, such as raids or investigations, leading to potential shutdowns or legal penalties.
- Regulators: Regulatory bodies can impose sanctions, fines, or operational restrictions on suppliers failing to comply with environmental, labor, or trade standards.
- Activist action: Public protests or campaigns by activist groups can draw negative attention to suppliers, leading to reputational damage and potential loss of business partnerships.
- Catastrophic loss of business reputation: If a supplier’s unethical practices become publicly known, the resulting damage to their reputation can lead to a rapid loss of clients and partners, effectively crippling their operations.
These risks underscore the importance of rigorous vetting and continuous monitoring of supply chain partners to ensure adherence to ethical standards.
6. Strengthens supplier partnerships
Ethical sourcing makes your business relationships more than just transactional. Suppliers become partners and an effective extension of your organization.
It improves integration, trust, camaraderie, communication, and the flow of information with suppliers. As all parties adopt sustainable practices, everybody wins from the resulting synergy. Supplier collaboration increases growth and profitability.
7. Improves employee morale
Employee motivation is more than a fat paycheck. People love to work for companies they’d be proud to talk about to their families, friends, and peers. 65 percent of office workers are more likely to work for organizations with strong environmental ethics.
This benefit cascades to your suppliers too. If, for instance, your supplier adopts more efficient order picking, this would reduce errors, increase workplace safety, and lower physical exertion — all of which are good for worker morale.
8. Enhances legal compliance
What is legal isn’t always ethical. But that gap is constantly narrowing as governments and regulators increase their scrutiny of companies’ carbon footprint, resource use, waste management, labor practices, and offshore sources. Ethical sourcing means your supply chain is always ahead of the curve when new legislation comes along.
Many organizations are at the reactive or cosmetic stage of ethical sourcing. They acknowledge the value of ethical sourcing and will have their suppliers sign some self-assessed paperwork and then publish this as a statement of compliance.
This checkbox approach won’t realize the substantial gains your business can derive from adopting ethical sourcing.
Instead, develop a roadmap to a full, practical implementation of ethical sourcing. Ethical sourcing no longer means having to choose between ethics and profitability. Rather, it’s central to a sustainable supply chain and long-term business success.