In a rapidly evolving business landscape, the spotlight on supplier compliance has intensified, according to the “QIMA 2024 Q1 Barometer Report,” which is based on a survey of more than 800 businesses within the international supply chain as well as QIMA’s own internal data. This scrutiny can include making sure suppliers meet various requirements and policies around social issues, forced labor, structural integrity, traceability, environmental goals, scope-3 emissions, and more.
Nearly two-thirds of respondents to QIMA’s survey acknowledged the growing importance of compliance, with 70% of businesses saying they factor at least one ESG (environmental, social, and governance) element into their sourcing decisions. However, as we peel back the data, a stark reality emerges: Despite the commitment to ESG compliance, actual progress has been slow, with 25% of respondents saying that inspected supplier factories require urgent improvement.
As businesses embrace the multifaceted dimensions of ESG considerations, an unsettling gap emerges between intention and execution. How do these intentions materialize on the ground, and why does the alleged emphasis on ethical sourcing fall short?
Unveiling discrepancies
The field audit data paints a detailed picture of the challenges in ethical compliance. A quarter of factories audited received a concerning “red” ranking, indicating a need for immediate remediation. A substantial 67% of the issues identified center around health and safety and working hours and wages.
While many of these challenges are not new and cannot be tackled through a single audit, there is an even bigger hurdle to fully addressing ethical risk in supply chains: a lack of supply chain visibility. Only 16% of businesses claim to know all of their suppliers across all tiers, indicating that a majority of companies are in the dark when it comes to how the goods within their supply chain are manufactured and procured. This visibility gap can be a red flag for disparity between ESG intentions and actual implementation.
An unfortunate consequence of focusing audits at strategic tier-1 suppliers is that this practice creates a knowledge gap. Not including all tier-1 suppliers in your audit program can leave a company with unknown—and therefore unmanageable—risk. Companies also leave themselves open to potential material risks and impacts that could affect their ESG strategy when they do not engage with lower-tier suppliers. While tier-1 suppliers might be more inclined to meet compliance standards, smaller suppliers may maintain a wide range of ESG risks yet to be uncovered due to lack of an audit. The greater problem with working with less audited factories underscores a tremendous issue: not knowing what you don't know may be the biggest risk.
Navigating the crossroads
Reviewing these findings, the implications for businesses become clear: Aligning ESG strategies with ground-level realities, enhancing supply chain visibility, and tailoring ethical compliance considerations are imperative. The data within this survey is not simply a revelation of challenges but a call-to-action for businesses to bridge the gap between intention and execution in their ethical sourcing programming.
The intricacies of ethical compliance underscore tremendous challenges and opportunities. By understanding the correlation between sourcing region maturity and compliance, businesses can develop a more sustainable future. It’s time to acknowledge the challenges and actively engage in forging a path toward ethical and responsible sourcing practices.
