Why US companies should invest in sustainable sourcing
In recent decades, sustainable sourcing has gone from a nice-to-have to a must-have for businesses. This growth is largely driven by legislation, investor and shareholder initiatives, demand from consumers and employees, and trade unions for workers across global supply chains.
What is sustainable sourcing?
Sustainable sourcing is when a business ensures that they proactively source products and services using socially and environmentally sustainable practices throughout each tier of their supply chain. They ensure their practices do not have a negative impact on people or the planet.
Benefits of sustainable sourcing
Aside from altruistic reasons and wanting to do what’s best for people and the planet, there are many other benefits for businesses investing in sustainable sourcing. There’s a strong case to make to any executive team. Those benefits include:
- Reduced costs: Having a responsible sourcing program can help businesses identify risks within their supply chain and therefore prevent costs associated with remedying issues after they have occurred.
- Improved financial performance: Many studies on businesses investing in ESG and sustainable practices (e.g., companies in the Morningstar ESG index) have shown that these businesses are outperforming those that do not make similar investments.
- Reputation: Brands can prevent negative news stories relating to their suppliers and business practices by taking a proactive approach to sourcing sustainably and responsibly. They can also leverage their ESG and sustainability efforts to build a positive brand reputation with consumers, future and current employees, partners, and investors.
- Enhanced relationships: Businesses can build stronger relationships with suppliers by working closely with them, tackling sustainability challenges that come up, and building on opportunities that they may find.
- Legal compliance: There are several laws in the US and around the world that require businesses to source sustainably and to take efforts in eliminating and preventing unethical and unsustainable business practices from within their supply chains. In the next section we will detail the different laws in the US.
It’s also important to look at the bigger picture when it comes to the benefits of investing in sustainable sourcing.
“The value of your biggest customer’s contract with you may soon be dependent on being able to demonstrate that you have a sustainability policy, or that you have a human rights policy.”
From Sedex Head of Consulting, Bex Hall, during a webinar on responsible sourcing in the US.
Companies are beginning to demand that their partners and suppliers have policies and programs in place for sustainable business practises. It is wise to be proactive about this and position your business to access the potential business opportunities.
Sustainable sourcing laws in the US
Within the past few years there has been a growing trend worldwide for countries passing laws with a focus on sustainable and ethical sourcing, particularly when it comes to forced labor in supply chains. Forced labor, the most prevalent form of modern slavery, is when a worker does not have the freedom to quit a job or leave an employer when they wish to, with reasonable notice or without facing negative consequences.
The first law passed in the US focusing on sustainable sourcing and preventing forced labor was the Tariff Act of 1930. This Act allows the US Customs and Border Protection (CBP) to issue Withhold Release Orders (WROs) and detain imported goods that were created with forced labor.
In recent years there has been an increase in laws passed federally, as well as at the local level for some states and municipalities. US laws focused on sustainable sourcing, passed on a regional, federal, and local level, that impact businesses include:
1930: Tariff Act of 1930/Withhold Release Orders
1984: Federal Acquisition Regulation (FAR)
2010: California Transparency in Supply Chains Act (California)
2015: Trade Facilitation and Trade Enforcement Act
2016: Global Magnitsky Act
2020: United States-Canada-Mexico-Agreement (USMCA) Forced Labor Provision
2021: Uyghur Forced Labor Prevention Act
2022: Garment Worker Protection Act (California)
Future: There are also several bills that are currently under development, including the FABRIC Act and the Slave-Free Certification Bill.
While each of the laws listed have unique requirements, they all require businesses to have a proactive due diligence process in place to make sure that there are no negative human rights, environmental and business ethics issues within the supply chain.
The strictest law listed is one of the more recent laws passed, the Uyghur Forced Labor Prevention Act. The US Government and CBP believe that goods created in the Xinjiang region of China are likely to have been made using forced, child or indentured labor. The law prohibits any goods and services from the Xinjiang region from entering the US, unless the importing company can present strong and compelling evidence that no forced labor occurred throughout in the supply chain.
How to source sustainably
You can take a proactive approach to sustainable sourcing by mapping your supply chain, regularly conducting supplier assessments, identifying where the greatest risks lie within your supply chain, and creating preventative measures to solve issues before they occur. It is also important to establish thorough remediation plans for when issues occur, so that your business responds to these as quickly and appropriately as possible.
Many organizations establish policies for their sustainable business programs. One example would be having a supplier code of conduct to communicate the expectations you have to your suppliers, particularly before a new relationship begins.
Lastly, it is important that your efforts are documented and reported on so that you can easily comply with government legislation if needed. For example, with the Uyghur Forced Labor Prevention Act, business must be able to prove that there is no evidence of forced labor in their supply chain if their imported goods touched the Xinjiang region of China at any point.
Want to learn more about sustainable and responsible business practices? Check out our webinar on investing in responsible sourcing in the US: