The old-fashioned view of competitive advantage in the retail industry is one where retailers are consistently able to sell high-margin products that their competitors cannot match if there is differentiation in either the product itself or product delivery. What we are seeing today is a new generation asking different questions: where did that product come from? How was it manufactured? How does it impact the environment?
"This is more than just doing the right thing; it’s protecting the company’s reputation and brands." - Richard Karmel, Partner, Head of Mazars social performance and human rights reporting team
The only way retailers can answer these questions is through a deep understanding of their suppliers. Paul Polman, the CEO of Unilever, said, “We cannot choose between [economic] growth and sustainability—we must have both.” By addressing the risks of the impact of human rights on the supply chain, one addresses most sustainability issues.
What can retailers do to protect themselves against adverse human rights behavior in their supply chain?
The first step is for all retailers to adhere to the United Nations Guiding Principles on Business and Human Rights, which consist of 31 clear and concise principles that establish how all businesses should address and guard against negative human rights impacts.
In this respect, Mazars has collaborated with Shift, a non-profit center for business and human rights that largely consists of the UN team that drafted the Guiding Principles, to propose a standard for companies to report on their compliance with the UN Guiding Principles and a standard for auditors to be able to provide independent assurance on these reports. This project is officially supported by the UN Working Group for Business and Human Rights.
If retailers follow through with their adherence to the UN Guiding Principles, there will be a positive answer to the question, “Do your suppliers, and your supplier’s suppliers, trust you?”
We started by evaluating the impact of transparency on retailers. We found that if retailers want to take full control of their risks, maximize their contribution to society, increase their competitive advantage and thereby increase their profits, they need to move their culture away from that of legal compliance to one of moral compliance. Not such an easy job when Western business is full of lawyers and litigation! However, a number of retailers are already leading the way in human rights risk management and are reaping the benefits. Others need to catch up before consumers and investors fully grasp the issues and react accordingly.