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25 September 2012 | Anna Reynolds
Companies that fail to take responsibility for working conditions in their supply chain face major risk to their reputation.
According to the FTSE Group, businesses that fail to deal with potential problems could lose their place in its FTSE4Good index, which measures the corporate responsibility performance of companies.
In its semi-annual review of the index managing director, environmental, social and governance at the FTSE Group Kevin Bourne said: “According to the assessment against the FTSE4Good supply chain labour standards criteria, out of the approximately 400 companies identified as having high- or medium-level exposure to supply chain labour risks, over a third of the companies have not demonstrated that they have taken any action.
“The FTSE4Good research has implications for portfolio managers and for buyers. Investor concerns may be reflected in buying policies, with supply chain risk factors being included as buying criteria.”
He added: “In order to maintain dialogue and relationship with their investors, companies are increasingly required to communicate with their buyers, so that the company can respond appropriately to the supply chain risks inherent in their business.”
The index was introduced in 2001 and since extending its supply chain labour standards to additional products and sectors, the number of companies it now applies to has almost doubled from 164 to around 400. Initially, the criteria applied only to companies designated as high risk that manufactured clothing, accessories, footwear, toys and food. But because of growing attention on other sectors such as electronics, home furnishings and consumer products including jewellery, it has expanded the scope and introduced a new medium-risk category.
Businesses need to meet criteria on environmental management, climate change, supply chain labour standards, human and labour rights and countering bribery, to keep their place in the index. The FTSE4Good criteria identifies which companies face risks in their supply chain and places them into risk categories by assessing how well they are managing the issue.
Seven companies have so far been deleted from the index for not meeting these criteria, including Dr Pepper Snapple Group, Mattel and Best Buy.
This latest review has seen21 new additions to the index from six countries, including the US, UK, Australia, Japan, Switzerland and Canada. Jewellery retailer Tiffany & Co is one of the larger companies to enter.