Ethical trading

Progress 2007 cont...

Monitoring ethical performance

Suppliers can sometimes find it difficult to maintain the high labour standards we expect. To take action and help them improve, we need to know what is happening. We work hard to ensure that we get as detailed feedback as possible of the conditions in the factories and farms around the world that supply us. While we cannot monitor all our suppliers' sites all the time, we believe that our approach of risk assessment and auditing gives us an accurate picture of conditions.

How do we choose whom to audit?

To target our resources most effectively, we make annual risk assessments of all our primary supplier sites, based on differently weighted criteria, including the country in which the supplier is based, the type of industry and the history of the supplier. Instead of using our own judgement to decide which sites are high or low risk, in late 2007 we moved to using the independent Sedex risk assessment tool for all primary supplier sites to the UK business. The Sedex tool allows us to gather much richer information about each site, including gender and ethnicity, languages spoken, and the split between temporary and permanent labour. In 2008, we will roll out the use of Sedex risk assessments to all our international businesses as well. Factories or farms identified as low risk are obliged to undertake a self-assessment process, which can then be monitored by Tesco. This is complemented by visits from our commercial and technical teams to confirm that their low-risk status should continue. All our medium- and high-risk suppliers must undergo an extensive ethical audit carried out by independent auditors from a list approved and verified for quality by Tesco.

How many audits are carried out?

We have a target to ensure that 100% of our high-risk supplier sites are independently audited. While we achieved this in 2006, we only audited 73% of such suppliers in 2007 - even though we carried out significantly more audits than the previous year (455 compared with 221). This reflects a rise in the overall number of supplier sites, which increased by 25% and were disproportionately allocated a high risk rating as the business continues to expand into non-food areas. The introduction of the Sedex risk assessment tool in September 2007 also had an impact as a proportion of medium-risk suppliers were reclassified as high risk. As these changes did not occur until late in the financial year and resources had already been allocated to improving our auditing programme (see below), we failed to meet our target.

To help us meet our target in future years, we have increased the resource in our ethical trading team to cope with the higher number of suppliers as our business grows. And as part of a fundamental review of our ethical trading policy, we will also aim to slow or reverse the increase in the number of suppliers that we use and make sure those suppliers we do work with share our values.

What sort of audits are they?

Of more than 1,800 audits of Tesco supplier sites in 2007, most were independent, 'announced' audits. This approach is important as it enables the auditors and the supplier to ensure that: the relevant members of staff will be present when the audit takes place; workers and worker representatives can plan a representative sample of worker interviews (vital for getting an accurate picture of workers' views of conditions at the site); and that any corrective actions can be agreed at the end of the audit.

However, we recognise that there are limitations to announced audits. These concerns are shared by some NGOs, particularly where such audits fail to find evidence of poor labour standards alleged by others. As a result, since 2006 we have sought to strengthen our audit programme in several ways.

• We have undertaken an extensive series of unannounced audits to compare the findings with announced audits at the same sites and identify areas for improvement. In Bangladesh, China, India and Pakistan, 164 audits took place, which showed differences in some cases to the results of earlier announced audits. We will roll out an increased programme of unannounced audits next year.
• In August 2007 we instigated verification audits at eight of our Chinese suppliers, where we believed there might be particular problems. Verification audits differ from a standard audit in that they focus on off-site worker interviews conducted without the knowledge of factory management. The results showed that some important improvements had been made since previous interviews in 2006 but that overall little had changed and some problems remained.
• Based on these findings, we have developed an industry-leading Auditor Recognition Programme (see case study in Ethical trading - Assisting improvement).
• We have also sought to involve more multi-stakeholder representatives (such as from NGOs) on our audits to improve workforce engagement, and to enable activists to see and offer feedback on our approach.