Why is it important to have a Code of Conduct for Suppliers?

TABLE OF CONTENTS

• I. What a Code of Conduct consists of
• II. Responsible contracting

I. What a Code of Conduct consists of

A Code of Conduct consists of voluntary and self-imposed guidelines according to which a company intends to act, often concerning its treatment of people and the environment. The guidelines serve as an orientation for employees and all parties involved in the company's activities. A clearly formulated and communicated Code of Conduct is important for the collaboration with suppliers.

A Supplier Code of Conduct is created to assure buyers that their suppliers act following the company's standards.

A Supplier Code of Conduct can help manage expectations towards your suppliers better. It also supports the company in the case of grievances at the supplier location. Such a code of conduct is particularly essential if your company is sourcing from high-risk countries. 

For this purpose, such a Code of Conduct contains:

• Fair labor standards in compliance with child labor, anti-discrimination, health and safety laws and regulation on working hours and fair working conditions.  
• Environmental guidelines regarding the production, used materials and transportation.
• Business ethics to serve the implementation of anti-corruption measures while ensuring fair business practices and management of partner relationships along the supply chain.
• Monitoring and reviewing the requirements of the Code of Conduct serve to address the performance of suppliers, initiate assessments, and integrate new procurement processes, as well as training for employees. 

International standards exist that can serve as guidelines for specifying a code of conduct, for example, the UN Universal Declaration of Human Rights, UN Global Impact, UN Guiding Principles on Business and Human Rights (UNGPs), ILO Conventions, ISO 14000 or the SA 8000. Human Rights

II. Responsible contracting

Instead of a classical Supplier Code of Conduct (SCoC) that exclusively focuses on the supplier's obligations, best practice is to align Codes of Conducts to responsible contracting principles by incorporating buyer's responsibilities into a mutual or two-way Code of Conduct.

More information on due-diligence-aligned contracting can be found on the website of the Responsible Contracting Project: https://www.responsiblecontracting.org/

Requirements from the LkSG (Supply Chain Due Diligence Act), CSDDD (Corporate Sustainability Due Diligence Directive) and contract law:

• Appropriate and effective Measures (§§ 6 para. 5, 7 para. 4, 4 para. 2, 3 para. 2, Art. 3 para. 1 o)

• Consideration of own causal contributions and incentives (e.g., through purchasing practices)

→ The requirement "Appropriate and effective Measures" relate to the LkSG §§ 6 para. 5, 7 para. 4, 4 para. 2, 3 para. 2 and to the CSDDD Art. 3 para. 1 o. 

Both laws require companies to take appropriate and effective measures to identify and mitigate human rights and environmental risks in their supply chains.

→ The "Consideration of own causal contributions and incentives" is relevant in the context of the CSDDD Art. 6 para. 1 b, as it requires companies to consider their own contributions and incentives that could have a negative impact on human rights and the environment.

• No undue disadvantage (Section 307 BGB) or fair to SMEs (Art. 10, 11)

→ "No undue disadvantage" refers to contract law, specifically to Section 307 of the German Civil Code (BGB), which prevents undue disadvantages in general terms and conditions. Fairness towards SMEs (small and medium-sized enterprises) is a requirement that can be found in the CSDDD Art. 10, 11.

• Joint responsibility/shared responsibility instead of passing on and "zero risk" guarantees

• Appropriate sharing of costs and burdens (e.g., through appropriate purchasing practices)

→ The "Joint responsibility/shared responsibility instead of passing on and 'zero risk' guarantees" requirement fits both the LkSG §§ 3 para. 2, 6 para. 4 and the CSDDD Art. 4, Art. 7.

Both laws promote shared responsibility and the avoidance of "zero-risk" guarantees, which are unrealistic and unfeasible.

→ "Appropriate sharing of costs and burdens" specifically is part of the CSDDD Art. 7 para. 6, which requires companies to share costs and burdens fairly in order to promote sustainable business practices.

• Empowerment before withdrawal and responsible exit

• Avoiding negative incentives and identifying and addressing negative consequences

→ The "Empowerment before withdrawal and responsible exit" requirement is also part of the CSDDD Art. 7 para. 5. Companies are expected to first seek to empower and support their suppliers before withdrawing and to have a responsible exit plan.

→ "Avoiding negative incentives and identifying and addressing negative consequences" fits both laws, the LkSG §§ 6 para. 6, 5 para. 3 and the CSDDD Art. 6 para. 1 e, Art. 8 para. 3 as both prescribe avoiding negative incentives and recognizing and addressing negative consequences. 

Social Accountability International (SAI) offers a Template for a "Buyer-Supplier Mutual Code of Conduct": https://sa-intl.org/resources/mutual-code-of-conduct/
SAI is a global non-governmental organization advancing human rights at work.