Process requirement 4
Excerpt from the contract clause
Supplier shall use its leverage to prevent and mitigate actual and potential adverse impacts linked to Supplier's operations, by
a) assessing risk suppliers based on the commitments in the Supplier Code of Conduct and the due diligence process, with a particular focus on the most significant risks identified,
b) establishing action plans for risk suppliers, with a particular focus on the most significant risks identified,
c) forwarding the commitments in the Supplier Code of Conduct (section 1) and the due diligence process (section 2) in writing to risk suppliers,
d) requiring risk suppliers to disclose their supply chains in accordance with the supply chain transparency requirement (section 4.4) and
e) ensuring the possibility of temporarily suspending deliveries from a sub-supplier while preventive and mitigating measures are implemented and, in the event of severe deviations that remain unaddressed, the possibility of terminating the contract with the sub-supplier concerned.
Using leverage
You shall use your leverage to prevent and mitigate actual and potential adverse impacts linked to your operations.
Linked to
You are linked to an adverse impact caused by a sub-supplier or another party, regardless of where in the supply chain it occurs. The linkage is defined by the relationship between your products, services, or operations and the adverse impact. Being linked to an impact is not the same as direct sourcing.
Examples of linkage
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You sell laptops from a brand whose manufacturer sources cobalt mined using child labour.
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You sell shirts with embroidered labels, where the manufacturer has outsourced the sewing process to child labourers who work from home.
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You sell bananas grown with pesticides that contaminate the surrounding community’s water supply and affect the fertility of workers.
If you are linked to an adverse impact, you are not directly responsible for it — the responsibility lies with the sub-supplier or party that causes or contributes to the adverse impact.
However, you have a responsibility to use your leverage to influence the party causing or contributing to the adverse impact to cease, prevent, or mitigate it.
Leverage is considered to exist where the supplier has the ability to effect change in the wrongful practices of the party causing the adverse impact.
The approach depends on the leverage you have over the sub-supplier or the party causing the harm, the impact itself, as well as industry and business relationships. Factors such as direct control, the importance of the business to the sub-supplier, and your market influence may also play a role.
Here are examples of how you can use your leverage:
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Forward commitments and the due diligence process throughout the supply chain.
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Require transparency from sub-suppliers regarding their supply chains.
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Choose certified products.
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Support sub-suppliers in developing and implementing action plans.
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Monitor sub-suppliers' actions to prevent and mitigate adverse impacts.
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Engage in dialogue with sub-suppliers via letters, emails, calls, or meetings.
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Build sub-suppliers' capacity through training, management system upgrades, grievance mechanisms, and protective equipment.
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Offer long-term contracts to sub-suppliers that improve their sustainability efforts.
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Facilitate financing through loans, direct support, or low-interest rates.
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Collaborate with other buyers through industry organisations and multi-stakeholder initiatives.
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Encourage sub-suppliers’ participation in industry organisations and multi-stakeholder initiatives.
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Collaborate with authorities to improve legislation, oversight, and enforcement measures.
If you lack leverage, you should consider ways to strengthen it, such as through long-term relationships, commercial incentives, dialogue with management, or collaboration with other stakeholders in multi-stakeholder initiatives.
In the contract clause, we have defined five ways to exercise leverage over risk and sub-suppliers.
Assessing risk suppliers
You shall assess risk suppliers based on the commitments in the Supplier Code of Conduct and the due diligence process, with a particular focus on the most significant risks identified.
The supplier assessment shall include:
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Identified actual and potential adverse impacts.
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The risk supplier’s capacity and willingness to apply due diligence.
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The adequacy of the due diligence measures implemented.
You shall assess new risk suppliers before entering a business relationship, existing risk suppliers that have not yet been assessed, and existing risk suppliers when the context is likely to have changed.
There are several types of supplier assessments. Below, we outline the most common ones.
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Instructions describing how you assess risk suppliers based on identified adverse impact, their capacity and willingness to apply due diligence, and the adequacy of the due diligence measures implemented.
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Self-assessments or pre-qualifications, for sample products.
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Reports from site visits or inspections, for sample products.
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Reports from multi-stakeholder initiatives, for sample products.
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Third-party reports, for sample products.
Establishing action plans
You shall establish action plans for risk suppliers, with a particular focus on the most significant risks identified.
This requirement is not about the action plans risk suppliers establish during audits. It concerns your own action plans, which shall outline your measures and expectations on risk suppliers. Depending on your leverage and relationship, these plans can be developed in consultation with risk suppliers.
The action plans shall be documented, communicated with risk suppliers if developed in consultation, and include:
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Proposed measures – descriptions of how you intend to prevent and mitigate the adverse impact, including the identified root cause.
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Timeframes – dates for when the measures must have been implemented.
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Responsible persons – persons responsible for the implementation of the measures.
In the supply chain risk assessment template we have developed, available under Templates process Requirement 4, we help you create action plans to address adverse impacts in the supply chain.
Below are proposed measures for the examples provided above.
Examples of linkage
Proposed measures
You sell laptops from a brand whose manufacturer purchases cobalt that is mined using child labour. | Influence the brand to join the Responsible Minerals Initiative and steer their manufacturers towards sourcing cobalt from approved smelters and refiners. Consider ending the relation if they are not willing to improve their practices. |
You sell shirts with embroidered labels, where the manufacturer has outsourced the sewing process to child labourers who work from home. | Emphasize that child labour must not occur and follow up to ensure that the manufacturer takes steps to facilitate the transition away from child labour. End the collaboration if the manufacturer is not willing to improve its work. |
You sell bananas grown with pesticides that contaminate the surrounding community's water supply and affect the fertility of workers. | Choose organic and fair trade bananas to encourage suppliers to become certified producers, together with other buyers. Ensure that the chosen certification covers both environmental and social aspects. |
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Action plans for sample products.
Forwarding requirements
You shall forward the commitments in the Supplier Code of Conduct and the due diligence process in writing to risk suppliers.
The most common ways to forward commitments and due diligence are through contracts and codes of conduct. There is no requirement to use the Swedish Regions’ Supplier Code of Conduct or the exact contractual clause on due diligence for sustainable supply chains.
However, you should ensure, as far as possible, that the commitments in the Supplier Code of Conduct are covered. This often requires a comparison between the regions’ code of conduct, your code of conduct, and the policies of the risk suppliers. But since it is not always feasible to ensure full alignment, we have outlined below how to approach multi-stakeholder initiatives' codes of conduct, brands that do not sign codes of conduct, and sustainability declarations. Another way of solving the problem with different content in yours and risk suppliers policies is to refer to both in agreements.
For the due diligence process, it is sufficient to communicate that the risk supplier shall work in accordance with the UN Guiding Principles on Business and Human Rights and the OECD Due Diligence Guidance for Responsible Business Conduct. This meets our requirements.
If you choose to use the Responsible Contracting Project’s model contract clauses, you will automatically include adequate provisions on due diligence, including on forwarding.
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Instructions for forwaridng the commitments and the due diligence process.
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Contractual agreements that include the commitments and the due diligence process, for sample products.
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Signed codes of conduct, for sample products.
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If you use a multi-stakeholder initiative’s code of conduct, you shall provide a comparison against the commitments and a description of how you work to revise the code within the initiative, if necessary.
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If you sell goods from a brand that does not sign your code of conduct, you must provide a comparison of their code against the commitments and a description of any actions taken to increase your influence.
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Signed sustainability declarations, for sample products.
Requiring disclosure of supply chains
You shall require risk suppliers to disclose their supply chains in accordance with the supply chain transparency requirement.
This requirement will be adapted by the regions in each procurement, depending on the complexity, risks, and maturity of the industry, with final manufacturing facilities as a minimum.
Supplementing and finalising the contract clause
Requiring risk suppliers to disclose their supply chains leads to better supply chain mappings, improved risk assessments, and more effective preventive and mitigating measures.
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Contractual agreements requiring risk suppliers to disclose their supply chains in accordance with the transparency requirement in the specific contract.
Suspending or terminating contract
You shall ensure the possibility of temporarily suspending deliveries from a sub-supplier while preventive and mitigating measures are implemented and, in the event of severe deviations that remain unaddressed, the possibility of terminating the contract with the sub-supplier concerned.
There are several ways to address adverse impacts within a business relationship:
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Continue the business relationship while implementing risk-mitigating measures.
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Temporarily suspend the business relationship (suspend deliveries) while mitigation efforts are ongoing.
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Exit the business relationship (terminate the contract) if mitigation fails, is not feasible, or if the impact is severe.
The decision should be based on factors such as your leverage, how crucial the sub-supplier is to your operations, the severity of the adverse impact, and whether an exit itself could result in adverse impact.
If you choose to use the Responsible Contracting Project’s model contract clauses, you will automatically have provisions on suspensions and terminations of contract, as well as provisions on exiting as a last resort, assessing adverse impact of the decision, and responsible exit.
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Contractual agreements that allow for the temporary suspension of deliveries while preventive and mitigating measures are implemented, and termination of the contract in case of severe deviations.
