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Process requirement 4

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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.

We explain the responsibility regarding supplier assessments, action plans, and the forwarding of requirements — including transparency — as well as the ability to temporarily suspend or terminate the contract.

Using leverage

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

  • You sell laptops from a brand whose manufacturer sources cobalt mined using child labour.

  • You sell shirts with embroidered labels, where the manufacturer has outsourced the sewing process to child labourers who work from home.

  • You sell bananas grown with pesticides that contaminate the surrounding community’s water supply and affect the fertility of workers.

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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: 

  • Forward commitments and the due diligence process throughout the supply chain.

  • Require transparency from sub-suppliers regarding their supply chains.

  • Choose certified products.

  • Support sub-suppliers in developing and implementing action plans.

  • Monitor sub-suppliers' actions to prevent and mitigate adverse impacts.

  • Engage in dialogue with sub-suppliers via letters, emails, calls, or meetings.

  • Build sub-suppliers' capacity through training, management system upgrades, grievance mechanisms, and protective equipment.

  • Offer long-term contracts to sub-suppliers that improve their sustainability efforts.

  • Facilitate financing through loans, direct support, or low-interest rates.

  • Collaborate with other buyers through industry organisations and multi-stakeholder initiatives.

  • Encourage sub-suppliers’ participation in industry organisations and multi-stakeholder initiatives.

  • 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

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 cover:

  • The risk supplier’s capacity, willingness and implementation of due diligence

  • The most significant risks identified

You shall assess new risk suppliers before entering a business relationship and existing risk suppliers that have not yet been assessed or when the context has likely 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 the most significant risks identified and the risk supplier’s capacity, willingness and implementation of due diligence. 

  • Self-assessments or pre-qualifications, for sample products.

  • Reports from site visits or inspections, for sample products.

  • Reports from multi-stakeholder initiatives, for sample products.

  • Third-party reports, for sample products.

Guidance for auditor

Fulfils requirement

The company has instructions or equivalent documentation/templates that describe how it assesses risk suppliers based on the commitments and the due diligence process, including:

  • How supplier assessments cover the risk supplier's capacity, willingness and implementation of due diligence.

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  • How supplier assessments target the most significant risks identified, which assumes that there is a risk assessment.

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  • How supplier assessments are conducted before a business relationship begins, for existing risk suppliers that have not yet been assessed, and when the context is likely to have changed.

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  • How supplier assessments are carried out — through self-assessments, pre-qualifications, site visits, inspections or by obtaining audit reports from third parties (including multi-stakeholder initiatives).

Supplier assessments are available for sample products and these cover both the supplier's due diligence and the most significant risks identified.

Does not fulfil requirement

The company lacks instructions or equivalent documentation/templates that describe how it assesses risk suppliers based on the commitments and the diligence process, or they are incomplete:

  • Supplier assessments do not cover the risk supplier’s capacity, willingness and implementation of due diligence.

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  • Supplier assessments do not focus on the most significant risks identified, for example because there is no risk assessment.

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  • It is not clear that supplier assessments are carried out before business relationships begin, for existing risk suppliers that have not yet been assessed and when the context is likely to have changed.

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  • It is not clear how supplier assessments are carried out — through self-assessments, pre-qualifications, site visits, inspections or by obtaining audit reports from third parties (including multi-stakeholder initiatives).

Supplier assessments for sample products are missing or incomplete. Examples of shortcomings may include that they only cover the supplier's due diligence or the most significant risks identified.

Establishing action plans

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:

  • Measures – descriptions of how you intend to prevent and mitigate the adverse impact, including the identified root cause.

  • Timeframes – dates for when the measures must have been implemented. 

  • 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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  • Instructions describing how you establish action plans for risk suppliers, with a particular focus on the most significant risks identified. 

  • Action plans for suppliers of sample products. 

Guidance for auditor

Fulfils requirement

The company has instructions or equivalent documentation/templates that describe how it establishes action plans for risk suppliers/prioritised purchasing categories, including:

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  • How the action plans take aim at the company's own actions (e.g. decision to buy certified products) but that this includes expectations on risk suppliers.

  • How the action plans focus on the most significant risks (assessed based on likelihood and severity).

  • How the action plans include measures, timeframes, and responsible persons.

There are action plans for sample products and these take aim at the company's own actions, focus on the most significant risks and include measures, timeframes and responsible persons.

Does not fulfil requirement

The company lacks instructions or equivalent documentation/templates that describe how it establishes action plans for risk suppliers/prioritised purchasing categories, or they are incomplete:

  • It is not clear that the action plans take aim at the company's own actions (e.g. decisions to buy certified products) including expectations on risk suppliers.

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  • It is not clear that the action plans focus on the most significant risks (assessed based on likelihood and severity).

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  • The action plans lack measures, timeframes or responsible persons.

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Action plans for sample products are missing or incomplete. Examples of shortcomings may be that they do not target the company's own actions, do not focus on the most significant risks and/or do not include measures, timeframes and/or responsible persons.

Forwarding requirements

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.

 

Should you opt to use the European Model Clauses (currently in draft form), these incorporate sufficient provisions on due diligence including forwarding of the due diligence process. 

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  • Instructions for forwarding the commitments and the due diligence process.

  • Contractual agreements that include the commitments and the due diligence process, for sample products.

  • Signed codes of conduct, for sample products.

  • 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.

  • 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.

  • Signed sustainability declarations, for sample products.

Requiring disclosure of supply chains

Guidance for auditor

Fulfils requirement

The company has instructions or equivalent documentation/templates that describe how it forwards the commitments and due diligence process in writing to risk suppliers, including:

  • How this is done through agreements and codes of conduct (see examples in the guidance).

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  • How the risk supplier is required to, in turn, forward the commitments and due diligence process.

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There is evidence to show that the commitments and due diligence process have been forwarded for sample products.

  • If a multi-stakeholder initiative's Code of Conduct is used, the company has compared the Code with the commitments and can explain how it is working to influence the initiative to revise the Code, if necessary.

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  • If the company sells products from a brand that does not sign the company's code of conduct, the company has compared the brand's code of conduct with the commitments (and its own code).

  • If the contracting organisation uses sustainability certificates, these are signed by the brands.

Does not fulfil requirement

The company lacks instructions or equivalent documentation/templates that describe how it forwards the commitments and due diligence process in writing to risk providers, or they are incomplete:

  • It is not clear that the commitments and/or due diligence process are forwarded through agreements or codes of conduct.

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  • There is no requirement for the risk supplier to, in turn, forward the commitments and due diligence process.

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There is no evidence to show that the commitments and due diligence process have been forwarded for sample products, or it is incomplete:

  • The commitments have been forwarded but not the due diligence process.

 

  • The company uses a multi-stakeholder initiative's Code of Conduct without having compared the Code with the commitments and/or without being able to explain how it works to influence the initiative to revise the Code, if necessary.

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  • The company sells products from a brand that does not sign the company's code of conduct, without having compared the brand's code of conduct with the commitments (and its own code).

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  • Signed sustainability certificates are missing.

Policies that have been updated after audit have not been forwarded to risk suppliers.

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 clauses for sample products, requiring risk suppliers to disclose their supply chains in accordance with the transparency requirement in the specific contract.

Guidance for auditor

Fulfils requirement

The company has instructions or equivalent documentation/templates that describe how it sets requirements for transparency in the supply chain.

The agreements with suppliers of sample products contain conditions – either in the original agreement or as an addendum – that oblige them to disclose their supply chains at least in accordance with the contracting organisation's transparency requirements. 

Does not fulfil requirement

The company lacks instructions or equivalent documentation/templates that describe how it sets requirements for transparency in the supply chain.

 

The agreements with suppliers of sample products do not contain any conditions – either in the original agreement or as an addendum – that oblige them to disclose their supply chains at least in accordance with the contracting organisation's transparency requirements. 

Suspending or terminaing 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:

  • Continue the business relationship while implementing risk-mitigating measures.

  • Temporarily suspend the business relationship (suspend deliveries) while mitigation efforts are ongoing.

  • 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.

Should you opt to use the European Model Clauses (currently in draft form), these incorporate sufficient provisions on suspensions and terminations of contract, as well as provisions on exiting as a last resort, assessments of adverse impacts of the decision, and responsible exits. 

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  • Instructions describing how you 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.

  • Contractual agreements for sample products, which allow for the temporary suspension of deliveries while preventive and mitigating measures are implemented, and termination of the contract in case of severe deviations.

Guidance for auditor

Fulfils requirement

The company has instructions or equivalent documentation/templates that describe how it can suspend deliveries from a sub-supplier while preventive and mitigating measures are implemented, as well as terminate the contract with the affected sub-supplier if severe deviations are not addressed.

The agreements with the suppliers of sample products contain conditions that enable the company to temporarily suspend deliveries while preventive and mitigating measures are implemented, as well as terminate contracts if severe deviations are not addressed.

Does not fulfil requirement

The company lacks instructions or equivalent documentation/templates that describe how it can suspend deliveries from a sub-supplier while preventive and mitigation measures are implemented, and/or terminate the contract with the relevant sub-supplier if severe deviations are not addressed.

The agreements with the suppliers of sample products lack conditions that allow the company to temporarily suspend deliveries while preventive and mitigating measures are implemented, and/or terminate contracts if severe deviations are not addressed.

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