Ethical Sourcing — Everything You Should Know In 2024

As a procurement manager, ethical sourcing is a must. Because we are not just working towards growing our business, but it is also our responsibility. We can all do business without endangering the one planet where we live.

In this article, you will learn all about ethical sourcing and its importance. You will define what it is, why it is important, and why sourcing responsibly should be adopted in the procurement process by every company.

I have created a free-to-download editable Sustainable Procurement Policy template. It’s a PowerPoint file, together with an Excel file, that can help you with your ethical sourcing processes. I even created a video where I’ll explain how you can use this template.

Ethical Sourcing Definition

Ethical sourcing is the practice of ensuring that products are procured responsibly and sustainably, emphasizing fair treatment of workers, safe working conditions, minimized environmental and social impacts, and adherence to specified standards throughout the supply chain.

It is the sustainable and responsible approach to managing your supply chain and sole sourcing. While most companies nowadays are practicing it, the public also has a lot of organizations that are always keeping a watch on procurement processes to make sure that the sourcing of products, goods, and services is done responsibly and ethically.

In simple terms, ethical sourcing is about making sure everything is done in a good way when buying products. Companies need to think about people, nature, and communities when they do business.

Why is Ethical Sourcing Important?

Far from being just a strategy to mitigate business risks, protect brand integrity, or sidestep superficial environmental claims, ethical sourcing offers businesses a distinct edge over their market peers. Ultimately, by embracing ethical sourcing, companies can cut down on emissions, bolster sustainability, and even witness a surge in their profits.

In the current era, marked by the challenges of climate change, the significance of ethical sourcing has been amplified. Businesses are recognizing that success isn’t solely defined by volume and cost-effectiveness. Both consumers and investors are increasingly aligning with enterprises that proactively address environmental concerns.

Ethical sourcing is not just important today; it is essential. Consumers and other stakeholders will abandon you if you do not manage this well. Issues such as child labor, exploiting workers in third world countries, or sourcing goods from the other side of the world just because it is cheaper are no longer acceptable.

As a procurement manager at Ahold, I have also dealt with this extensively, and there are many examples of actions taken by Ahold that led to a loss in revenue but were considered ethically correct.

Examples include stopping the sale of tobacco earlier than required by law, discontinuing the sale of large cans of energy drinks because they were mainly sold to students, optimizing efforts to reduce packaging materials, and mapping the entire supply chain to ensure, for example, that no child labor was involved.

Another great example of ethical sourcing is Tony’s Chocolonely. They are the company that demonstrates that ethical sourcing and business success can be excellently combined. They are known for their strong commitment to ethical sourcing and their mission to make the chocolate industry 100% slave-free.

Process of Ethical Sourcing

Ensuring ethical sourcing practices involves actively seeking suppliers and raw materials that adhere to social, environmental, and ethical standards throughout the supply chain. Here are some steps you can take to promote ethical sourcing:

1. Define Ethical Sourcing Standards

Before anything else, it’s best to clearly define your organization’s ethical sourcing standards. This includes criteria related to labor rights, fair wages, working conditions, environmental sustainability, and community impact.

Doing so can help you list down what you want and don’t want, allowing the company to implement such standards in their system. 

2. Supplier Screening and Due Diligence

Companies must conduct a thorough screening and due diligence of potential suppliers to assess their compliance with ethical standards.

They have the responsibility to evaluate factors such as labor practices, environmental certifications, regulatory compliance, and past performance. This is integral to know if suppliers can keep up with the company’s demands and standards.

3. Supplier Code of Conduct

Developing a supplier code of conduct is also important. This should outline your organization’s expectations about ethical sourcing practices.

This will require suppliers to adhere to these standards as a condition of doing business with your company, making sure that the suppliers continuously keep up with maintaining the quality of products.

4. Supplier Audits and Assessments

To further prompt improvement among suppliers, it’s a good idea to implement regular audits and assessments of supplier facilities and practices to verify compliance with ethical standards.

You can use third-party auditors or internal audit teams to evaluate labor conditions, environmental practices, and social responsibility initiatives.

5. Transparency and Traceability

Prioritize transparency and traceability in your supply chain to track the origin and journey of raw materials and components.

Using technology such as blockchain, RFID tags, and supply chain management systems can enhance visibility and accountability, helping you promote ethical sourcing better.

6. Collaboration and Partnerships

Collaborate with industry associations, non-profit organizations, and government agencies that promote ethical sourcing and sustainability initiatives.

Join industry initiatives or multi-stakeholder partnerships to share best practices and drive collective action. This will allow you to gain more ideas and opinions about ethical sourcing.

7. Supplier Capacity Building

Support and invest in supplier capacity-building initiatives to help suppliers improve their ethical sourcing. 

Difference between Ethical and Sustainable Sourcing

Ethical sourcing emphasizes the fair treatment of people in the production process, ensuring fair wages, safe conditions, and upholding human rights. It addresses broader social issues, like community well-being.

Sustainable sourcing, on the other hand, focuses on environmental impact, ensuring resources are used without jeopardizing future needs. It considers the entire product lifecycle and long-term resource viability. 

While ethical sourcing centers on human welfare and sustainable sourcing on environmental concerns, there’s overlap: environmental harm affects communities, and long-term environmental health requires fair treatment of workers. Many companies integrate both principles for holistic responsible sourcing.

Examples of Ethical Sourcing

Some of the best examples of ethical sourcing are often found in companies and organizations that deal with the procurement and sourcing of food and commodities:

• Fair Trade Products: Companies sourcing products like coffee, chocolate, or bananas might opt for Fair Trade-certified suppliers. This ensures that farmers receive a fair wage and work under decent conditions.
• Conflict-Free Minerals: Companies might source minerals like tantalum, tin, tungsten, and gold from mines that don’t finance armed conflict, particularly in regions like the Democratic Republic of Congo.
• Sustainable Timber: Furniture and paper companies might source wood from sustainably managed forests, ensuring that deforestation is minimized.
• Cruelty-Free Cosmetics: Cosmetic brands might commit to not testing their products on animals, ensuring no harm is done in the name of beauty in many places, however, there is no standard definition or legislation for this label rendering it seemingly meaningless.
• Organic Cotton: Clothing brands might source organic cotton, which is grown without harmful pesticides and chemicals, ensuring environmental health. Organic does not refer to working conditions, this needs to be checked separately.
• Living Wage Commitments: Companies might ensure that their suppliers pay workers a living wage, which is enough to meet basic needs and provide some discretionary income.
• Safe Working Conditions: Brands might audit factories in their supply chain to ensure they meet safety standards, especially in industries known for hazardous conditions, like clothing manufacturing in some Asian countries.
• No Child or Forced Labor: Companies might actively monitor and audit their supply chains to ensure that no child or forced labor is used at any stage of production.
• Local Sourcing: To support local economies and reduce carbon footprints, some companies prioritize sourcing goods and services from local suppliers. This makes it easier to make sure the product is ethically sourced.
• Seafood Sustainability: Restaurants and grocery stores might source seafood from fisheries that practice sustainable fishing methods, ensuring marine ecosystems are not over-exploited. 

However, there is some controversy about the labels the industry uses.

Companies That Can Help You Source Ethically

In today’s procurement industry, some companies can help you source ethically. Take a look at these companies and see whether they’re the ones you need:

1. Sedex

Sedex’s tools and services allow organizations to manage and understand the risks of negative impacts in their supply chain. The risk assessment tool of Sedex assists organizations in assessing ethical risks across the supply chain.

2. Estee Lauder Companies

Estee Lauder is committed to sourcing high-quality ingredients and materials from around the world. It works tirelessly to source responsibly with attention to possible impacts on people and the environment.

It collaborates with a wide network of suppliers and aims to continuously enhance and strengthen its sourcing practice while remaining sensitive to the communities where it operates.

3. Delta eSourcing

Delta eSourcing is an efficient supplier management tool that can help businesses achieve ethical procurement goals. This is where Delta eSourcing can help you. It helps organizations maximize the value of interactions with suppliers.

Procurement Expert’s Advice on Ethical Sourcing

For this article, we asked a seasoned procurement professional to share his insights regarding ethical sourcing practices.

Conclusion

Ethical sourcing stands as an important process in modern procurement practices. It is a commitment to responsible and sustainable procurement, ensuring fair treatment of workers, safe working conditions, reduced environmental and social impacts, and compliance with predefined standards across the supply chain.

Ethical sourcing not only protects brand integrity and mitigates risks but also presents businesses with a distinct competitive edge in an era where consumers and investors increasingly prioritize ethical considerations.

Implementing ethical sourcing requires a proactive commitment from procurement teams. Companies must establish robust assessment processes, integrate ethical standards in supplier contracts, and transparently communicate their practices to stakeholders.

Regular reviews and adaptations ensure that ethical sourcing strategies remain effective and aligned with evolving global standards. Furthermore, ethical sourcing goes beyond transactional exchanges, embodying a conscious effort to harmonize business objectives with societal well-being and environmental protection.