H11. Supply chain management
Essity’s target for responsible sourcing is that all of our sourcing is to be from suppliers that share the company’s values, as defined in Essity’s Global Supplier Standard. This is to ensure responsible business methods and respect for human rights. By 2020, the aim is to source 100% of Essity’s procurement spend from suppliers that undertake to commit to the criteria specified in the Global Supplier Standard. In 2018, 71% (64) of the procurement spend was sourced from suppliers who fulfill this criteria.
Essity has an established process to perform continuous risk assessments of the company’s suppliers and sourcing categories. The aim is to secure deliveries and minimize risks linked to the company’s sourcing. Certain materials, such as cotton and wood fiber, are considered to have higher risk lower down in the value chain. Essity takes specific measures here, such as audits of subcontractors, or chooses certified raw materials that guarantee more sustainable extraction and production. In 2018, Essity has continued to implement sustainable sourcing linked to the Medical Solutions product category (previously BSN medical, which was acquired in 2017) by introducing the same working methods as used by other suppliers.
Ethical audit results
During 2018, Essity evaluated the outcome from 59 ethical supplier audits, of which 30 were carried out by SGS on Essity’s behalf in China, Romania, Russia, Brazil, Spain, India, Israel and Mexico. In addition, 29 ethical audits performed on behalf of other customers of the suppliers were approved by Essity.
Essity is informed within 24 hours in cases of critical observations. To date, this type of action has been necessitated due to rare cases of excessive overtime, overtime not being paid at a premium, or no evidence of fire drills being conducted in the last 12 months. No agreements with strategic suppliers were terminated on the grounds of sustainability-related non-compliance in 2018.
Risk exposure in Essity’s supplier base
Approximately 81.1% of Essity’s supplier base is located in Europe, 18.4% in North and South America and 0.5% in Asia/Middle East. Many of the strategic suppliers’ production facilities located in Asia and Latin America belong to large multinational corporations based in Europe and the US. This is a conscious choice by Essity and reduces the social and ethical risks within the supply chain.
Global and regional strategic suppliers of raw materials and merchandise represent about 76% (61) of Essity’s procurement spend. 21% (22) of suppliers’ manufacturing units are located in high-risk countries according to the Maplecroft Human Rights Index. These suppliers are in scope for ethical audits with a focus on health and safety, human rights, employment conditions and corruption. Essity has various tools to assess the need for an ethical audit, such as a low rating in Sedex, a low health and safety score in Essity’s supplier qualification audit or warning signals in conjunction with Essity’s regular risk assessments. Sedex is an online database that enables suppliers to share information with their customers on their status in areas such as labor conditions, health and safety and business ethics. At the end of 2018, Essity had a total of 694 (481) supplier plants that share this type of data via Sedex.