H7. Supply chain management

Essity’s target 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. The target for 2020 is that 100% of all strategically important sourcing categories and sourcing from high-risk areas, which corresponds to 90% of Essity’s total purchase cost, is to comply with Essity’s Global Supplier Standard. In 2019, 85% (71; 74) of the procurement spend was sourced from suppliers who fulfill these 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.

Ethical audit results

During 2019, Essity evaluated the outcome from 52 (59; 25) ethical supplier audits, of which 45 (30; 16) carried out in India, Sri Lanka, Turkey, Colombia, China, Malaysia, Brazil, United Arab Emirates, Mexico and Vietnam. Of these audits, 33 were carried out by Essity using an independent audit firm. The other 19 (29; 9) ethical audits, which meet Essity’s requirements, were carried out by other customers to suppliers and were approved by Essity.

Essity is informed within 24 hours in cases of critical observations. To date, these types of observations were due to a lack of supervision at the production facility which allowed unauthorized access to the facility, excessive overtime, non-payment of overtime, 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 2019.

Risk exposure in Essity’s supplier base

Approximately 81% of Essity’s supplier base is located in Europe, 18.5% in North and South America and 0.5% in Asia and Africa. Many of the strategic suppliers’ production facilities located in Asia and Latin America are part of 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 finished products represent about 85% (76; 61) of Essity’s procurement spend. 19% (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 or the result of 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, environment, business ethics and health and safety. At the end of 2019, Essity had a total of 929 (694; 481) suppliers that share data via Sedex.