Everyone gains from ethical trade

Date: 15/12/05

Only 5-7% of world trade is ethically sourced by companies that take responsibility for the labour practices along their supply chain, according to Richard Adams, a member of the European Economic and Social Committee (EESC). He argues that an increase in ethical commerce would be beneficial to workers on the manufacturing end, to consumers who would feel confident in their purchases and to businesses that grow as a result of customer loyalty.

In a paper on ethical shopping drafted for the EESC, Adams outlines a scheme to assure customers that the products they buy have been produced ethically.

Consumer pressure will, he believes, make corporate social responsibility (CSR) - an all-encompassing term for the way in which companies integrate social and environmental concerns in their business operations - even more important, as consumers become increasingly wary of corporate intentions.

"Consumer confidence is a crucial measure to see if CSR is effective," said Mattia Pellegrini who works for the European Commission in the strategy and analysis unit of the directorate-general for health and consumer protection. "If CSR can improve consumer confidence, then it can increase the economy and increase competitiveness. It is a win-win situation for both the consumer and industry sides."

Right now there is no EU legislation requiring businesses to ensure that their manufactured goods or food products have been prepared according to any set ethical standards. Nor does the Commission intend to propose any at this stage. Pellegrini said that the Commission's decision to make CSR compliance a self-regulatory initiative so far had been "quite successful".

Mimmi Brodin is corporate responsibility co-ordinator for ICA, Sweden's largest retailer. She said her company followed a "basic values" guide which states that ICA must be managed ethically as well as profitably. The document holds the company to practices such as listening to customers, encouraging diversity and development among employees, opening a stakeholder dialogue, ensuring the safety of products, and promoting a healthy lifestyle and sustainable development.

Brodin said that in trying to build customer loyalty, the company had to consider both direct and indirect consumer demand for ethically-sourced products. For example, some ICA customers demand products that are explicitly labelled fair trade and organic. Other patrons do not directly seek out such labels, but they still assume that all ICA products have reached their local market through good social working conditions and in an environmentally friendly way.

"Many consumers are concerned about these issues, but don't ask," said Brodin. "They just feel good in the ICA store."

Although ICA continues to draw customers with a dependable name brand, Adams does not think that it can remain idle. He warned: "Trust in companies is declining. Companies have to do more and rely less on past reputation."

To increase customer confidence, Adams suggests corporations stick to an eight-fold plan to prove that they are dedicated to CSR. The proposal advises companies to decide early on how to govern CSR compliance, define specific and healthy business goals, set up the ethical standards to achieve these goals and perform periodic cost-benefit analyses.

Proponents of CSR say customer loyalty makes corporate responsibility worth the investment.

"We shouldn't underestimate where we've come in the last 30 years," said Adams. "Now we're talking hundreds of billions of euros invested in ethical business schemes. I see it as a continual process, a voluntary process stimulated by consumers, as they see the world trade system fail, to regulate socially and environmentally."

Corporate social responsibility

• Governance: Companies should be governed by a multi-stakeholder scheme in which a balance of stakeholders constitute the decision-making bodies
• Goals: Goals should be clearly defined and should match the needs of stakeholders most disadvantaged by the trading system as well as consumers
• Scope: The scheme should address the 'problem' as normally defined and to a reasonable extent
• Standards or terms: The standards set and monitored by the scheme should express the goals
• Impact assessment: There should be credible short- and long-term assessment of the impact of the scheme on the goals
• Independent review: The scheme's operations should be reviewed by an independent party with the findings of such reviews made public
• Cost-benefit analysis: There should be a process to monitor and evaluate the costs of the scheme borne by suppliers, traders and consumers in comparison to the progress made to achieve the goals
• Public claims: Public claims made by certified companies or suppliers should match the goals, standards and outcomes of the scheme

An eight-part plan to establish and assess corporate social responsibility, as recommended by the European Economic and Social Committee.