The value of trading fairly in the small business

Sourcing ethically is as much about creating sustained commercial value as it is about fairness in trade. In seeking to make ethical sourcing work for all partners, how can businesses manage the core values of fair trade?

As more customers seize upon the notion that components of some supply chains are unethical, businesses are gradually waking up to the fact that they have a duty of care that goes far beyond their shareholders.

Having shifted from niche to mainstream, ethical sourcing has become something that concerns everyone, says James Bennett, Head of Key Accounts at Fairtrade. "There are not many businesses that are started today that do not have some form of ethical or sustainable position within their supply chain."

Why bother?

One of the primary reasons for ethical sourcing is that it makes good business sense, notes Bennett. The value of all ethical spending in the UK grew to £38bn in 2015, according to research by the Ethical Consumer magazine. This made the ethical goods and services sector worth almost double that of the tobacco market in the UK.

As ethical trading moves further still into mainstream commerce and more businesses recognise the benefits, their procurement policies are increasingly demanding active sourcing of sustainable and ethical products. A key driver is that ethical sourcing helps protect the supply chain.

Given the choice, few suppliers would continue to work in an area where they are consistently underpaid. But the longer-term effect of underpayment and poor treatment by buyers is that suppliers will disappear from that supply chain, either by choice or at the hands of simple economics. This, explains Bennett, will be to the detriment of the buyer if the supply chain is either broken or left in the hands of a few large suppliers.

It follows that fair treatment results in supply chain sustainability. But it also leads to increased customer allegiance, he adds. Consumers are more likely to trust and thus be more loyal to a product or business with ethical provenance.

Provenance, in the form of certification from organisations such as Fairtrade, the Ethical Trading Initiative, the Soil Association, and tracking data from blockchain-based monitoring start-up, Provenance, allows a business to easily demonstrate its commitment. But it also enables companies to more credibly tell their own story and avoid accusations of 'greenwash'.

Take a stand

With many new businesses arriving with their social impact story already in mind – organic or locally sourced products, for example – provenance is commonly built into their product design from the outset, says Bennett. Of course, it's a lot easier to embed such practices at an earlier stage of growth; for established firms that are just coming to terms with the concept, taking a stance may be more demanding. However, he advises businesses to begin by focusing on what is relevant, and what the target impacts are, within their own supply chain.

The greatest challenge therefore is in unravelling the detail within that supply chain. "If you look down any supply chain there will be a multitude of issues at work within," he comments. For a small business, working with suppliers that have recognised accreditation and certification (such as those referred to above) offers more easily identifiable end-to-end traceability and transparency.

"Suppliers should also be able to answer any questions quickly and easily because this shows they have a good understanding of where they procure their products," adds Bennett. "It also allows buyers to deepen their own knowledge of the supply chain and build better relationships and stronger supply chains." Suppliers that cannot provide the right answers may no longer fit the ethics-driven goals of the business.

As ethical business practices assume increasing relevance in the business community and as more consumers see the value of ethically sourced products, "healthy competition" arises in the race to the top. For Bennett, this means the driver to go over and above what's required gains momentum too. "Although it is a challenge, it is something that in the long term can be a positive business benefit."

Thought leadership from HSBC

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