Building the Sustainable WorldA Vision of Desirable CSR
Activity in the Supply Chain― A Proposal from the Supply Chain Working Group ―August 30, 2013

Global Compact Japan Network Supply Chain Working Group（Fiscal Year 2011）

Contents
Introduction
Chapter 1

Overview of CSR Procurement

Chapter 2

The Form that Should be Taken
by Supplier Briefings

Chapter 3

The Form that Should be Taken
by the Self-Assessment Questionnaire (SAQ)

Chapter 4

The Form that Should be Taken by Audits

Chapter 5

Notable Points and Good Practices for
Triple Win CSR Procurement

Conclusion

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Introduction■ History of the Global Compact Japan Network (GC-JN) Supply Chain
Working GroupGC-JN Supply Chain Working Group (hereafter "this working group") was formed in 2008 as a groupof 11 GC-JN participating corporations. This was a time when Japanese corporations were beginningto adopt CSR requirements in their procurement policies. The working group started out with each of
the participating corporations introducing its supply chain CSR initiatives to the other members, andextracting good practices from among those initiatives. Out of the processes involved in those initiatives,
the working group then further focused on the three important processes of supplier briefings, selfassessment questionnaires (SAQ), and audits, and formed a Sub-Working Group for each. The subworking groups discussed the issues involved in their respective processes and their visions of what those
processes should be.
This proposal presents the working group's organized summary of its discussions from 2008 to 2011 andits vision of Triple Win procurement as a supply chain CSR measure that contributes to the sustainabilityof the buyer, the supplier, and society.

■ A Proposal Based upon Wide-Ranging Practical Experience in the Industry

History of the GC-JN Supply Chain
Working Group2011(25 companies)
Propose Triple Win
procurement

2010
2008
(11 companies)
Working group
inaugurated

2009(20 companies)
Clarify the issues ineach process(15 companies)
Focus on important
processes* Figures in parentheses show the number ofparticipating corporations.

The corporations that participate in this working group include various kinds of manufacturers,
retailers, general trading houses, and other such companies that are buyers and suppliers in a wide
range of business categories. Most of the participants also have practical experience in CSR procurement.
Consequently, this proposal was created on a foundation of practical experience and a diversity ofperspectives.
It is our hope that this proposal may serve as a useful reference for parties who intend to engage
in supply chain CSR measures as well as those who intend to improve the measures they are alreadyengaging in.

Supply Chain Working Group Participating Corporations (Fiscal Year 2011)
Global Compact Japan Network

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Chapter 1

Overview of CSR Procurement

1.1 What is CSR Procurement?
Increasing corporate activity has been accompanied by growing public awareness of pollution asa social issue. From the 1960s on, there has been demand for corporations to engage in measures
addressing environmental problems. With the advent of the 1990s, globalization proceeded rapidly, there
were increasing disparities between states and regions, and companies started being called on to takemeasures addressing poverty, human rights, and other such problems. In this social context, people began
to place on corporations the great expectation that they would contribute to sustainable development.*1
Considering the construction of a sustainable society to be their corporate social responsibility (CSR), theworld's corporations began engaging in CSR activities of their own.
Meanwhile, present-day globalized corporate activities include the expansion of supply chainsthroughout the world for the procurement of products, raw materials, and other materials. There arelimits to the results that can be achieved through the CSR activities of a single corporation alone.
Therefore corporations are called upon to deploy CSR activities throughout the entire supply chain, taking
the corporations that are procurement sources as their basis.
ISO 26000, which was published in 2010, states that social responsibility in the value chain should
include consideration by every organization of the potential effects that its own procurement (purchasing)
could have on other organizations. They should take care not to exert a negative effect, or to limit their
negative effects to a minimum.
Corporate procurement activities are extending globally, and the social problems of the world havebegun to exert an influence even on procurement activities. The scale of global corporations has also
increased, and some corporations have emerged that exert as much influence as an individual country. In
places like developing countries, there are differences in governance capability from country to country,
and social expectations of global corporations and other such organizations have increased.
For example, there are many outsourcing production plants located in newly emerging countries anddeveloping countries as supply centers for European and American markets. There is a tendency forthese outsourcing production plants to focus on manufacturing management and not to pay sufficientattention to labor management, environmental protection, and other such concerns. It has happened in thepast that labor or other such problems that arose in the course of outsourced production developed into
product boycotts.
Under circumstances like these, buyers engaging in the procurement of products, materials, rawmaterials, and so on, need to work together with suppliers to add CSR elements such as the environment,
the working environment, and human rights to such usual concerns as quality, performance, price,and time of delivery. They are now being called upon to engage in activities promoting CSR programs
throughout the entire supply chain. This working group defines these activities as CSR procurement.
Many corporations now declare CSR procurement policies, and they have begun taking measuresaccordingly. These are gradually expanding from supply chain measures into value chain measures, which
extend across a broader range that also includes the upstream and downstream.
*1 Sustainable development: Development that satisfies needs under actual current conditions without causing the abilityof future generations of people to satisfy their own needs to be exposed to risk.

41.2 The Current Situation and Issues in Japan
As noted earlier, Japanese corporations have been slightly behind the top corporations of Europe andAmerica in beginning to engage in CSR activities. At present, Japan is one of the most advanced countries
in addressing environmental and other such issues.
However, there is often a one-sided tendency for these to be in-house activities, and the actual present
situation is that little progress has been made in support for the entire value chain. A survey of Keidanren
member corporations made in 2009 by the Keidanren Committee on Corporate Behavior (with responses
from 437 of 1,297 member corporations, or 33.7%) also indicated that supply chain management was one of
the areas in which progress had been slowest. (Figure 1)① Practically no efforts have been madeare being taken, as in FY2005② Not very much progress has been made④ There has been some progress③ Adequate measures⑤ There has been considerable progress* Percentages are for the number of companies providing the particular response out of the total number of responding companies
0％

1. Clarification of policies and strategies

20％

40％

② 9% (38③ 16%
companies) (69 companies)

60％④ 34% (144 companies)

80％

100％

⑤ 40% (169 companies)① 1% (6 companies)

2. Development of CSR promotion frameworks② 11% (45companies)③ 16%(68 companies)④ 36% (154 companies)⑤ 36% (151 companies)① 2% (7 companies)

3. Supply chain management① 12% (51companies)② 19%(78 companies)③ 21%(85 companies)④ 39% (159 companies)⑤ 9% (38companies)② 8% (32 companies)

4. Education and training of employees, etc.

③ 19%
(81 companies)⑤ 18%(78 companies)④ 54% (229 companies)① 1% (6 companies)

5. Disclosure of CSR information② 9% (38③ 15%
companies) (66 companies)④ 41% (176 companies)⑤ 32% (137 companies)① 2% (9 companies)

6. Dialogue and collaboration with stakeholders② 19%(79 companies)④ 44% (187 companies)⑤ 10% (44companies)① 3% (13 companies)

7. Coordination with marketing(Development of related products and services, etc.)② 20%(83 companies)③ 27% (114 companies)④ 36% (152 companies)⑤ 12% (51companies)① 5% (22 companies)

Source: Keidanren Committee on Corporate Behavior (2009)

Figure 1. Status of Company CSR Measures by Comparison with 2005

In this working group, the participating corporations clarified the processes of procurement activities(establishment of a corporate philosophy, formulation of CSR procurement policies and code of conduct,
sharing of policies by means of briefings, etc., self-assessment by means of SAQ, evaluation and correction
by means of audits), shared their current situation and issues, described the factors impeding theirprogress, and discussed what kind of procurement they should aim for.
In 2011, the corporations participating in this working group created a list of CSR procurement
measures relating to the definition of CSR, the CSR procurement management organization, CSR
procurement policies, commissioning a questionnaire on codes of conduct, audits, sharing circumstanceswith suppliers, written contracts, Sustainability Report third-party guarantees, future issues and concerns.
At the end of the list, they recorded the characteristics of Japanese corporations.
This provided a basis for various different corporations from a number of different industries to cometogether and share issues and concerns together with their various experiences, solutions, and skills.

51.3 This Working Group's Vision of What CSR Procurement Should Be
The corporations that take part in this working group are both buyers and suppliers. Working fromtheir own particular experiences, they have recognized that the greatest issue they have to address isrelated to the fact that, in the current state of affairs, the mainstream in most CSR procurement takes thebuyer's perspective and is just a forced formality. There are weaknesses with respect to sharing a vision
with suppliers and taking a stance that aims for mutual growth with them.
This working group has narrowed its focus to this issue, formulated as the idea of what CSR
procurement directed toward a "triple win" should be. That is, CSR procurement intended to achieve
growth in better directions for buyers, suppliers, and, by extension, society as a whole. We havedetermined to propose a specific vision of this under the designation of Triple Win Procurement.
With Triple Win Procurement, buyers and suppliers work together to improve their products andparts through consideration for quality, price, the environment, human rights, and other such concerns.
In addition, this approach seeks to reduce risk, heighten each other's corporate value, and enhancecompetitiveness. What this means is that it becomes possible, as a result, to enjoy a better society that issafer and feels more secure.
This conceptual approach comes from the merchants of the Omi district. Traditionally known for theirbusiness acumen, these merchants had a management philosophy of doing good three ways, namely, goodfor the seller, good for the buyer, and good for the community. What this means is that not only shoulda business deal be good for the seller and the buyer, who are the parties involved, but that it must also
contribute to the welfare of society as a whole.
Taking this farther, the Triple Win Procurement approach holds that the seller and buyer are equal, eachtakes on its own role, each does work in its own special area, and both work together efficiently and effectively.
No one side is specified as the principal party or the main player. The spirit of equality is respected throughout.
Both parties mutually exercise the utmost care with regard to a product or service before placing it on themarket, and they are responsible for examining it to determine whether it is truly satisfactory.
It becomes necessary, therefore, for both parties to work together in the truest sense of the word, building
a relationship that goes beyond the question of which of the two is the principal party or the main player.
We consider it to be important not only for the buyer but also for the supplier to engage voluntarily inautonomous improvement. When the process of building a relationship of this kind has an effect on thevarious stakeholders involved, and the world is changed for the better, we call it Triple Win Procurement.

1.4 Three Important Processes in Triple Win Procurement as Conceived bythis Working Group
Considering the current situation and issues faced by every participating corporation, we have reached
the conclusion that the following three processes are essential for achieving Triple Win Procurement. We
have formed a Sub-Working Group for each of these processes and examined ideas for the form each process
should take.
○ Supplier Briefing (Vision Sharing)This is the most important process for the buyer and supplier to understand and share their CSR vision.
This process could be considered to determine the results of subsequent activities as a whole. There arecorporations for which the communication of vision and policies to suppliers flows one-sidedly from the buyer
side through briefings, dispatch of documents, disclosure on the Web, and other such means, and there arecorporations that do not conduct adequate briefings. This sub-working group has examined ideas of whatform should be taken by briefings that are necessary for buyers and suppliers to share their vision.

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○ Self-Assessment Questionnaire (SAQ)

This is a process of understanding CSR requirements and conducting self-assessment that we consider
to be essential for grasping actual present conditions. Corporations often use a standard version such as
the Electric Industry Code of Conduct (EICC), or customize such a version, but there are also notablecases of corporations creating their own guidelines. There are variations in the content and numberof questions, the terminology used, and definitions in the answers, which can make this a considerable
burden for suppliers that have multiple buyers. At the same time, another problem is that the actual
situation cannot be determined from the answers given in many cases.
This sub-working group will propose an SAQ in a form that will enable CSR procurement to be
implemented efficiently and accurately from the perspective of both buyer and supplier.
○ Audits and Corrections

An audit is a process in which buyers and suppliers work together directly and indirectly to evaluate
actual present conditions, then make use of the results in improvement activities. Audits are very
important in achieving mutual growth. There are not very many corporations in Japan that go so far as toconduct audits. Even among those corporations that do, there are virtually none that conduct third-party
audits, their audits instead being mainly first-party audits implemented by suppliers and buyers. When
audits are implemented by the parties involved, it is essential that a qualified person be placed in chargeof it, and that appropriate systems for support, including capacity building, be established.
This sub-working group has drawn up a description of the form that should be taken by a mutual
growth-type audit in which buyers and suppliers seek improvement and growth together, along withspecifics of its practical implementation.
The sub-working group's vision of the form these measures should take is described in greater detailbelow in Chapters 2, 3, 4, and 5, together with a proposal for Triple Win procurement. This is procurementin which the buyer does not one-sidedly impose supply chain activities, but rather the buyer and suppliershare the risks and advantages of CSR together, and their activities also promote the sustainability ofsociety as a whole.

Envisioning the Desired Form of CSR Procurement
Corporate philosophy

Visualize the briefings needed
for buyers and suppliers to share
their vision.

Formulate CSR
procurement policies
Formulate code of conduct
Supplier briefings

Create standardized selfassessment questionnaires in orderto implement CSR procurement
efficiently and accurately from bothbuyer and supplier perspectives.

SAQ
Audit

Describe the form that should betaken by a mutual growth-type audit
for buyers and suppliers to achieve
improvement and growth together, anddescribe its specific implementation.

Report on
evaluation results
On to the next step

Figure 2. Three Sub-Working Group Activities

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Chapter 2 The Form that Should be Taken by Supplier Briefings
Corporate activities are becoming progressively more global, and supply chain management is becoming
increasingly important. In this context, the sub-working group on briefings discussed the form thatbriefings would take in order to achieve a Triple Win, meaning a three-way win that includes not just thebuyer, but also the supplier and society. We have described our vision of what such briefings should be in
our own ways.
Briefings are held at an early stage in the CSR procurement process. Given the notion that a Triple Win
becomes possible only when the buyer and supplier share a vision between them in this way, we took theview that the purpose of briefings is to share a vision.

2.1 Five Important Elements in the Briefing as a Step to Sharing a Vision
Briefing methods include briefing with documents, publication on the Web, and so on. Most corporations
use methods like these to publicize their deployment of CSR procurement and link it to subsequent
processes. On the other hand, some corporations seek to give their supplier a fuller understandingby setting up occasions to brief the supplier directly. Activities will not yield true results without the
supplier's understanding and agreement. Making the effort to hold briefings is itself a first step toward
vision-sharing, and the results of our thinking about what form the briefings should take and what content
they need to have in order to provide a still deeper understanding is addressed in the following Five
Important Elements of Briefings.
○ Changes in the social environment in which the corporation is embedded○ Reasons for engaging in CSR procurement○ The effects and envisioned advantages in promoting CSR○ The company's own corporate philosophy, its conceptual approach to CSR, and an overview

of its business○ Future plans for activities to promote CSR procurement and actions to be requested
These five elements will be examined individually below.

2.1.1 Changes in the Social Environment in which the Corporation is Embedded
The first important element that should be explained in a briefing is changes in the social
environment in which the corporation is embedded. The social responsibility of corporations has been
an issue for some time, but this is still not widely recognized by the public. Given these circumstances,even if the buyer wants to promote CSR procurement, the supplier is unlikely to understand the buyer's
intentions. It is extremely important to first convey the changes in the social environment in which thecorporation is embedded, which provides the context in which the demand for CSR emerged.
The question, then, is what kind of change in the social environment needs to be conveyed. CSR
activities originated in the response to environmental pollution problems that arose in conjunction
with corporate activity in the 1970s. Corporate responsibility came to be seen as extending beyond
environmental problems to include human rights and all other such social issues. The scope of CSR
applicability also extends beyond the range of activities of the corporation itself to include the entire
value chain that is influenced by the corporation, and society has grown more demanding in what
it requires of corporations. The response to these demands by society was the beginning of CSR
procurement.

8

In support of this view, the international standard for social responsibility that was published in 2010 as ISO
26000 also states that measures for social responsibility should be addressed not just to one's own organizationand subsidiaries, but also to customers and suppliers to which the organization's influence extends.
The changes in the social environment that are to be conveyed in briefings means those changes
in society that have brought CSR procurement into demand. Rather than explaining what happened
with respect to CSR, the briefing should instead describe the history whereby CSR activities became
necessary for the supply chain as a whole, including procurement activities. This is more likely to aid
the buyer's understanding.
One step toward sharing their vision is for the buyer and supplier to gain a correct understandingof the social context and to understand what is required. This causes a shared awareness between thebuyer and supplier so that the vectors of the activities come into alignment and they become able topromote CSR procurement more effectively.

2.1.2 Purpose of Engaging in CSR Procurement
As corporate procurement activities become globalized and supply chains grow more complex,
the risks associated with social problems around the world (human rights, labor, the environment,compliance, etc.) are injecting elements of uncertainty into business operations. Corporations must
engage in management of CSR risks in order to eliminate negative impacts on business continuity,
brands, and other such concerns.
Given this context, the supplier briefings in conventional CSR procurement would commonly havebuyers suggesting procurement criteria and codes of conduct for transactions presented from theperspective of eliminating risk for the buyer. Apparently, the reasons for engaging in CSR procurement,
and its necessity, were often explained in these terms.
As noted in the preceding paragraph, however, change takes place in the social environment in which
the corporation is embedded, and what is demanded of CSR procurement now is a contribution to theresolution of global social issues in the entire supply chain, going beyond just the avoidance of risk. CSR
procurement is an effective means for resolving social issues. In the case of large and highly influential
multinational corporations, in particular, much is expected of them by the United Nations and otherof their many stakeholders as well as by international society, and this constitutes an opportunity toenhance their corporate value.
Making a contribution to sustained improvement and development within the global supply chain
assures the long-term continuity of a business and heightens the company's own corporate value. Thiscan certainly be considered one major reason for the company to engage in CSR procurement.

2.1.3 The Effects and Envisioned Advantages in Promoting CSR
The next content that should be included in the briefings is the effects and envisioned advantages inpromoting CSR. If a supplier does not have motivation to participate in these activities voluntarily, CSR
procurement will not yield its full effects. The view in this working group, therefore, is that the Triple
Win approach is the motivating force for promoting CSR procurement. If CSR is perceived as some kindof special activity, and implementation is sensed as a burden, then even the supplier alone will not beable to win, much less achieve a Triple Win. Communication by buyers of the effects they think CSR will
have, and the advantages they envision from it, will help to sweep away that sense of a burden, as well.
Even if they cannot hold out hope of a short-term effect, suppliers will no doubt feel more motivated toengage in activity if they can be made to understand its long-term advantages.

9The advantages that a corporation can expect to enjoy as a result of CSR promotion would generally
include the following items.
○ Strengthen capability to support risk management compliance○ Strengthen business competitiveness○ Heighten customer satisfaction○ Increase corporate brand strength○ Guarantee the continuity of society, which is the foundation for the continuing existence ofbusiness itself
Corporations that take CSR procurement merely as a means to avoid procurement risk may be likely
to exert pressure one-sidedly on suppliers to implement CSR (and especially compliance) or to justconfirm the status of implementation and go no further. Such cases do not lead to suppliers voluntarily
engaging in CSR and taking action themselves to heighten the social value of their existence. This is
why it is extremely important to be able to persuade a supplier, as noted above, by explaining how thisstrengthens business competitiveness, increases customer satisfaction, enhances the corporate brandstrength, and provides positive value with the expectation effect from guaranteeing the continuity ofsociety, which is the foundation for the continuation of the supplier's own business. Whether the supplierhonestly accepts these arguments, and the relative strength of the supplier's resulting motivation, will ofcourse largely determine how serious the supplier subsequently is about engaging in CSR measures, andan explanation that is logical and persuasive will help facilitate a smoother adoption of CSR internally by
the supplier.
There is also variation among suppliers in the extent of their understanding and awareness of CSR,
which also makes it necessary to prepare explanations from a variety of approaches. It will be easier toobtain a feeling of empathy from a supplier if the explanation can be understood and feel natural even to
people who do not know very much about CSR, or if the content of the explanation can be reviewed bypeople in other divisions, or if some other such technique is devised.

2.1.4 The Company's Own Corporate Philosophy, Its Conceptual Approach to CSR,
and an Overview of its Business
It is very important to explain the company's own corporate philosophy (management philosophy) andits conceptual approach to CSR, as well as the kind of enterprise it is (field of business, sales, numberof employees, etc.), as the context in which the buyer began CSR procurement. The reason for this isthat a company's corporate philosophy and its CSR measures are interlinked, and it is necessary for the
supplier to gain an understanding first of the direction in which the buyer is intending to advance.
In order for the supplier to truly endorse the measures of the buyer corporation, it will not be enoughfor the buyer just to describe the changes in society or the importance of procurement practices fromthe buyer's side. That alone would be lacking in persuasiveness. As the changes in social conditions
increase the responsibilities that devolve upon the corporation, buyers must describe, with conviction,
how they think and how they intend to face up to society. This also means, of course, that buyers
themselves promote CSR, they openly state their aim to expand into the supply chain, and they seek
to have suppliers promote their own companies' CSR activities. The significance of incorporating thesematters into briefings is that doing so allows the buyer to convey directly to suppliers their company's
conceptual approach with regard to CSR.
Those member corporations of this working group that conduct briefings in Japan and other countries
all include explanations of their company's own corporate philosophy and its conceptual approach to
CSR. These could be considered essential items.

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2.1.5 Future Plans for Activities to Promote CSR Procurement and Actions to be
Requested
The discussion to this point has centered on explanation of matters that have to be explained in
the course of promoting CSR procurement in order for buyer and supplier to share a vision of CSR
procurement. The last of the five important elements is an explanation of future plans for activities topromote CSR procurement and actions to be requested. The fact that suppliers are to be told in specificdetail about how the buyer is going to promote CSR procurement in the future may be obvious but
it is also of great importance. The sub-working group conducted a survey of actual conditions in thecorporations participating in this working group, and received a considerable number of responses
indicating that:
・The respondents conducted briefings but have not taken any particular action since.
・They conducted questionnaire surveys (SAQ) following briefings,

but have not provided any feedback on the questionnaire results.
・They have not conducted any particular activities since implementing briefings and SAQ

during the first year.
It is necessary to describe the overall scheme at the briefing stage. This would include the plannedschedule for SAQ surveys and subsequent audits, how long activities are to be continued, and if any
supplier did not satisfy certain criteria for the SAQ or audit, what would happen to their contracts.
The matter of how the buyer intends to proceed with CSR procurement activities also indicates thebuyer's commitment. Clearly stating an overall schedule will tend to eliminate hold-ups in those activities.
The process of promotion activities will differ with the kind of business conducted by the supplier andits size. With regard to suppliers, too, a single pattern cannot necessarily be expected to be applicable toall. The question of how to deal with such cases must also be considered.

2.2

Vision-Sharing Issues and Their Solutions

The above has described the sub-working group's views regarding the content of briefings intended
to make it possible to share a vision of CSR. In order to verify its conclusions, the sub-working groupconducted a survey of actual conditions in the corporations participating in this working group.
The survey clarified how the five important elements are handled in actual briefings and how they
are conveyed. In this section, a proposal will be made with regard to issues that emerged from thequestionnaire and ways to resolve those issues.

2.2.1 The Status of Briefing Implementation
This working group seeks to determine the desired form of procurement aimed to achieve a Triple
Win. We have selected briefings, SAQ, and audits as three important processes for that purpose, andwe are seeking to determine what form these processes should take. We found from the results of oursurvey, however, that the implementation rate for the briefings themselves was lower than anticipated.
Corporations that are implementing briefings for domestic suppliers account for 50%. Even of thosethat are implementing briefings, almost all have done no more than one briefing.
On the other hand, the number of corporations that implement an SAQ was higher at 17 (70.8%),
among them some that implement only an SAQ. Given the aim to achieve Triple Win, we consider
it essential that briefings for vision-sharing be implemented in advance of measures to promote CSR
procurement, and it is necessary that the supplier in question have a full understanding of the necessity11

of CSR procurement. Just implementing briefings once at the initial stage of the CSR procurement
process cannot be considered sufficient. As each company applies the PDCA cycle to its program, newissues are certain to emerge, and there is certain to be a next step to be taken for further improvement.
Under the conditions of business expansion, it will be even more the case that the supplier in question
will not be fixed, so that any number of occasions for briefing will be required to deal with the variety ofchanges that occur.

2.2.2 The Timing of Implementation
The survey results indicated that in the majority of cases, briefings were held just one time when
CSR procurement activity was being started. Although there were some exceptional corporations that
continue with the implementation of briefings in conjunction with meetings to announce their annual
plans and other such regular events, these were found to be extremely few in number.
Other considerations include changes in the number of suppliers involved, changes in the suppliers,
and revision of the content that should be explained. When a supplier's understanding advances to acertain extent, it will naturally become necessary to share intentions (vision) at a higher level that ismatched to the next step.
As to the timing, it should be good to hold briefings when beginning CSR procurement activity andagain, after completing one entire process through SAQ and audit, when a review is conducted andactivities are geared to the next objective. The frequency of briefings is not subject to generalization, but
we expect that continuing implementation will be necessary.

2.2.3 Selection of Suppliers for Briefing
It is apparent from the survey results that suppliers are selected according to the size of transactions,the extent of risk, and the scope of the company's influence on the supplier. Most corporations appear toconsider suppliers to the primary supplier level as briefing recipients.
The larger a corporation is and the more areas of business it is involved in, the more suppliers it will
have. In practical terms, it is not possible to brief all suppliers, and the selection of suppliers for briefingis left up to the judgment of each corporation. It would seem advisable, however, to assign priority firstto primary suppliers and to those in regions or business fields that are subject to greater risk. The
objectives of CSR procurement also include the resolution of social issues, so there are cases when it
becomes necessary to set the scope of selection broader or deeper.

2.2.4 Content that Should be Explained
The five important elements that we have discussed are explained by almost all the corporations that
conduct briefings. (Figures in parentheses are questionnaire results.)
・Changes in the social environment in which the corporation is embedded (100%)・Reasons for engaging in CSR procurement (88%)
・The effects and envisioned advantages in promoting CSR (88%)
・The company's corporate philosophy, its conceptual approach to CSR,

and an overview of its business (100%)・Future plans for activities to promote CSR procurement and actions to be requested (75%)

122.2.5 Divisions in Charge
The results show that these are centered on the procurement divisions (88%), while the CSR divisions
provide support (63%). What these results suggest is that measures for CSR in the supply chain are notspecial duties assigned by a specific division or department, but rather are being included as importantelements of procurement operations according to selection criteria on a par with quality, cost, anddelivery (QCD).

2.2.6 Implementation in Other Countries
The corporations participating in this working group, which were the subjects for the recent survey,
include many corporations in the electric and electronic industries that have already built up a recordof accomplishment in CSR procurement in other countries than Japan. For this and other reasons, therate of briefing implementation by these corporations in other countries is 58%, which is higher than therate of implementation to domestic suppliers (50%). Our view is that this is in part because of the higher
procurement risk in other countries, so that CSR procurement itself is being deployed more actively
there. On the other hand, there was only one company not in the electric or electronic industries that
implemented briefings in other countries.
The sub-working group on briefings has concluded that, in the interest of achieving a Triple Win
by means of CSR procurement, briefings must be conducted for suppliers in other countries in orderto implement vision-sharing in much the same way as for suppliers in Japan. Language problems andissues particular to other regions are factors, however, and it appears there are still significant obstacles
to implementation that must be overcome. Our view is that plans for implementing briefings should beconsidered, and that combinations of alternative means, such as conducting SAQ first, can be devised forthis purpose.

2.3 Conclusion
Briefings are activities conducted to obtain the supplier's understanding and agreement to engage inwork together at an early stage in the CSR procurement process. This is not just a matter of buyers
making clear what they are aiming for, and what kind of actions they will take to that end, but rather amatter of understanding one another. That is, taking steps for shared vision with the supplier is of thegreatest importance if the results of activities are to be anticipated. It is desirable, therefore, to give fullconsideration to examination of the content and plan for implementation when briefings are conducted.

13

Chapter 3 The Form that Should be Taken by the Self-Assessment Questionnaire (SAQ)The SAQ is of great importance for buyers and suppliers in checking their implementation status withregard to the environment, human rights, labor, and other CSR elements. The SAQ was originally a toolby which suppliers could efficiently check that status of their CSR measures in a questionnaire format.
However, the definitions of words and indices that can be used in common have not been established, so that
there are significant variations in the content and number of questions. Suppliers are faced with the burdenof responding to various similar yet non-identical questions posed by multiple buyers, while buyers arefacing the issue of being unable to obtain the information they really need. This sub-working group carriedout a study of the SAQ with the aim of making it into a standard tool that anybody would be able to use.

3.1 The Position of the SAQ
Corporations that engage in CSR procurement first formulate a CSR procurement policy, develop a codeof conduct with specific content based on that policy to present to suppliers, and go on to take measureswith suppliers to realize that code of conduct. In order to make these activities effective, a process ofcommunication is required by which the status of measures regarding the substance of requests made ischecked with the suppliers after a certain period of time, and further improved activities are encouraged.
The methods used for checking, as shown in Table 1, include the SAQ (a documentary method), surveys,
and audits (an interview method). It is necessary to consider not only the level of response that buyers are
to require of suppliers, and how far they are to pursue the follow-up on status of improvement, but also cost
performance. Checking by interview yields more reliable results than by documentary means, but it is also
more expensive. Ideally, therefore, the method of checking should be determined by assessing the risk level*2
to ascertain the extent of impact on the buyer when CSR risk from a supplier has emerged.
When the level of risk has been determined to be relatively low, and when the purpose of checking is
to ascertain and adjust actual present conditions and awareness of the content of the code of conduct, theSAQ can be an extremely effective communication tool in terms of cost, as well. When an interview-based
method such as a survey or audit is chosen, the SAQ can be used in advance to create a checklist that will
increase the efficiency of the survey or audit. On the other hand, it is also important to make the effort tocreate questions that suppliers can answer more easily by including indices or explanatory material witheach question, and so on, to assist suppliers to accurately understand the content of the questions.
*2 Assessment of risk level: See "Supply Chain Sustainability Risks Mapping" on p. 28 of Supply Chain Sustainability: A Practical Guide
for Continuous Improvement (United Nations Global Compact and BSR, 2011).

Table 1. Methods for Checking the Status of Supplier Activities

Checking method

ExpenseCertainty ofeffect checking

Greater

Greater

Improvement requirement level(Larger circled numbers indicate greater improvement level)④ Implementation extends to follow-up audit③ Scoring, request to improve weaknesses, request for

post-improvement evidence

Audit (interview)② Scoring, request to improve weaknesses① No request for improvement (scoring and analysis only)

Conduct overall analysis, submit results to suppliers as
improvement requests (Suppliers not evaluated by scores)

Survey (interview)② Scoring, request to improve weaknesses

SAQ(documentary)
Pledge (documentary)① No request for improvement (scoring and analysis only)
Smaller

Smaller

No request for improvement* Based on results from the survey of corporations participating in the SAQ Working Group, Supply Chain Working Group,
Global Compact Japan Network.

143.2 Current SAQ Status and Issues
There are many corporations at present that adopt the SAQ as a method of checking, from theperspective set forth above, and of the 24 corporations participating in this working group, 17 are using
the SAQ (as of the end of November 2011). The usual SAQ processes follow the flow from creation of awritten explanation to creation of the SAQ, responses by suppliers, and feedback (including audits). Resultsfrom the survey of corporations participating in this working group indicate that many corporations do
not implement all of the processes, and they also differ in the content and implementation method foreach process. Common issues among most corporations, however, are the processes of creation of the
SAQ and responses by suppliers. As shown in Table 2, the content and number of questions vary fromcompany to company, and this therefore leads to the imposition of a burden on suppliers. Furthermore, it
is not necessarily the case that the supplier and buyer share a common understanding of what individualquestions are intended to check or of what must be done. This is also related to the issue of buyers not
being able to obtain the information they need. For example, the question, "Do you keep their identification
papers when hiring?" contained in a certain SAQ will not yield useful answers unless it is understoodthat the question derives from the problem of forced labor that occurs in countries and regions where
immigrant workers are numerous.
Furthermore, if an SAQ with too many questions is used without ascertaining which are essential in
obtaining core information needed by the buyer, then responding to all the questions only imposes aburden, making it unlikely that the truly necessary information will be obtained.

Table 2. Circumstances of SAQ Implementing Companies

Item

Circumstances at companies
・Electric Industry Code of Conduct of the Electronic Industry Citizenship Coalition (EICC)
・Japan Electronics and Information Technology Association (JEITA)

Basis of question
content

Supply Chain CSR Promotion Guidebook
・Social Accountability International (SAI)・SA8000
・Corporations' own codes of conduct

Number of questions

20-400 questions

Scope of applicability

Priority to main primary suppliers and outsourced manufacturers

Level of improvement
required

Many corporations do not go beyond the steps of providing feedback on results andrequesting improvement* Based on results from the survey of corporations participating in the SAQ Working Group, Supply Chain Working Group,
Global Compact Japan Network.

3.3 Examination of the Form a Standard SAQ Should TakeAs a result of SAQ Sub-Working Group discussion of methods for resolving the issues noted in section
3.2, the conclusion was reached that realizing an SAQ that anybody could use in a standard manner, thatwould function efficiently for both suppliers and buyers, and that would assure the sharing of necessary
information (hereafter, standard SAQ) would contribute to resolving the issues. In order to examine theform a standard SAQ should take, a comparison was made of the existing SAQs being used by the EICC
and the corporations. The necessary headings and questions were identified from the perspective of what
the questions are essentially trying to check and what should be checked to answer the questions.
Figure 3 on the next page shows the SAQ Sub-Working Group's organized summary of heading items

15

and questions based on the comparison of existing SAQs. These were placed under three main headings
with reference to the United Nations Global Compact principles of human rights, labor, environment andanti-corruption, and further sub-headings were added under them. Specific question items are included in
the sub-headings but even in those sub-headings, the questions can be divided generally into management
items (questions intended to confirm the existence of mechanisms for continuing management under
the sub-headings) and on-site confirmation items (questions intended to confirm the substance of on-sitemanagement relating to the sub-heading in question).
Major Headings

Sub-Headings

Human rights,
labor,
safety and healthChild labor
Forced labor
Prohibitionof discrimination

Environment

Management Items
Questions checking
on the existenceof mechanisms forcontinuing management

Right of employees
to organize
Prohibition of
inhumane treatment

Awareness of thelaw
Policies
Framework andresponsibility

Reasonable wages
Working hours

EthicsFive Points for Confirmation

On-siteconfirmation items
Questions checking
that on-site operation isin accordance with the
management items

Confirmation of
performance
Correction

Figure 3. Organized Summary of Headings and Questions Based on Comparison of Existing SAQs

The elements making up the management items in each sub-heading were examined in order to further
organize the information for standardization. The results showed that each sub-heading is made up of fivecommon elements. The SAQ Sub-Working Group takes the view that the use of a basic SAQ incorporatingthese five elements will lead to a standard SAQ, and proposes Five Points for Confirmation that will serveas common indices when buyers create an SAQ and when suppliers respond to an SAQ.

3.4 SAQ Five Points for Confirmation
The Five Points for Confirmation do not comprehend all the perspectives that are supposed to be in
an SAQ. It will naturally be necessary to set individual confirmation items under each sub-heading, andfurther for buyers to set questions according to the risks envisioned by their individual companies, regional
characteristics, and other such factors. Our view, however, is that understanding the Five Points for
Confirmation with regard to the management mechanisms that constitute the base for CSR management will
make it possible for both buyers and suppliers to engage in efficient, reliable information-sharing.
The Five Points for Confirmation in the SAQ management items will be explained individually in thefollowing. These are, namely, awareness, understanding, and violation status with regard to laws andregulations; policies; framework and responsibility; performance; and correction.
The explanations on each point are organized by the following three perspectives:(1) Why it is necessary(2) What needs to be done to satisfy it(3) What is to be confirmed

163.4.1. Confirmation of Awareness, Understanding, and Violation Status with Regard
to Laws and Regulations
In-house confirmation of awareness and understanding of relevant laws,
regulations, and social norms, as well as status of violation or compliance(1) Why it is necessary

If the activities of a corporation violate or deviate from laws, regulations, and international codesof conduct, then the corporation will be subject to legal sanctions. This will also lead to loweringof the brand image, and in serious cases the corporation may even have to withdraw from themarket. In global business activities, in particular, laws differ with the countries concerned, andthere are also cases when priority should be given to compliance with international codes ofconduct over a country's laws. Problems sometimes occur because of inadequate recognition of thesubstance of these codes and laws.
In CSR procurement, supplier violations are problems that extend beyond the supplier alone. It is
important, therefore, for buyers to pose questions in the SAQ as to whether a supplier is aware of andunderstands relevant laws, regulations, and international codes of conduct, and whether the supplierhas conducted in-house checks to determine whether any violations or deviations have occurred.
(2) What needs to be done to satisfy it① Management of laws and regulations
It is necessary, first of all, that the company be aware at all levels of what laws, regulations,and international codes of conduct apply to the survey items. For that purpose, we consider it
sufficient for the following measures to be in place:(a) Possession of tools for examining the content of laws, regulations, and social norms(law and regulation survey lists and lists of international codes of conduct) (on theWeb, as independent systems, etc.)(b) Documentation of criteria for violations and deviations from applicable laws and regulations(c) Build and manage history management systems to track surveys of relevant laws and regulations(d) Clearly define what company departments are involved with applicable laws and regulations(e) Establish channels for collecting information (adding to them as necessary)( f ) Conduct thorough management of list updates (adding as necessary)② Awareness of laws and regulations
Next, it is necessary that the concerned parties understand the purpose of the applicable laws,
regulations, and international codes of conduct, and how those controls relate to their own scopeof operations. For that purpose, it would be desirable to implement measures as follows for legal
coordinators and employees of related divisions at every site when there are multiple sites:(a) Education to make widely known the criteria determining violations of and deviationfrom laws, regulations, and international codes of conduct(b) Education to make widely known the content of operating manuals, guidelines, andother such material③ Regular checking to ascertain the status of violations or compliance,and correction if there are problems
We consider it sufficient if self-checks are carried out to determine that violations have notoccurred in operational processes in light of the criteria for violations and deviations, and if
corrections are made in the event that problems are found.

17(3) What is to be confirmed

As a means to confirm the practices of the supplier described in (2) above, it is also necessary to
set questions on the assumption that checks of regulations, records, and other such documentation,
together with interviews, can confirm the existence of management mechanisms and the fact of
implementation in the departments and divisions required.
① Management of laws and regulations(a) Tools for examining the content of laws and regulations (on the Web, as independent
systems, etc.)
Check survey lists of related laws and regulations to confirm that enactments and updates
of applicable laws and regulations are listed, together with the existence of applicableinternational codes of conduct.
(b) Check documents to determine whether criteria for violations and deviation are
clearly stated(c) Check on the creation of history management systems to track surveys and check on
the history of management results② Awareness of laws and regulations(a) Degree of understanding by concerned parties regarding laws, regulations, andcriteria for violations and deviations
・Check educational records
・Conduct interviews of employees(b) Check to determine whether there are any notations (including on intranets) relating
to the prevention of violation or deviation with regard to in-house regulations,operating manuals, criteria, etc.
③ Make corrections in the event of problems found in regular checks regarding violations

or compliance(a) Check records relating to results of self-checks regarding criteria for violations anddeviations and relating to corrections of problems found
It is also desirable to check that monitoring of mechanisms to prevent violation and deviationis performed by the supplier's in-house audit or other such department or by a third-party
organization, and that regular audits are conducted.

3.4.2 Confirmation of Policies
Whether policies approved by management are in place(1) Why it is necessary

It is necessary to confirm by the SAQ not only that there are presently no violations of laws andregulations or of social norms relating to the various items of human rights, labor, environment,
and anti-corruption, but also that mechanisms for continuously maintaining that state are in placeand in operation. Such policies serve as the foundation for creating mechanisms of this kind in
corporate activities.

18

(2) What needs to be done to satisfy it

For policies, it is necessary to have formal documents that clearly state the corporation's
conceptual approach to the items concerned together with criteria for judging what actions should
be taken by the members of the organization. It is also important that policies be presented in amanner that communicates them reliably to all the organization members who are supposed totake action in line with the policies, in a manner that will be understood, and by a method thatanyone can access. In addition, it is important that education and other activities be underway tomake the policies widely known.
At the same time, policies show the transparency of the corporation to outside stakeholders andfulfill the function of accountability. From the policies explicitly stated on the Web, in CSR reports,
and by other such means, stakeholders can gain a solid understanding of the scope of what that
corporation considers its social responsibility and of what its measures are intended to achieve,
and this enables them to evaluate the corporation correctly.
(3) What is to be confirmed

Given the above, an SAQ should confirm the following points:① Whether or not there are policies that have been approved by management and documented② Whether the policies in question are presented in a form that can be accessed by all theconstituent members (including group corporations) that are supposed to take action inline with those policies, and whether the policies have been made widely known (alsoconfirm the means by which they are presented and made widely known, as necessary)③ Whether or not there has been disclosure outside the company (also confirm the meansof disclosure, as necessary, including a request to note URLs if there is a Web presence)
There can be cases when corporations formulate their policies by area, such as human rights,
labor, environment, anti-corruption, and so on, or by individual item, such as child labor, forcedlabor, and so on. In the former, it will be necessary either to state what individual items areincluded under those areas, or to devise some means for selecting from among alternatives
that have been prepared in advance. With items that are related to laws and regulations, inparticular, it will be desirable to include a notation of when the item was most recently reviewed
in order to confirm that policies support the most up-to-date content of the laws and regulations.

3.4.3 Confirmation of Framework and Responsibility
A department or person responsible for management is in place(1) Why it is necessary

Corporations are required to have created effective management systems and mechanisms
relating to the SAQ items to be checked. In order to guarantee the operation of these management
mechanisms as well as their periodic review, the department responsible for that management or
the person responsible for management in the corporation must be clearly identified. Ordinarily,
management is the activity of controlling and giving direction to the everyday work activities
of an organization so as to effectively and efficiently achieve the objectives of the organization's
administration. These operations are referred to as management operations, and there must be anorganization or a person or persons to take on this role.

19(2) What needs to be done to satisfy it

In the case of a department responsible for management, this indicates the organization withresponsibility for the corporate activities related to the SAQ items to be checked. In the case ofa person, the person is called a manager, and in corporations, this person may also be termed an
executive because the person has the managerial position of the head of the organization. The
person responsible for management indicates the person who has responsibility as representativeof the manager. Depending upon the corporation, the person at the top may be a manager or
may be a person responsible for management. The department responsible for management or
the person responsible for management will be responsible for appropriately determining thespecific manner of performing the activities in the SAQ items, for guiding the employees involvedin that execution, for issuing instructions to them, and for seeing that the activities are carriedout as prescribed in an effective and efficient manner. It is therefore essential that the person
responsible for management be explicitly identified, and it is also desirable for that person to haveaccomplished the following points:(a) That the organizational division of duties for the department responsible formanagement is established in in-house documentation; and(b) That the division of duties for the person responsible for management or for the
person corresponding to the person responsible for management is established in
in-house documentation.
(3) What is to be confirmed

It is desirable to confirm that the person responsible for management or the department
responsible for management is established. It is also necessary to take care regarding the following
two points:
・Depending upon the size and other characteristics of the corporation that is being

surveyed, there may not be any department responsible for management of activities
related to the SAQ items. In that case, therefore, it will be necessary to make it possible
to confirm whether or not there is a person responsible for management. There may
also be cases in which a single individual is the person responsible for management ofmultiple items, and though it may be possible to inquire about the responsible person
through the CSR connection, the framework should be devised to enable confirmationof the person responsible for management for each item so that those concerned can bemade aware of how each item should be handled.
・Depending upon the corporation that is being surveyed, an explanation of the

management systems in the corporation should be included as necessary. This would
include, for example, explanation by such statements as "this refers to application of
the PDCA cycle, which is the continuing operational cycle of planning, doing, checking,and acting (or improving)," and "activity that starts by defining the issues that should be
resolved with regard to operation of the corporate organization and plans the kinds ofresults that are to be achieved and the methods for achieving them in order to resolve
those issues."

3.4.4 Confirmation of Performance
Objectives and implementation plans have been formulated and mechanisms forconfirming the extent of achievement are in place (confirmation of performance)

20(1) Why it is necessary

Having employees understand laws and regulations, having the company's CSR policies decided
in a top-down manner by company management on the basis of an understanding of the laws
and regulations, and having CSR promotion implemented in line with policy by the authorized
department or person having responsibility, are important elements of the arrangement. It is also
important to confirm whether these elements are actually being put into efficient operation, andwhether the results of operation are in accord with the company's own policies of confirmation of
performance. Such confirmation is also important as an operational element. It is by implementing
both these elements of mechanism and elements of operation that the corporation first becomesable to realize effective CSR promotion.
(2) What needs to be done to satisfy it

It is desirable that the items under the following headings ① to ④ be accomplished:① Setting objectives
・That achievement be possible
・That achievement criteria be clearly stated② Creating implementation plans・That they be approved by management
・That they be specific in content (responsible department or person, schedule, etc.)③ Confirmation
・That criteria be clear
・That it be possible for anyone to implement and that the results have uniformity
・That there be a mechanism for confirming results④ General・That matters be documented (recorded in written regulations, etc.)
・That periodic reviews be conducted (for example, ISO 26000)
・That they be made known to concerned parties
・That history management be implemented
・That matters be handled not just as a formality, but as having practical effect(3) What is to be confirmed

It is desirable that questions be written from the following perspectives, and that the status of
implementation be confirmed in-house.

Perspective 1: Confirm with evidence (documentary evidence) when investigating whether or
not a mechanism is in place or examining content (For example, written terms,
regulations, etc., and history management documents, etc.)* Even if the evidence is not complete, an evaluation that is positive to some extent will be given if themechanism is in place.

Perspective 2: Confirm in-house and by external survey, investigation, and audit results
when conducting a survey, investigation, or audit of the operational resultsin the preceding paragraph3.4.5 Confirmation of Correction
Mechanisms are in place for making corrections, as necessary, on the basis ofassessment results

21

(1) Why it is necessary

Improvement measures undertaken jointly by buyers and suppliers will be explained in Chapter
4. This section, therefore, will focus first on improvements that arise from what buyers or sellers
notice in their own activities. Section 3.4.4 states that "Objectives and implementation plans
have been formulated and mechanisms for confirming the extent of achievement are in place(confirmation of performance)," and that objectives are determined, implementation plans are inplace, and the extent of achievement is assessed. For those items and headings that have not yet
been achieved, implementing improvements will constitute application of the PDCA cycle.
(2) What needs to be done to satisfy it

It is desirable that the following be accomplished:
・Promotion of CSR measures has clarified the aimed-for image
・Correction objectives have been formulated and a correction schedule has been created
・The person responsible for promotion is clearly identified
・Progress is regularly confirmed(3) What is to be confirmed

It is desirable that the following two points be confirmed:① Are there any items or headings that have not been achieved?
② Have corrections been made or are they being made to items or headings that have notbeen achieved?
The work of confirmation does not require that the format of correction plans and written
improvement plans be questioned. However, it is necessary to confirm whether or not the
responsible person and the date are recorded properly, whether or not the person in charge ofrelated departments or divisions has been properly incorporated into plans, and whether or notmechanisms for regularly managing progress are in place.

3.5

Conclusion

This chapter has provided an organized overview of the position of SAQ, its actual present conditions,and its issues in the course of the promotion of CSR procurement by both buyers and suppliers, together
with an examination of the form that SAQ should take under those conditions. As a result, we arrived at theconclusion that the creation of an SAQ that has the Five Points for Confirmation as essential elements for
an SAQ that anybody could use as a standard (standard SAQ) would be an effective solution to the actual
present conditions of the SAQ. The SAQ causes the vision shared through briefings to be subjected toconfirmation of actual present conditions and search for issues, thus realizing the vision on a level at which it
can be examined as an initiative, and the SAQ provides information that serves as preliminary preparation
for the implementation of a more efficient audit. In this way, therefore, it can be considered to serve an
important bridging function, and this is further reason why the use of an easy-to-use, easy-to-implement
standard SAQ serves as motivation to enable more practical deployment of CSR in the supply chain.
The kinds of SAQ that are created will differ according to each corporation's position and the status ofits progress in CSR procurement. When buyers create the questions, however, it is important that they
incorporate the Five Points for Confirmation given in section 3.4 for the SAQ.

22

Chapter 4 The Form that Should be Taken by Audits
This chapter presents an organized summary of the processes and perspectives that are necessary for amutual growth-type audit, together with actual audit criteria and methods.

4.1 Toward Realization of the Mutual Growth-Type Audit(1) The place of the audit in CSR procurement

This is one of the processes by which buyers and suppliers cooperate on making improvements
to CSR-related measures. Specifically, buyers assess the activities of suppliers in light of global
social norms, request improvement as appropriate, and perform follow-up.

The buyer

requests
improvements

The buyer

assesses
the supplier's activities

regarding supplier's
on-site issues

・For buyers, formulate rationaland objective CSR assessment
criteria, audit criteria, and audit
implementation methods
・For buyers, full explanation to the
supplier regarding these criteria

・Buyers appropriately ascertain
supplier's on-site issues
・Suppliers understand thesignificance and advantages ofimprovement and voluntarily
engage in improvement

Steps are taken for
two-way communication
regarding the substance of
the improvement andfollow-up is performed

・Perform follow-up to link
to continuing improvement
measures by both sides

Through audits, buyers and suppliers cooperate on improvement of CSR measures
Figure 4. The Place of the Audit in CSR Procurement(2) What this working group considers the audit as it should beWith emphasis on fair, just, and evenhanded attitudes in the buyer and the supplier, and having
clarified the advantages not just for the buyer but also for the supplier, both parties achieve
growth by working together to resolve issues. Furthermore, this is a mutual growth-type audit
that also leads to autonomous CSR measures on the part of the supplier, as well.
(3) Main advantages of the mutual growth-type audit① Advantages for both buyers and suppliers・Competitiveness is enhanced by active CSR measures(Innovation relating to processes, innovation relating to products and services)
・Avoidance of CSR-related risks (labor issues, environmental issues, etc.)② Advantages for buyers
・Contributes to creation of a more stable supply chain③ Advantages for suppliers・Contributes to creation of more long-term, stable relationship with the buyer

Specific example: Increase in production efficiency and increase in employee
satisfaction by improvement of working environment, etc.
(4) Important points of attention in mutual growth-type audit① Criteria, methods, etc. for measures・That CSR assessment criteria, audit criteria, and audit implementation methods bereasonable and objective in light of global social norms
・That the buyer satisfies accountability with regard to measures and increases transparency

23

② Buyer and supplier attitudes
・Fair, just, and evenhanded attitudes on the part of buyer and supplier・Supplier understanding of measures and their persuasiveness to supplier・Buyer's understanding of supplier's on-site circumstances

4.2 Processes and Perspectives Necessary for Mutual Growth-Type Audits
As shown in Figure 5 below, mutual growth-type audits are made up of a multiplicity of processes, fromthe selection of the supplier to be audited to the final follow-up on improvement results.

Process

Mutual Growth-Type Audits
6. Follow-up

Necessary
perspectives

1. Selection of the supplier・Understanding of measures
・Persuasiveness of measures

・Reasonableness, objectivity
・Transparency (disclosure, sharing)

5. Improvement request and support

2. Determination of audit criteria and method
・Grasp and understandingof on-site circumstances

4. Implementation of audit

3. Education of auditors

Figure 5. Processes and Perspectives Necessary for Mutual Growth-Type Audits

This working group conducted discussions of the processes and perspectives necessary for mutual
growth-type audits that lead to both the parties involved undergoing growth and ultimately leading to the
supplier's voluntarily and autonomously engaging in CSR measures.

4.2.1 Selection of the SupplierThis is the process by which the buyer selects the supplier to be audited from the perspectiveof CSR procurement risk (procurement pattern, transaction amount, regional quality, self-diagnostic
questionnaire results, etc.).
(1) Necessary perspectives

The following is important in order to increase persuasiveness to the supplier being audited:

Adequate explanation of selection criteria by the buyer to the supplier* For the supplier, undergoing an audit entails the burden of preparation for the audit and responding on the day of theaudit. It is important, therefore to give a full explanation of the audit selection criteria and to increase persuasiveness tothe supplier in order to make the necessity for conducting the audit understood.

24

(2) Case example

Criteria for selection of the enterprise to be audited are disclosed on the Web and byother such means. Alternatively, the buyer visits or otherwise has contact with the
supplier in advance and provides a full explanation of the selection criteria.
(3) An advanced case example

There are also some cases of suppliers that sought to develop long-term relationships withbuyers by requesting that buyers conduct an audit in order to re-perceive issues in their own
company and make improvements.

4.2.2 Determination of Audit Criteria and Method
This is a process of determining the criteria and the method by which the buyer is to confirm thestatus of the supplier.
(1) Necessary perspectives

The following is important in order to increase the effectiveness of the audit and to increase
persuasiveness to the supplier being audited.

Establish audit criteria according to global social norms*3 (assurance of objectivity andreasonableness)
Disclosure and sharing of audit criteria (assurance of transparency)
Sharing of audit results (see section 4.2.6 on Follow-Up)*3 Examples of global social norms: United Nations Global Compact, ILO treaties (labor-management, intergovernmental
agreements), OECD Guidelines for Multinational Enterprises (NGO, labor-management, intergovernmental agreements),
ISO 26000 (multi-stakeholder agreements), etc.

(2) An advanced case example

In order to further increase the effectiveness of the audit and its persuasiveness to the supplier,there are also cases in which buyers establish audit criteria with the involvement of suppliers,
NGOs, and other concerned stakeholders.
(3) Explanation of audit methods

Audits are mainly carried out by one of the following two types of method.

Two-party audit: The buyer corporation conducts the audit.
→This is considered to excel in terms of guidance for improvement suited to the
supplier's circumstances.
Third-party audit: An audit corporation or other such third party conducts the audit.
→This is considered to excel in terms of objectivity.
(4) An advanced case example

There are also some corporations that combine these methods so as to enjoy both the benefitsof the two-party audit and of the third-party audit in order to heighten the effectiveness of theaudit. (See section 5.2 regarding Good Practices for Corporations Participating in this Supply Chain
Working Group.)25

4.2.3 Education of Auditors
This is a process of developing auditors who have a correct understanding of the audit criteria
formulated by the buyer and who are capable of verifying their content by means of the audit as well asof providing guidance for improvement as necessary.
The education of auditors mainly consists of the two types below.

Methods that emphasize the performance of the object of the audit (observance of laws
and social norms, demands by society)
Methods that emphasize the management of the object of the audit
There are also cases in which these are carried out in combination.
(1) Necessary perspectives

It is important to develop auditors like the following in order to conduct appropriate audits,
increase persuasiveness to the supplier being audited, and to link to voluntary supplier measures
for improvement.

There is a correct understanding of supplier action guidelines and other such audit criteria
There is a capability for appropriate verification of the audit content
There is an understanding of the supplier's size, work environment, and other suchcharacteristics, and a capability for appropriate guidance for improvement(2) An advanced case example

There are also some cases of diagnosticians (personnel who understand the necessary criteria
and other such requirements for undergoing an audit and who examine issues for improvement)
being developed on the supplier side and promoting voluntary improvement measures.

4.2.4 Audit Implementation
This is a process by which the buyer goes to the supplier's on-site location and audits the supplier's
arrangements and performance in accordance with the audit criteria.
(1) Necessary perspectives

The following is important in order to increase the effectiveness of the audit, increase its
persuasiveness to the supplier, and link to voluntary improvement measures by the supplier.

Deepen understanding of the supplier's on-site circumstances through communication withthe supplier in the audit
Consideration for the burden on the supplier side in conjunction with the audit
It is important for buyers to follow advance preparations and procedures like thefollowing in order to make audits proceed smoothly.
・The buyer provides the supplier in advance with information necessary to prepare for audit (self-

assessment questionnaires (SAQ), assessment results from self-diagnosis sheets, audit criteria, etc.)
・Buyers give full consideration to supplier convenience when requesting supplier cooperation in termsof audit schedule and personnel man-hours

26

(2) Examples of advance preparation and procedures for audit
Heading
Establish audit
headings

Particulars
・Example 1: All the headings in SAQs or self-diagnosis sheets that the supplier

responded to separately should be used as audit headings.
・Example 2: Focus on SAQ and self-diagnosis sheet headings that are judged torelate to high risk, on responses that do not appear consistent, andso on, and use those as audit headings.
・Decide on the number of audit headings in light of the audit schedule.

Advancepreparation for
audit

・Obtain site details*1 from the supplier before conducting the audit.
*1 Number of employees, plant layout, chemical substances handled, heavy equipment, etc.

・Perform analysis of self-assessment questionnaires (SAQ) and self-diagnosis

sheets that the supplier has responded to separately. Isolate those headings thatappear to be incompatible, grade them by their degree of importance, provide
the supplier with explanations, and prepare improvement measures in advance.
Audit schedule
coordination,
advance informationmaterial distribution,
etc.

・Regarding the audit schedule, proceed on the basis of communication with the

supplier rather than one-sided notification, if possible making an advance visit
and then requesting cooperation.
・The buyer provides the supplier with all the information*2 needed by the

supplier in order to make advance preparations.
*2 Questionnaire diagnostic results and other advance assessment results, audit criteria, etc.

If incompatibility
occurs during audit
implementation

・If issues that are not compatible with audit criteria arise, the buyer should;

explain the reason for the incompatibility
and discuss improvement measures with the supplier.*3*3 It may be important to engage in discussion not of uniform measures for improvement withregard to audit criteria, but of measures founded in an on-site understanding of the supplier andgeared to the level of measures undertaken.

4.2.5 Improvement Request and Support
This is the process by which the buyer requests improvements with regard to issues found on-site at
the supplier on the basis of an audit that was conducted.
(1) Necessary perspectives

The following is important in order to increase the effectiveness of improvement requests andsupport as well as to increase persuasiveness to the supplier and link to voluntary improvement
measures by the supplier.

Make improvement requests on-site during the audit, not after the audit* Making the improvement request on-site enables appropriate communication with the buyer if the supplier hasquestions or doubts regarding the content of the request.

When additional investment or equipment is required for improvement, work out anappropriate time frame that also takes the supplier's circumstances into consideration* Rather than insisting one-sidedly on a time frame determined on the buyer's sole authority, a reasonable time framethat is acceptable to both parties should be set.

Consider improvement requests (a method for making improvements by policies,
procedures, records, corrections, etc.) in light of the supplier's size of business,business characteristics, regional characteristics, etc.

27

(2) As measures to be anticipated in the future

For buyers and suppliers to share good practices from improvement case examples is an
instance of support for voluntary improvements by the supplier. This will be even more effective
if information is shared through the collaboration of an industry rather than limiting it to a single
buyer corporation.

4.2.6 Follow-Up
This is the process by which the buyer confirms the progress made by the supplier following an
improvement request.
(1) Necessary perspectives

The following is important in order to increase persuasiveness to the supplier and to link tovoluntary improvement measures by the supplier as well as to have both buyer and suppliercontinue improvement measures.

Follow-up is carried out as much as possible on-site at the supplier and while
confirming progress with improvement results* It is important for this to be done on-site in order for the buyer and the supplier to obtain a grasp of on-site issues more
appropriately as well as in order to engage in measures for improvement on the basis of mutual understanding.
* Seeing improvement results on-site with one's own eyes leads to more voluntary engagement in improvement measuresby both sides and to increased improvement speed.

(2) An advanced case example

There are also some cases of audits that realize a high degree of transparency, with the audit
criteria, audit results, follow-up, and other such information being disclosed on the Web with theconsent of the buyer and supplier. This can also heighten the proper sense of responsibility withregard to the audit.
* When other buyers see these audit results on the Web, it can lead to the use of simplified audits by those buyers for this
supplier as well as to the provision of product selection information to customers who are considering the purchase of
products.

4.3 Conclusion
Realizing solutions to issues by means of audits means, in other words, that by working together
on the basis of their mutual understanding, the supplier and buyer achieve an experience of success.
That experience of success can provide leverage for the independence and autonomous mobility of theorganizations and people who achieved that success.

28

Chapter 5 Notable Points and Good Practices for Triple Win CSR Procurement
This chapter will provide an organized overview of points for attention regarding the forms that mutual
growth-type CSR procurement and audits should take, followed by an introduction to good practices pursued
by the corporations participating in this working group.

5.1 Points for Attention in Triple Win CSR Procurement andMutual Growth-Type Audits
The following are points to consider for buyers and suppliers to grow together and seek continuous
improvement in CSR procurement and in audits, as well as to contribute to a sustainable society.

In the process of providing the supplier with explanation, audit, and follow-up, continue
engaging in measures for consistent mutual growth-type CSR procurement and audit
The buyer continues with explanatory efforts to the supplier that clarify the supplier's strengths
and advantages and induce autonomy in the supplier
Aim not for an audit that only identifies nonconformance with audit criteria, but rather for an
audit that provides a roadmap for improvement
Take steps to provide education and development that makes use of all and varied opportunities
by explanations, audits, follow-up, study groups, and other such occasions relating to CSR
procurement and audits in order to improve suppliers' issue resolution capabilities for taking
voluntary improvement measures
Maintain two-way communication with a sustained, direct human presence, rather than just onesided communications from buyer to supplier, in order to build common values for both the
supplier and the buyer, to obtain the supplier's understanding and acceptance of these efforts,
and to engage in improvement measures with a sense of solidarity between suppliers andbuyers29

5.2 Good Practices of Corporations Participating in this Working GroupThe following will introduce good practices that the corporations participating in this working group engage
in. These are measures that enable growth for both buyers and suppliers.

1) Measures making use of the advantages in both third-party and two-party
audits: Major retailer Company A
The company obtained the cooperation of an expert CSR consultant and formulated its own
guidelines (codes of conduct) in accordance with the SA8000 and ISO 14001 international standards
regarding the company's accountability to society for products that the company planned anddeveloped under its own brand in Japan. The company explained this to the supplier, obtained its
understanding, and has the status of its compliance with the guidelines audited by an international
auditing organization with which it has no interests in common (third-party audit), and has assessments
and certification of conformance conducted by a specialized CSR organization (implemented at 95% ormore of its sites in Japan and other countries).
Those plants that have been certified in compliance by third-party audits have periodic audits
conducted by certified auditors who have had training in the company's standards (two-party audit).
The items covered in the two-party audit are items given emphasis in the third-party audit. Plantsthat receive superior results in the third-party audit and two-party audit are subject to an arrangement
whereby the supplier performs the audit (single-party audit). This arrangement is confirmed by meansof an SA8000 audit. Plants that have acquired SA8000 and ISO 14001 certification are treated as having
undergone third-party audits, so they are initially subject to two-party audits under this company's
system. Plants that have issues pointed out in third-party audit results, are requested to make
improvements, but fall behind in their response, are given individual explanations and support with anemphasis on management by expert consultants. For two-party audits, the emphasis is not on pointing
out issues and requesting improvements. They are treated instead as internal audits, and the focus
is on giving the suppliers and plant managers explanations of the importance of CSR procurement
and the content of requests, and presenting them with cases and explanatory materials, while
implementing the audits.
The single-party audits are considered to be one stage in the mutual growth-type audit, involving
recognition by the supplier of the importance of management. Given this approach, the company takesthese audits as an arrangement for receiving reports, confirmation, and engaging in management.
Looking to the future, this company is considering the expansion of CSR procurement to company
brand products and materials planned and developed in China and the ASEAN region.

302) Measures to deepen the understanding of CSR procurement by the company
and suppliers: Major information equipment manufacturer Company F
Company F positions its suppliers as business partners that share philosophy and policies, and is
working globally to build co-existence and co-prosperity.
The work of promoting CSR procurement includes holding briefings and seminars for top executives
and sharing values related to CSR with suppliers. With that achieved, the company provides supplierswith a self-check list (composed of the three areas of human rights and labor, corporate ethics, and theenvironment) based on the EICC code of conduct. The company is supporting improvement activities
by suppliers in light of the list analysis results.
In providing support for improvement activities, personnel in charge of Company F personnel,
legal, CSR, and procurement visit suppliers to engage in dialogue with the personnel in charge at the
suppliers. They focus mainly on items from their self-check list that could have a particularly serious
impact or cause major damage to corporate management if they are not complied with. They also
engage in exchanges of views, not just during their confirmation visit but continuing afterward, as well,
as a way of seeking increased persuasiveness and practicality with regard to improvement.
In addition, Company F learns about the best practices of its suppliers by means of the confirmation
visits, and they deploy these lessons horizontally not only in-house but also to other suppliers.

3) Measures that place importance on two-way communication by means ofaudits: Major information equipment manufacturer Company E
In order to put its management philosophy into concrete practice, this company has formulated
principles of corporate behavior that are composed of a number of important key elements. Building
relationships of trust with all of the company's business partners is one of those key elements.
All of the company's suppliers are encouraged to participate in the procurement program (CSR
procurement program, as stated in this work) as business partners. Company E records the substanceof its requests in procurement guidelines and supplier codes of conduct. The company then works
together with suppliers in the programs concerned, and promotes the programs, on the understandingthat the suppliers understand those guidelines and codes.
One of those processes is the audit. Audits are carried out on the basis of analysis results(quantitative scoring from the perspective of CSR procurement risk) following implementation of an
SAQ in conformance with the EICC. The audit team goes to the supplier's head office or plant andconducts a two-party audit over a period of several days. The audit team is composed of in-house
auditors certified by the company. They undergo auditor training intended to give them a grasp of audit
techniques, such as making them able to give improvement hints on the spot.
It is important that auditors not neglect advance preparations for audit implementation. For example,
they should know the supplier's circumstances, which mean, specifically, that they should performand document an in-depth analysis of the SAQ. This will tend to make for a smooth audit and it will
enable optimization of the audit schedule. Company E gives audits a two-day schedule on an empiricalbasis. The reason for this is that an audit is a tool that is, first and foremost, a sampling inspection,and completeness is difficult to achieve. The aim is to engage in communication with a direct humanpresence by means of continuing audits repeated when appropriate, in this way building a relationshipof mutual trust and undergoing mutual growth.

31

Conclusion
CSR procurement, which is the core of CSR activity, has been carried out in different ways by different
companies around the world on a trial-and-error basis. Now, however, the overall framework of thispractice is gradually being published by the electric and electronic industries, the United Nations Global
Compact, and other such groups. Under these circumstances, this working group has discussed three
processes we consider important in procurement activities, considering the form those processes shouldtake in light of the experiences of our participating corporations, and keeping in mind our vision of Triple
Win procurement. It is understood, of course, that the three processes do not stand independently fromeach other, but should rather be put into practice as a single package. The processes are very closely
related, and each process is intended to lead smoothly to the execution of the next process in a way thatelicits understanding and acceptance. We consider it important that not only the assessment results,
but also the substance of the individual processes should be subject to constant review so that CSR
procurement as a whole can advance in an upward spiral.
It is our hope that this publication will be of some help in further promoting the practice of CSR
procurement, both for those corporations that are about to begin it as well as those corporations that are
already putting it into practice in a variety of forms.
Many issues other than the three processes are involved in a fully realized implementation of CSR
procurement. There are additional practical points that still need to be discussed, including the questionsof where to set the objectives for scope of applicability and thoroughness, given the limited resources(personnel, supplies, money) available to the corporation, and where to obtain the human resources
to promote CSR procurement. It is our hope that the activities of this working group will be further
advanced in the future, and that we will be able to propose, as a set of guidelines or in some other suchform, a framework that also incorporates these issues.

June 30, 201232

Global Compact Japan Network
Supply Chain Working Group
Fiscal Year 2011 Participating Corporations
AJINOMOTO CO.,INC.
AEON Co., Ltd.
USHIO INC.
SCSK Corporation
EBARA CORPORATION
Osaka Gas Co., Ltd.
Oki Electric Industry Co., Ltd.
OMRON Corporation
Kirin Holdings Company, Limited
KONICA MINOLTA, INC.
Sharp Corporation
Sumitomo Corporation
SEIKO EPSON CORPORATION
Sojitz Corporation
Dai Nippon Printing Co., Ltd.
Tamron Co., Ltd.
DIC Corporation
Central Nippon Expressway Company Limited
NIKON CORPORATION
Nippon Yusen Kabushiki Kaisha (NYK LINE)
Hitachi, Ltd.
Fuji Xerox Co., Ltd.
FUJITSU LIMITED
Mitsubishi Heavy Industries, Ltd.
RICOH COMPANY, LTD.
25 Corporations

33

Building the Sustainable WorldA Vision of Desirable CSR Activity in the Supply Chain-A Proposal from the Supply Chain Working GroupDate of Publication： August 30, 2013 First edition
Global Compact Japan Network
Written by the Supply Chain Working Group
Edited by Working Group Steering Committee and Public Relations Committee
Published by Global Compact Japan Network
Designed by ： Fuji Xerox System Service Co., Ltd.
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