Building the Sustainable WorldAn Introduction to
Sustainable Procurement– Promoting CSR in the Supply Chain –March 15, 2019 (Second edition)

Global Compact Network Japan
Supply Chain Working Group(Fiscal Year 2017)

Contents
1. Introduction

3		

Overview and purpose of this guide3

Use of this guide3

2. About sustainable procurement4

2.1 Introduction to sustainable procurement

4

2.2 Challenges in sustainable procurement

5

3. Benefits of engaging in sustainable procurement

6

3.1 Social and environmental risks in the supply chain

6

3.2 Benefits of sustainable procurement

9

4. Conclusion: Further efforts to promote sustainable procurement

12

References:
Explanation of specific fields, terminologies, etc. related to sustainable procurement

13(Terms for which an explanation is provided are marked with a “*” symbol in the text.)

2

Sources

16

Appendix: The child labor situation and its impacts

17

Participating companies of the Supply Chain Working Group (FY 2014-FY 2017)22

1. Introduction
Overview and purpose of this guide
The Supply Chain Working Group (hereafter referred to as “the Working Group”) is one of the working groups of
Global Compact Network Japan (GCNJ*1) and was formed in 2008 by 11 participating companies at that time.
The Working Group conducted discussions about initiatives to promote the sustainability of buyers, suppliers
and the society. The results of these discussions were compiled and published in A Vision of Desirable CSR
Activity in the Supply Chain. The aim was to outline the ideals of sustainable procurement and the key processes
involved. (Refer to the GCNJ website: http://www.ungcjn.org/activities/topics/detail.php?id=117)
However, it may be difficult for some industries to realize the necessity to engage in sustainable procurement
especially for those industries where risks in the supply chain have yet to become apparent. Others may not beaware of the global trend towards sustainable procurement. In view of these issues, the Working Group members
came together to publish this introductory guide.

Use of this guide1) To promote understanding of sustainable procurement for beginners
This introductory guide provides an easy-to-understand and quick overview of sustainableprocurement. This will serve as a useful guide for those who have become newly acquainted
with the subject for various reasons, such as a request from a business partner for a supply
chain survey, a request from a survey organization, an inquiry from another department, or
when taking over a position related to sustainable procurement from a predecessor.

2) To promote understanding of and cooperation in sustainable procurement within theorganization
This introductory guide will serve as a valuable tool to further understanding of sustainableprocurement and help in the implementation of the practice in an organization. The reader may
use this guide to explain the subject matter to superiors, subordinates, team members, otherdepartments and decision-making bodies such as the boards of directors.

3) To promote understanding of and cooperation in sustainable procurement from business
partners
This introductory guide allows the reader to obtain basic knowledge about sustainable procurement. Thus, this guide may be used to assist business partners in understanding sustainableprocurement and when requesting for their cooperation.

3

2. About sustainable procurement
2.1 Introduction to sustainable procurement
CSR is an acronym for corporate social responsibility. Increasingly, business entities are expected to be
responsible not only for their own profits, but also to consider the impact that their business activities have on
the environment and society. In addition, business entities also need to maintain better relationships with theirstakeholders such as shareholders, investors, customers, suppliers and other business partners, employees, andlocal communities. More recently, the a new concept has taken root in the business landscape - that the scope ofa company’s activities is not limited to the stakeholders that it directly affects, but also extends to stakeholders
that it indirectly affects through its supply chain. It is thus necessary for companies to implement corporate social
responsibility through the supply chain. This can be achieved by engaging in sustainable procurement practices.
Conceptual image of a supply chain
Raw materials supplier/Component supplier

Distributor/
Forwarder

Retailer

Sales

Distribution

Manufacturing

Design/Engineering

Procurement

Raw materials

Manufacturer/
Assembler

Customer

Product

With the globalization of supply chains, human rights issues such as forced labor *2 and child labor *3 indeveloping countries, and environmentally destructive activities such as illegal logging are some of the challenges
associate with supply chains that have come under the spotlight in recent times. There have been several cases inwhich companies have suffered reputational damage after facing indictments or social sanctions, including boycott
movements on a global scale (See Section 3 for more details). While companies may implement CSR initiatives
within the scope that they directly affect, the limited coverage of such initiatives may imply that it is difficult toaddress issues such as those described above, which occur beyond the scope of their management framework. It isthus necessary to expand the scope of implementation of CSR initiatives to the entire supply chain. This led to therelease of ISO20400*4, which is an international guideline for organizations wanting to integrate sustainability into
their procurement processes.
In other words, sustainable procurement can be defined as “activities that attempt to fulfill corporatesocial responsibility through the entire supply chain by adding values such as the environment, labor
conditions, and human rights, to the conventional values of quality, performance, price and delivery
time, when a buyer (company) purchases products, materials or raw materials, etc.”* For details see A Vision of Desirable CSR Activity in the Supply Chain, pages 4-7 on the GCNJ website (http://www.ungcjn.org/common/frame/plugins/
fileUD/download.php?type=contents_files&p=elements_file_1204.pdf&token=38c761895f4bb8c1924b6218cb5bc8c53fb672a6&t=20181029142110).

According to a survey conducted by TOYO KEIZAI INC. (13th CSR Survey in 2017), the status of implementation of sustainable procurement initiatives among Japanese companies is as follows:
Implementing

Not implementing

Under consideration

OthersTotal number of companies (1,357)

41.0%

49.2%

6.9%

2.9%

Manufacturing industry (625)

54.7%

33.4%

8.3%

3.5%

Non-manufacturing industry (732)

29.4%

62.6%

5.6%

2.5%

(Source: TOYO KEIZAI INC., “CSR KIGYO SORAN”, 2018 Edition)4

2.2 Challenges in sustainable procurement
In Japan, the public is increasingly focusing its attention on compliance issues, such as long working hours andfalsification of quality documents. With the globalization of the world market, the products manufactured indeveloping countries can be purchased by buyers in Europe and the US, where there is a high level of awarenessof human rights and environmental issues. On the other hand, there have been reports that these products are theresults of global business giants using cheap labor in developing countries to reduce the cost of manufacturing, but
without adequate consideration of the human rights or working conditions of local workers. Conflicting issues likethese are difficult to discuss on a common platform.
In response to this situation, the International Organization for Standardization issued ISO26000, an international
standard for social responsibility, in 2010 with the aim to resolve global social issues. More recently, the UN
developed the Sustainable Development Goals (SDGs)*5 in 2015, as an action plan for the betterment of people, theplanet and for prosperity.
As consumers are increasingly concerned about issues such as child labor, discrimination, forced labor,
biodiversity conservation, animal rights, etc., there have been cases where boycott campaigns are held againstorganizations that society deems as using inappropriate practices. In addition to the aforementioned issues, theWorking Group also views issues specific to Japan or particular industries as challenges that need to be addressed.
In view of this, companies are now expected to tackle and mitigate these challenges by taking proactive action in
procurement.
The table below presents an overview of typical social challenges based on the four principles of the UN Global
Compact*6: Human Rights, Labour, Environment and Anti-Corruption.
Typical social challenges
Human rights/Labor

Environment

Anti-Corruption

・Elimination of forced labor

・Pollution prevention

・Elimination of unethical business practices

・Elimination of child labor・Management of harmful
substances

・Prohibition of bribery and corruption

・Elimination of long working hours

・Elimination of wages paid below the minimum ・Management of waste
products (wastewater, etc.)
wage
・Management of substances
・Elimination of inhumane treatment*7
causing air pollution
・Elimination of discrimination
・Management of substances
・Recognition of the right to collective
included in products*8bargaining (Freedom of association )・Consideration of biodiversity
・Realization of workplace safety and a healthy
environment

・Prohibition of abuse of dominant bargaining
position*9・Prohibition of granting or receiving
inappropriate profits
・Prohibition of anticompetitive practices*10
・Provision of accurate information regarding
products and services5

3. Benefits of engaging in sustainable procurement
As indicated in the previous chapter, supply chains are largely interconnected with the society and therefore, thesocial issues that arise. In this chapter, the benefits of tackling these challenges are discussed.
While it is difficult to quantify the benefits of engaging in sustainable procurement, the following are examplesof the benefits that can be obtained: 1) Prevention of possible major problems before they arise, 2) Ability
to respond to problems and/or minimize damages by acting swiftly, 3) Promotion of medium- to long-termcompetitiveness.

3.1 Social and environmental risks in the supply chain
An organization may face a variety of social and environmental risks that could be detrimental to the survival of
the company. These are risks such as the discovery of involvement in illegal activities (forced labor or child labor),
reports on the impact of long working hours on workers’ health, the occurrence of strikes due to issues such as
unpaid wages, protests against environmental destruction, legal action as a result of corruption etc. These risks may
affect the company’s reputation and cause the company to lose its hard-earned brand loyalty.
It is not unusual for companies to find themselves responding to these issues in their own supply chains. It takes
considerable time and expenses to address these issues, especially once public opinion has turned against thecompany.
In addition, an increasing number of NGOs*11 and NPOs*12 are putting forth firm demands for business entities
to provide fundamental solutions or engage in preventative action in relation to such issues. NGOs and NPOs are
extremely vigilant on this front because they are aware that well-known and major companies have a significant
impact not only on their immediate supply chains, but also on national and local governments and even entire
markets.
There are cases in which protest movements have had significant impacts on business activities. There areexamples of cases where hundreds of thousands of e-mails requesting action are sent to the president of a company
or the launch of boycott campaigns urging consumers not to buy from the company, among many others.
The following are examples of companies that have lost consumer trust after being exposed to engaging
in practices that are condemned by society. These real-life examples are collated based on publicly available
information. (Refer to sources listed on Page 16).
■ Human rights/labor-related issues
Disney, Walmart, Nike, Ikea, Apple, Suzuki, etc.
■ Environment-related issues
Adidas, Nike, Ralph Lauren, PVH, Puma, Lacoste, H&M, Uniqlo, etc.
■ Prevention of corruption-related issues
GlaxoSmithKline, FIFA, etc.
Most of these high-profile examples involved leading companies that were not spared from criticism andreceived significant damage especially from the mass media. Yet not all the companies listed above werecompletely defenseless against the charges they faced. In fact, many of these companies became more aggressive
in integrating sustainability into their systems following these incidents and some have become role models insustainable procurement.
These examples exemplify the importance of engaging in appropriate social and environmental risk management
not only internally, but also across the whole supply chain.

6Other examples of social and environmental risks in supply chains
The table below provides examples of companies that have faced social condemnation because they were notengaged in sustainable procurement. These examples were collected based on the results of questionnaires
conducted by members of the Working Group and also include cases that were reported in the news.
Category

Social issue

Examples ① Incident ② Social response, penalties, etc. ③ Impact on business

Toys

Human rights/
Labor① Exploitation of children and stowaways in poor working environments or under poor
conditions (wages below the minimum wage etc.) in Mexico, Hong Kong, Macau, the US,
etc.
② Condemnation from NGOs and the media.
③ Monetary compensation to the victims, etc.

Toys/Apparel

Human rights/
Labor① Child labor in Honduras and Guatemala, exploitation of workers in poor working environments or under poor conditions in China and Nicaragua.
② Condemnation from the media, boycotts.
③ Decline in sales

Footwear

Human rights/
Labor① Child labor, exploitation of workers in poor working environments or under poor conditions
in a Vietnamese factory.
② Condemnation from the media, boycott.
③ Decline in sales and share prices.

Furniture

Human rights/
Labor① Child labor and forced labor in factories in Pakistan and India.
② Condemnation from the media.

Sportsequipment

Human rights/
Labor① Child labor, exploitation of workers in poor working environments in factories in India andPakistan. Pollution caused by the release of dyes.
② Condemnation from NGOs.

Automobiles

Human rights/
Labor① Trouble among workers in a factory in India due to poor working environments. Workers
started riots that led to deaths and injuries.
③ Factory closure, crash in share prices.

Electronic
devices

Human rights/
Labor① Child labor, etc. in a factory in China.
② Condemnation from NGOs, media, etc.
③ Compelled to expose company secrets, such as a complete disclosure of the company’s
list of suppliers.

ApparelHuman rights/
Labor① An illegally constructed garment factory collapsed in Bangladesh and over 1,000 workers
who had been subject to forced labor in poor working environments died.
② Condemnation from NGOs.

ApparelHuman rights/
Labor① A Japanese manufacturer forced workers to endure poor working conditions that wereagainst the law in a Chinese factory.
② Condemnation from NGOs.

ApparelHuman rights/
Labor① A foreign trainee on a technical internship program was forced to work for 16 hours perday (with a 15-minute rest period, for 400 Japanese yen/USD 3.60 per hour), six days per
week in a Japanese factory.
② The trainee took legal action against the company and the union that was in charge of thelocation at which the technical internship program was conducted, after returning to his/herhome country.

ApparelHuman rights/
Labor① A foreign trainee on a technical internship program was forced to work for more than 400
hours per month, with over 200 hours of overtime and only two to three days of leave permonth, in a Japanese factory. The trainee’s take-home pay was 10,000 Japanese yen/
USD 91 per month (less than 25 Japanese yen/USD 0.20 per hour).
② The trainee sued the president of the company and others for payment of wages.

Construction
materials

Environment① The logging of certified Australian timber caused damage to the environment andencroached on the living environment of the indigenous population.
② Boycott of Japanese products.

ApparelEnvironment① A Chinese processing plant which was believed to have a deal with a global fashion brandcompany was discharging harmful chemical substances.
② An NGO held a press conference in China, where it revealed that harmful chemical substances were detected in wastewater discharged from the plant.

7

8

Category

Social issue

Examples ① Incident ② Social response, penalties, etc. ③ Impact on business

Food products

Environment① Palm oil manufactured in Indonesia was supplied from a plantation which was illegally
logging a protected natural forest.
② Boycott against the company’s products.
③ Decline in sales.

Paper
manufacturing

Environment① A paper manufacturer based in Indonesia was found to have illegally logged forests not
only in Indonesia, but also in other Asian countries including Cambodia and China.
② Repeated condemnation from NGOs and NPOs.
③ Decline in sales due to discontinuation of transactions by clients.

Oil

Environment① An oil tanker belonging to a major oil company ran aground in Alaska while trying to steer
clear of icebergs, spilling 10.8 million gallons of crude oil which caused considerable
damage to the marine ecosystem.
② Sued for damages and paid 5 billion US dollars in punitive damages.

Chemicals

Environment① A chemical factory in China’s Jilin Province exploded, causing large volumes of toxic
benzene to flow into a river.
② The regional administration tried to conceal information on the environmental contamination caused and attempted to hide the news by shutting down the affected area’s watersupply.

Aviation

Corruption① A US aircraft manufacturer bribed Japanese politicians for the sale of passenger aircrafts.
② Several politicians, including a former Prime Minister were arrested and those involved in
accepting bribes were convicted. The House of Representatives was also dissolved.

Pharmaceuticals

Corruption① In order to expand its sales in China, a British pharmaceutical company offered bribes
equivalent to approximately 50 billion Japanese yen/USD 455 million to hospital doctors
and government officials.
② Fined approximately 50 billion Japanese yen/USD 455 million by a district court.
③ Decline in sales by 60%.

3.2 Benefits of sustainable procurement
Engaging in sustainable procurement can enable companies to avoid the social and environmental risks discussed
in the previous section. In addition, there are other benefits such as continued business transactions with trade
partners and the improvement in ESG*13 evaluation by shareholders and investors. A survey was conducted among
approximately 50 organizations in the GCNJ Supply Chain Working Group to find out the benefits of engaging insustainable procurement. The results are grouped into three categories as shown in the table below.
Benefits of sustainable procurement
Benefits(A) Avoid condemnation from the media and othersocial and environmental risks

ExamplesA-1: To NGOs, etc.
Mitigate risk by quickly responding to requests from NGOs, etc.
A-2: Inquiries, etc.
Mitigate risk by offering appropriate explanations to investigative bodies
and responding to various inquiries on conflict minerals*14, etc(B) Secure business opportunities/ Continuation ofbusiness transactions/ Increased level of trust

B-1: To business partners’ needs, etc.
Able to gain the trust of business partners and maintain and/or
secure new business transactions by responding appropriately withimprovement plans to urgent demands from business partners.
B-2: Third party evaluations, etc.
Receive better evaluations from third party assessment organizations
by responding appropriately on issues such as ESG.

(C) Mitigate serious accidents and avoid aggravationof grievances

C: Procedures, etc.
Reduce the frequency of accidents and improve the ability to respondto such accidents by establishing procedures, rules, etc.

The first benefit is that companies engaging in sustainable procurement may avoid condemnation fromthe media and other social and environmental risks. There are examples where companies practicing
sustainable procurement were deemed to have responded more appropriately as compared to othercompanies that were condemned by society or were able to mitigate attacks as they were seen to be
tackling the problem through sustainable procurement. Another possible beenfit is that companies
engaging in sustainable procurement may be viewed as more progressive than those that do not do so.
Another benefit of engaging in sustainable procurement is that companies can secure business
opportunities and/or ensure that they can maintain current business transactions. Engaging insustainable procurement may also increase the level of trust that clients have in the company. Thereare examples where responding appropriately to requests for information from clients or assessment
organizations helped increased the level of trust in the company, as well as to secure new deals and/or reinforce existing deals. These examples show that engaging in sustainable procurement may help
companies to expand their businesses.
In addition, it may be possible to mitigate serious accidents and avoid aggravation of grievances byengaging in sustainable procurement. While it is not possible to quantify such benefits, it was found thatcompanies that engage in sustainable procurement were able to reduce the incidence of error and/or
accidents, as well as contribute to cost reductions in the long-run.
→For more details, refer to “Case studies of the benefits of sustainable procurement” below.

9

Examples of areas that are more susceptible to media or social attack
Category

ExamplesA-1

To NGOs, etc.

Environmental pollution, deforestation, illegal logging, conflict minerals, palm oil*15, healthdamage, etc.

A-2

Inquiries, etc.

Conflict minerals, etc.

B-1

To business partners’
needs, etc.

Wide coverage with no specific area being more susceptible than others (human rights,
corruption, environment, etc.)

B-2

Third party evaluations,etc.

ESG evaluations, CDP*16 evaluations, etc.

C

Procedures, etc.

Tackling antisocial forces, prevention of bribery and collusion, animals protection,
engagement with local communities, etc.

Case studies of the benefits of sustainable procurement

10

Category

Area

OutlineA-1

Deforestation

An NGO pointed out that a company was doing business with a paper manufacturer that was
profiting by logging natural forests. In response to this, the company promptly published andofficially announced its “Procurement Guidelines for Paper”, which helped to prevent further
attacks.

A-1

Palm oil

A consumer goods manufacturer using palm oil worked proactively on various countermeasures based on information that there was an ongoing aggressive negative campaign
by an NGO. The company avoided the negative campaign by purchasing certified palm oil
through its affiliation with a certification agency.

A-1

Environmental
pollution

A company was able to respond quickly to an NGO’s inquiry about the safety of the chemical
substance, because it was collecting and organizing safety data on clients that uses a certain
chemical substance.

A-2

Conflict minerals

A company, which was ranked poor by an NGO regarding problems of conflict minerals,
launched a project and published detailed information about company's attitude toward conflictminerals on its homepage, resulting in improvement in the ranking.

B-1

General

A company agreed to its client’s commitment on sustainability*17 and began proactively conducting training courses for its employees, among other efforts. As a result, the company wascommended by its client and these actions boosted its client’s level of trust in the company.

B-1

General

A company gathered its various departments together to cooperate with a request from a client
for an onsite survey about the company’s CSR activities, which included providing data to theclient. As a result, no particular issues were identified in the survey and the company was able
to continue its transactions with the client.

B-1

General

A company joined an international program on the improvement of the labor environment.
It evaluated the performance of its suppliers and identified specific issues that its suppliers
would need to address. In addition, the company provided support for activities to make
improvements and also provided training for its suppliers’ workers. As a result, the company
was able to improve the CSR capabilities of its suppliers and thus continued its business
transactions with those suppliers.

B-1

General

A company visited its supplier and suggested improvements in CSR initiatives, which led toa dramatic reduction in the number of problems associated with employees going on strikes
and committing arson. As a result, the company was able to develop a stable supply chain forcomponents and parts.

B-1

GeneralBy purchasing raw materials at appropriate prices and working together with its supplier onwater shortage and other issues affecting the supplier, the company was able to procure
finished goods with few supply chain disruptions.

Category

Area

OutlineB-2

Third party
evaluations

A company continued to be selected as part of an ESG index because it was able to respond
appropriately to ESG questionnaires, despite the fact that the number of questions haveincreased significantly. It was because the company had already formulated and began
implementing new sustainable procurement guidelines.

C

Tackling antisocial
forcesIn order to avoid purchasing from companies associated with organized crime groups, acompany and its group companies signed agreements on the exchange of information with thepolice. This enabled the company to avoid involvement with suspicious companies.

C

Engagement withlocal communities

A company made efforts to learn about the needs of the local community in a certain region
through various dialogue sessions, business meetings and other forums. The information
gathered helped the company to prioritize the sales of local products, which contributed to therevitalization of that region.

11

4. Conclusion: Further efforts to promote sustainable procurement
We have discussed the purpose and advantage of sustainable procurement for companies and stakeholders in thepreceding chapters. This chapter provides an overview of procedures to promote sustainable procurement.
With rapid globalization of the economic environment, companies can no longer conduct business on astandalone basis since companies are increasingly relying on a global supply chain network. This implies thata company needs to share its vision, not only with its employees, but also with its suppliers in order to grow its
business.
In view of this, there are three steps, in order of priority, when promoting sustainable procurement.
1) Supplier briefings
Supplier briefings should be held as a platform where buyers (companies) and suppliers can share
their respective CSR vision and principles.
2) Self-assessment questionnaire (SAQ)
While SAQ refers to the self-assessment tool itself, it should be noted that this is in fact a process
through which the buyer (company) seeks to understand and assess the supplier’s level ofunderstanding of CSR requirements.
3) Audit
As the final step, an audit should be conducted based on the results of the SAQ to verify thecurrent actual status of the supplier. Based on the results of the audit, the buyer (company) and the
supplier directly or indirectly cooperate to improve the current situation.
There have been several cases in recent years in which the buyer (company) mandates that the supplier must
agree with the buyer’s sustainable procurement guidelines. In other cases, the buyer (company) may include thesustainable procurement guidelines as part of the terms and conditions for conducting business.
In order to reduce social and environmental risks, as well as to protect the company’s brand value, the buyer(company) should not unilaterally demand that the supplier meet its conditions. Instead, the buyer (company)
should go through the 3 step process mentioned above to promote sustainable procurement through mutual
understanding with the supplier. This will ensure a more effective procurement process and help to maintain the
integrity of the supply chain.
Sustainable procurement is an extremely important element in the realization of a sustainable society.
Vision for sustainable procurement
Corporate philosophy
Development of sustainable procurement
policies and code of conduct①Supplier briefings* For further details on sustainable procurement,
see A Vision of Desirable CSR Activity in the
Supply Chain.
* A variety of SAQ formats exist because someindustry associations and individual companies
have developed their own SAQs. To close thisgap and provide an SAQ that is applicable foruse across different companies and industries,
GCNJ published the “CSR/Sustainable Procurement Self-assessment Tool Set” in 2017.

②SAQ
Three keyprocesses③AuditEvaluation results

Next step* Extracted from A Vision of Desirable CSR Activity in the Supply Chain and partially revised.

12References: Explanation of specific fields, terminologies, etc. related tosustainable procurement*1 Global Compact Network Japan (GCNJ)
Launched in December 2003 as the local network of the United Nations Global Compact (see  *6 below for details) in Japan,
GCNJ became a General Incorporated Association in 2011. Following the Ten Principles organized into four categories definedby the UN Global Compact, member companies and groups work together in activities aimed towards the realization of asustainable society. The GCNJ’s main activities involve the organization of a variety of Working Groups and holding events suchas learning forums and symposiums in cooperation with other organizations. The events held by GCNJ serve as study sessions
and forums for the exchange of information among persons responsible for their company’s CSR initiatives.
(Refer to the GCNJ website: http://www.ungcjn.org/) (Japanese site)*2 Forced labor
Forced labor refers to any work or service which an individual is compelled to perform under threat of punishment and which
is not voluntary. The performance of such work or service is still considered forced labor even if wages or some other form ofcompensation are offered. An individual has the right to choose or decline to engage in a particular work or service and must beable to freely leave a job under established regulations.
Examples of forced labor include slavery, indebted labor, abduction, kidnapping, and human trafficking. Threats, non-paymentof wages, and physical and psychological constraints also fall under this category.
(See the UNGC website: https://www.unglobalcompact.org/what-is-gc/mission/principles/principle-4)*3 Child laborChild labor refers to labor performed by children below the minimum age for employment stipulated by law (in principle, theminimum working age is 15), that interferes with their ability to attend regular school. Child labor also refers to the performanceby minors of hazardous and dangerous labor that should not be performed by anyone under the age of 18 (including the “worst
forms of child labor” mentioned below). Child labor is regulated by international conventions that have been ratified by mostcountries, including the ILO’s Minimum Age Convention, 1973 (No. 138) and Worst Forms of Child Labour Convention, 1999
(No. 182). The details of hazardous and dangerous labor that young people under the age of 18 are prohibited from engaging inare specified by the labor laws of individual countries.

*4 ISO20400
ISO20400 is an international standard for sustainable procurement issued in April 2019.
The standard defines principles for sustainable procurement, including accountability, transparency, respect for human rights,
and ethical behavior, and provides guidelines for the realization of sustainability through procurement policy and strategy. For
companies, this standard will not only improve the precision of management of suppliers and supply chains looking towards therealization of a sustainable society, but can also be expected to boost corporate competitiveness.

*5 Sustainable Development Goals (SDGs)
The Sustainable Development Goals (SDGs) are 17 goals set out by Agenda 2030, the plan adopted by the 193 member
nations of the United Nations in September 2015 in order to eliminate extreme poverty, inequality and injustice. The SDGs
seeks to protect our planet over the coming 15 years, looking towards the realization of a brighter future. The SDGs encompass
17 goals and 169 targets, addressing issues including those that were not adequately covered by the Millennium Development
Goals and the worsening environmental issues that were discussed at Rio+20. The SDGs represent a grand challenge torealize a world in which Member States commit to leave no one behind.
(See the UNGC website: https://www.unglobalcompact.org/sdgs)*6 United Nations Global Compact (UNGC)
The United Nations Global Compact (UNGC) is an initiative that was advocated by then-UN Secretary-General Kofi Annan at
the World Economic Forum (the Davos Conference) in 1999, and formally launched at the UN Headquarters the following year.
Developing and implementing activities organized around Ten Principles in the four areas of human rights, labor, environment
and anti-corruption, the UNGC plays the role of a forum discussion, where people openly discuss various issues related to
globalization, and put them into practice. At present, 12,868 associations, including approximately 10,000 companies andenterprises in 161 countries and regions are signatories to the UNGC (as of January 22, 2018).
(See the UNGC website: https://www.unglobalcompact.org/what-is-gc)*7 Inhumane treatment
Unpleasant treatment such as forced labor, power harassment, sexual harassment, sexual abuse, corporal punishment, mental
or physical repression or verbal abuse.

13*8 Freedom of association
Workers have the right to freely cooperate with and choose whether to join unions. The right of workers to participate in workers’
associations must be respected in accordance with local laws. Workers should be able to discuss their situation with their
managers without fear of retaliation, intimidation or harassment.

*9 Prohibition of abuse of dominant position
Abuse of dominant position refers to the exploitation of an advantageous position in a transaction by the party requesting
the goods, works or services etc. in order to disadvantage the recipient of the request by means of unfair practices. This
includes requests for delay in payment or reduction of the amount of payment, requests to shoulder financial burdens such assponsorship fees, and requests for the dispatch of employees. These practices are prohibited by the Subcontract Act in Japan.

*10 Prohibition of anticompetitive practices
Prohibition of actions that impede free and fair competition, including the formation of cartels, bid-rigging, and the application ofresale price restriction. These practices are prohibited by the Anti-Monopoly Act in Japan.

*11 NGO (Non-governmental organization)
NGOs are private-sector international cooperation organizations that operate independently of any government. These
organizations tackle global issues such as poverty, hunger and the environment from a private sector perspective that differsfrom those of governments and international organizations. NGOs work to resolve such issues using approaches that transcend
national, racial or religious boundaries and are not profit-driven. In Japan, the term is used to refer to international organizations,and may refer to organizations engaged in international cooperation or bodies that supplement government activities.

*12 NPO (Non-profit organization)
In the broad sense, NPOs are private-sector non-profit organizations. In a narrow sense, they are civil society groups that
conduct activities to contribute to society and charitable activities on a non-profit basis. In the narrowest sense, NPO refers toa group that has acquired corporate status (Specified Non-profit Corporation) under the Act on Promotion of Specified Nonprofit Activities, enacted in March 1998. The difference between NGO (non-governmental organization) and NPO comes fromthe difference in perspective. When the non-profit aspect is emphasized (i.e., the organization conducts social projects without
seeking profit although it is a private enterprise), the organization is referred to as an NPO; when the non-governmental aspect
is emphasized (i.e., the socially focused non-profit business is operated by citizens instead of the government), the organizationis referred to as an NGO.

*13 ESG (Environment, society, governance)
ESG is the acronym for environment, society and governance. It is often used as a comprehensive expression denoting anapproach that evaluates companies from a non-financial perspective.

*14 Conflict minerals
According to Section 1502 (the conflict mineral clause) in the Dodd-Frank Wall Street Reform and Consumer Protection Act (theDodd-Frank Act) and the SEC’s final rule regarding the implementation of the clause, four minerals (tin, tantalum, tungsten, andgold [“3TG”]) among mineral resources often produced in conflict areas are designated as conflict minerals.
There are cases where armed groups that commit human rights violations are involved in the mining of conflict minerals.
Purchase of conflict minerals provides a source of funds to these armed groups, leading to concerns that parties that purchasesuch minerals may be viewed as supporting strife in conflict regions. This is especially true for minerals mined in the Democratic
Republic of the Congo and the surrounding countries, which has become a worldwide issue.
In accordance with the Dodd-Frank Act, all listed companies in the US are obliged to report on the status of their use of suchminerals. As such, buyers (companies) may been asked to cooperate in investigations that trace possible use of conflictminerals in global supply chains. In addition, there are movements to institute similar laws and regulations in countries otherthan the US.

*15 Palm oil
Vegetable oils and fats produced in the highest quantities worldwide are manufactured from oil extracted from oil palms. Palm oil
is used in a wide range of applications that include food products (margarine, instant noodles, confectioneries such as chocolate),
soaps, detergents, paints, cosmetics and chemical products. Oil palms are cultivated in regions around the equator with highrainfall, with Malaysia and Indonesia in particular having developed large-scale oil palm plantations. In the process, large areasof tropical forest have been logged or burned, and such developments have been illegal in some cases. There are limits to theefficacy of individual measures such as lobbying the governments of palm oil-producing nations for measures to respond to illegal
logging, regulation and monitoring of overdevelopment, the establishment of protected zones and attempts to protect endangered
wildlife. The WWF established the Roundtable on Sustainable Palm Oil (RSPO)*18 in 2004 to address these concerns.

14*16 CDP
Formerly known as Carbon Disclosure Project. This is a project where institutional investors cooperate in sending questionnaires
to companies on a variety of themes such as climate change, water resources and forest protection, and request for companies
to answer the questionnaires by stating specific strategies, targets and initiatives for the reduction of their environmental impact.

*17 Sustainability
In the business context, sustainability refers to looking beyond profits and towards the fulfilment of a company’s corporate social
responsibilities in the three areas of environment, society and the economy to ensure that the company can remain as a going
concern in the future.

*18 Roundtable on Sustainable Palm Oil (RSPO)The goal of the RSPO is to promote the production and use of sustainable palm oil through the formulation of globally trusted
certification standards and the participation of stakeholders.

15Sources■ Human rights/labor
Disney: Klaus Werner and Hans Weiss, Sekai burando kigyo kokusho: Hito to chikyu wo kuimono ni suru takokuseki kigyo (“TheBlack Book of Global Brand Companies: Multinational Corporations exploiting People and the Planet”), Japanese translation of
Das Neue Schwarzbuch Markenfirmen – Die Machenschaften der Weltkonzerne (2005, Akashi Shoten)
Walmart: Fined for breach of child labor laws (2005, Livedoor News)
Nike: Exposure of problems including forced labor and child labor at outsourcing contractor（1997）(Special Edition: Domestic
and International Trends in the Area of Companies and Human Rights [2002, Asia-Pacific Human Rights Information Center])
Nike: After enduring trials, US Nike learns the lesson of CSR (2014, Toyo Keizai Online)
Ikea: Child labor exposed at carpet factory and in cultivation of cotton for carpets in India (2000)(Report on Survey Researchconcerning Corporate Global Expansion and CSR, [2015, Business Policy Forum, Japan])Apple: Exposure of long working hours, etc. at related factory（2014, BBC）
http://www.bbc.com/news/business-30532463
Suzuki: Rioting at Maruti Suzuki’s Manesar Plant (2012, Suzuki Motor Corporation)■ Environment
Adidas, Nike, Ralph Lauren, PVH, Puma, Lacoste, H&M, Uniqlo: Detoxification campaign by environmental NGO (2011,
Greenpeace)■ Corruption
GlaxoSmithKline: Fine applied to Chinese subsidiary (2014, Nihon Keizai Shimbun)
FIFA: Independent ethics committee takes action against corrupt official (2015, FIFA)
http://www.fifa.com/governance/news/y=2015/m=7/news=independent-ethics-committee-bans-chuck-blazer-from-footballrelated-a-2662031.html

16Appendix: The child labor situation and its impacts
About child laborThis section presents the actual situation of child labor in the world and is an excerpt from an article written by theNGO, ACE (http://acejapan.org/english/).

Q1. Why does child labor still exist in the world?
Poverty is probably the main reason why children have to work but it is not the only reason. In certain regionsof the world, the ingrained believe that there is no meaning in attending school or that girls do not need to be
educated are also factors that contribute to the persistence of child labor.

Q2. Are all children who work considered child labor?
The relevant international conventions define child labor as work or services performed under the same
conditions as adults but by children under the age of 15 (under the age of 14 in developing nations). At this age,children should be receiving compulsory education, but those who are working without receiving education
are considered child labor. Child labor also refers to children under the age of 18 performing dangerous andhazardous work. Children under the age of 15 may help around the house or in the family business after schoolor on holidays while attending school, but this is not considered child labor.

Q3. How do we identify child labor?
While the definition of “child labor” is clear, it can be difficult to judge whether a particular case is consideredchild labor or not. When a case meets one of the following criteria, it is considered as child labor.
1) Labor that hinders a child’s education
2) Labor that impedes the healthy development of a child3) Hazardous and dangerous labor4) Labor that exploits the childQ4. How many child laborers are there in the world? (Number of children involved in child labor)
It is estimated that there are approximately 152 million child laborers aged between 5 and 17 years old across theglobe (88 million boys and 64 million girls). This represents nearly one in 10 children, with 73 million children
engaged in dangerous and hazardous labor, such as child soldiers and trafficked children.
(An excerpt from the ILO report “Global Estimates of Child Labour: Results and Trends, 2012-2016”)

17

Q5. In which regions are child labor most prevalent? (Regional distribution of child labor)
Europe and Central Asia
5,534 children(3.6%)
The America
10,735 children(7.1%)

Asia Pacific
62,077 children(40.9%)

Arab countries
1,162 children(0.8%)

Africa72,113 children(47.6%)

About half of the world’ s child laborers are in Africa. In thisregion, nearly one in five children are child laborers. According toa 2013 report, the highest number of child laborers in absoluteterms existed in the Asia-Pacific region. However, while there is
rapid improvement in the situation in the Asia-Pacific region, thesituation is deteriorating in Africa.

Q6. Is child labor an issue only in poor countries?
Child labor is most prevalent in low-income countries, but it also exists in medium- to high-income countries
Agriculture, forestry and fishing industry: 70.9%
and high-income countries including Japan.
Employment in large-scale plantations producing coffee, tea, rubber,Service industry
26.1 million children(17.2%)
Income level

Manufacturing andother industries
Low-income
countries
18 million children(11.9%)

tobacco, etc., and child labor in poor farming families producing
cacao, cotton, etc. in order to support the family. Child labor in thePercentage of total number ofPercentage of children
Number of child laborersmining and fishing industry are also included.
child laborers by income levelthat are child laborers
Service industry: 17.2%
Selling products19.4%
or washing car windows on the 43.0
street,65.2 million%carryingitems at markets, dismantling discarded electronic products, andworking as domestic helpers at other people’ s houses.

Low- to medium-income
58.2 million
countries Agriculture, forestry andfishing industry
107.5 million children
Medium- to high-income
26.2 million(70.9%)
countries
High-income countries

2 million

Manufacturing 08.5%
and other industries: 11.9% 38.4%
Includes child labor used in areas such as sewing workshops, match
manufacturing factories and prawn processing factories. There are
06.6%of children who sew soccer17.3%
well-known examples
balls and beads
on clothes at home.
01.2% of Child Labor: Results and trends,
01.3 %
Source: Global Estimates
2012-2016100%

18

62,077 children(40.9%)(47.6%)

terms existed in the Asia-Pacific region. However, while there is
rapid improvement in the situation in the Asia-Pacific region, thesituation is deteriorating in Africa.

Q7. Which industries is child labor most prevalent? (Number of child laborers by industry and main types of labor)

Service industry
26.1 million children(17.2%)
Manufacturing andother industries
18 million children(11.9%)
Agriculture, forestry andfishing industry
107.5 million children(70.9%)

Agriculture, forestry and fishing industry: 70.9%
Employment in large-scale plantations producing coffee, tea, rubber,
tobacco, etc., and child labor in poor farming families producing
cacao, cotton, etc. in order to support the family. Child labor in themining and fishing industry are also included.
Service industry: 17.2%
Selling products or washing car windows on the street, carrying
items at markets, dismantling discarded electronic products, andworking as domestic helpers at other people’ s houses.
Manufacturing and other industries: 11.9%
Includes child labor used in areas such as sewing workshops, match
manufacturing factories and prawn processing factories. There are
well-known examples of children who sew soccer balls and beads
on clothes at home.
Source: Global Estimates of Child Labor: Results and trends, 2012-2016

A child working in a dye process at aleather factory

Photograph by Larry C. Price /Pulitzer Center on Crisis Reporting

A child sewing a soccer ballSource: Action against Child Exploitation (ACE)19

A child performing a cutting process at aleather factoryChildren working in mines

Photograph by Justin Kenny / Small Footprint Films

Source: Amnesty International Japan

Impact of human rights violations (e.g. child labor) on corporate performance
Human rights violations impact corporate performance in various ways. The following case study estimates themagnitude of a drastic reduction in a company’s sales volume that was a result of a boycott campaign launchedin response to human rights issues.
(This example is extracted from a report published by Deloitte Tohmatsu Consulting LLC that estimated theeffect of human rights violations on corporate sales).
https://www2.deloitte.com/jp/ja/pages/strategy/articles/cbs/human-rights-2.html (Japanese site)
In 1997, an international NGO discovered and exposed the fact that factories of outsourcing contractors inIndonesia and Vietnam for a US apparel manufacturer were using child labor for their day-to-day operations.
This led to boycott campaigns across the globe and the company was subject to severe criticism by the
media and on the Internet, and was even referred to as a “criminal enterprise.” The company’s sales declined
significantly after the discovery of this fact, although it had previously enjoyed rapid growth relative to its
competitors.
It was estimated that the company had lost approximately 12.18 billion US dollars, equivalent to 1.3764
trillion Japanese yen due to the boycott campaign (cumulative total for the five-year period between 1998 and2002) (Refer to the figure below). This estimate was obtained by projecting the company’s sales, assuming thatthe boycott campaign had not been launched. This figure corresponds to approximately 26% of the company’s
consolidated sales, a magnitude that is considered fatal to corporate management.

20

Estimate of business impact
of human rights violations:
The case of a US apparel company

Impact of human rights violations (1998-2002)

Approximately 1.3764 trillion yen (Approximately 12.18 billion USD)
≒Corresponds to approximately 26.1% of consolidated sales(million USD)
15,00013,452

Launch of boycott campaign
after the discovery of forced laborand child labor issues

12,00011,811
11,069

9,952
9,187

9,000

9,553

6,471
6,000

2,292

12,604
3,115

3,559

Predicted sales
if there was no
boycott campaign

2,816

8,777

8,995

9,489

1999

2000

2001

9,893

Actual sales

4,761
3,790
3,000

1994

1995

1996

1997

1998

2002

Source: Analysis by Deloitte Tohmatsu Consulting LLC.

(The image above is a stock photo and is not related to the casediscussed above.)21

List of companies participating in the Supply Chain Working Group (FY 2014-2017)(By Japanese kana order)
Ajinomoto Co., Inc.

Teijin, Ltd.

Astellas Pharma Inc.

Teijin Frontier Co., Ltd.

Anritsu Corporation

Terumo Corporation

Aeon Co., Ltd.

Japan Electrical Safety & Environment Technology
Laboratories

ITOCHU Corporation
USHIO Inc.
Ecology Path Inc.
Action against Child Exploitation (ACE)NTT DOCOMO, INC.
Energetic-Green Co., Ltd
Osaka Gas Co., Ltd.
Otsuka Holdings Co., Ltd.
Oki Electric Industry Co., Ltd
Omron Corporation
Olympus Corporation
Kawasaki Kisen Kaisha, Ltd. (“K” LINE)
Kawasaki Heavy Industries, Ltd.
Kyokuto Kaihatsu Kogyo Co., Ltd.
Kirin Holdings Company Limited
GLORY LTD.
INPEX CORPORATION
Cosmo Energy Holdings Co., Ltd.
Konica Minolta, Inc.
Suntory Holdings Limited
GXS, Inc.
JSR Corporation
Sysmex Corporation
Shiseido Co., Ltd.
Citizen Watch Co., Ltd.
Shin-Etsu Chemical Co., Ltd.
Sumitomo Riko Company Limited
Seiko Epson Corporation
Sega Sammy Holdings Inc.
Sojitz Corporation
Daiichi Sankyo Co., Ltd.
Daikin Industries, Ltd.

Tokyo Gas Co., Ltd.
TOTO Ltd.
DOWA HOLDINGS CO., LTD.
DOWA MANAGEMENT SERVICE CO., LTD.
E&E Solutions Inc.
Central Nippon Expressway Company Limited
Nabtesco Corporation
Nikon Corporation
NGK INSULATORS, LTD.
Nissha Co., Ltd.
Japan Food Research Laboratories
NEC Corporation
Japan Quality Assurance Organization
Nippon Yusen Kaisha
Nomura Securities Co.,Ltd.
Noritz Corporation
BSI Group Japan K.K.
Hitachi, Ltd.
Fiber Frontier Co., Ltd.
Foster Electric Company, Limited
Fuji Xerox Co., Ltd
Fujitsu Limited
Marubeni Corporation
Mitsui Chemicals, Inc.
MITSUI & CO., Ltd.
Mitsubishi Corporation
Mitsubishi Heavy Industries, Ltd.
Yamaha Corporation
Lion Corporation
LIXIL Group Corporation
RICOH Company, Ltd.

Dai Nippon Printing Co., Ltd.
Daifuku Co., Ltd.
Tamron Co., Ltd.
Institute for Global Environmental Strategies

22

Translation Cooperation by; Idemitsu Kosan Co., Ltd.

Chiyoda Corporation

Chiyoda Corporation

DIC Corporation

Hitachi, Ltd.

DNV GL BUSINESS ASSURANCE JAPAN K.K.

Lion Corporation

Building the Sustainable WorldAn Introduction to Sustainable Procurement– Promoting CSR on the Supply Chain –Date of issue: March 15, 2019 (Second edition)
Global Compact Network Japan
Written by the Supply Chain Working Group
Published by Global Compact Network Japan
Designed by: Fuji Xerox System Services Co., Ltd.
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