Supplier due diligence
In the past few years we have worked to implement systems and procedures to monitor adherence to our Supplier Code of Conduct.
The monitoring is most advanced and proactive for the raw tobacco purchases for our snus products. It is more compliance-oriented for the raw tobacco for other smokeless products. The major due diligence tools for the raw tobacco supply chain are the Sustainable Tobacco Programme (STP) and associated procedures. During the year, the monitoring for direct material other than raw tobacco, has been enhanced through a group-common procedure. Our end goal within supply chain management is a proactive dialogue on prioritized sustainability issues with relevant significant suppliers of direct material.
Swedish Match sources raw tobacco from global suppliers (such as Alliance One, ITC and Universal Leaf) and not directly from tobacco farmers. Farms are generally in tier two with some exceptions (in regions where regulations and/or market structures add more complication). The STP is a due diligence program for sustainability aspects in tobacco growing and manufacturing. It was jointly developed by the tobacco industry in 2015; implementation started in 2016 and the first review cycle will be completed at the end of 2018. Through the STP, we assure adherence to the requirements on, for example, human rights, labor practices, health and safety, as well as environmental issues, set forth in our Supplier Code of Conduct. Our suppliers continuously perform risk assessments in relation to these requirements and establish action plans for continuous improvement, for both for our suppliers and the suppliers of our suppliers. Farmers are subject to regular training on relevant aspects of the program with the purpose of improving conditions on the farm, yields and livelihoods.
Swedish Match has 51 suppliers of raw tobacco. At present, the STP primarily covers raw tobacco for the production of snus, moist snuff and chewing tobacco. It covers 53 percent of our purchased raw tobacco volumes and 47 percent of raw tobacco suppliers.
During 2017, we have developed a plan to also include the sourcing of raw tobacco for cigars into STP. Third-party reviews under the STP are scheduled to take place in 2018.
Assessing and reviewing supplier sustainability performance
Our tobacco suppliers perform annual self-assessments with regard to adherence to the requirements in the STP, for their own part as well as for the farmers from whom they purchase. This forms the basis for dialogue between our Leaf Operations departments and suppliers, as well as for the third party review. Our suppliers’ field technicians train and assist farmers in their daily work to assure compliance with the STP requirements and to optimize crop yield. The field technicians continually monitor farm operations. If matters require immediate attention, actions will be taken to resolve the matter.
On a three-year basis, suppliers are audited and rated by a third-party auditor, AB Sustain. During the past two years 12 reviews have been conducted by AB Sustain. The Leaf Operations department of our Scandinavia Division participated in eight of these reviews to better understand how the STP affects the work and procedures of our suppliers and to build on the review results.
Child labor and child risks
Several criteria relating to child labor and child risks in the tobacco growing and manufacturing supply chain are under assessment and review through the STP. These include, but are not limited to, employment or recruitment of child labor and performance of dangerous or hazardous tasks within the supplier facilities (tier 1); employment of children on supplying farms (generally tier 2), identification of dangerous and hazardous work on supplying farms, exposure to hazards on supplying farms for persons below the age of 18 years old , and farmer’s children helping out with light work on supplying family farms as well as their school attendance along with the identification of prompt action issues and procedures to address them.
The self-assessment results show that, suppliers and farmers are close to a 100 percent compliant with the criteria related to child labor and child risks. In general, there is a large discrepancy between results from supplier self-assessments and third party reviews. This is often related to insufficient evidence available for verification by the third party auditor. For example, 92 percent (11/12) of reviewed suppliers state that they have identified which work would be considered dangerous or hazardous on supplying farms (not to be performed by children below the age of 18 years old). The results of the third party reviews show that this could be verified through evidence for 83 percent of reviewed suppliers (10/12). Bridging the gap and improving the results of the third party reviews versus self-assessments will be in focus in the continued dialogue over the years to come. In 2018, after the completion of a full review cycle, we will have formed a new baseline to continue our efforts from.
Conducting dialogue with suppliers
Our Leaf Operations departments evaluate risk and tailor the continued dialogue on the basis of self-assessments, third party reviews and resulting action plans for improvement. Suppliers and farmers are visited on a yearly basis to strengthen relationships and to pursue a proactive dialogue, including follow-up on action plans. The proactivity and structure in this dialogue varies between the inflows of raw tobacco to Swedish Match. In 2017, we have worked to systemize, and structure documentation on, this dialogue in a consistent way for raw tobacco covered in STP. We have defined a procedure on how to interpret, take action and follow up on STP results. This will be implemented on a larger scale in 2018.
Direct material other than raw tobacco
The due diligence for direct materials other than raw tobacco builds on our Supplier Code of Conduct. At present this process primarily covers tier one suppliers. The tier one suppliers are continuously screened for compliance and risk in relation to ethical business practices, including child labor issues. In addition to this, we encourage our suppliers to develop their own supplier standards and monitoring procedures.
During 2017, we have developed and started implementation of a group-common procedure, including self-assessment and desktop screening, to assess supplier adherence to requirements set forth in our Supplier Code of Conduct. Swedish Match has 67 significant suppliers of direct material other than raw tobacco. A total of 31 suppliers have been assessed, this includes the 19 suppliers associated with the highest risk in the human rights risk assessment as well as nine suppliers that have not signed our Supplier Code of Conduct (in reference to having their own Code of Conduct). Based on the assessment results, individual action plans for improvement, including for example third party review, will be developed and included in the continued dialogue with the suppliers in 2018.