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Suppliers of goods and services to large firms are facing increased scrutiny on their practices, including minimum wage and payment of taxes, pointing to the growing focus on environmental, social, and governance (ESG) compliance.
Many large firms, including those listed on the Nairobi Securities Exchange (NSE), are keen their ESG credentials amid pressure from investors and customers.
The ESG race has seen firms screen their suppliers of goods and services to ensure they are follow ethical business practices such as not employing children, offering equal pay to male and female workers and ensuring they stick to the country’s minimum wage rule in addition to paying taxes.
The shift spells doom for small suppliers with no known contracts with workers and no safe working environment. However, it works in favour of large, established suppliers and also provides work for women, youth, and people with disabilities as companies race to diversify their supply chains.
NSE-listed firms in various sectors including banking, insurance, telecommunications and manufacturing, are leading the way in this shift as they seek to meet the impact-driven UN Sustainable Development Goals (SDGs) and governance-focused ESG targets.
Safaricom’s supplier code of conduct, for instance, bars its suppliers from restrictive trade practices, giving bribes or gifts to any of the telco’s staff, hiring children and paying workers below the minimum wage. It also requires the suppliers to give their workers at least one day off a week and provide evidence that they have paid all taxes.
The telco conducts compliance audits on its suppliers and puts those in non-conformance with its code on performance improvement plan. Those who continue being in breach are axed.
“We assist suppliers whose performance is below the required threshold (under 80 percent) with customised performance improvement plans and mentoring towards achieving acceptable levels of service,” says the telco.
Absa Bank Kenya says it only engages suppliers who have been accredited by their respective professional bodies. Such requirements mean its suppliers have to be formal.
“These bodies have established their own professional codes of conduct, which our suppliers must adhere to in order to continue doing business with the Bank. This ensures that our suppliers maintain the highest ethical standards and conduct their operations responsibly,” says Absa in the latest sustainability report.
The screening of suppliers is being hastened by the push from investors as well as customers. Investors, especially in overseas markets are increasingly voting with their feet by refusing to invest in non-ESG complaint companies while some customers are cancelling orders of goods from firms caught in scandals bordering on human rights abuses.
Firms without supplier codes are catching up, with the likes of Sasini saying theirs is on the way.
“We are currently in the process of developing our supplier code of conduct which will lay the foundation for a shared set of principles that guides our interactions and collaborations with all suppliers,” says Sasini.
East African Breweries Plc says in its latest sustainability report that it has now started screening its suppliers on human rights.
This is part of the brewer’s “Know Your Business Partner Programme” under which it says it assesses its business partners for potential economic sanctions and compliance risks such as bribery and corruption, money laundering, facilitation of tax evasion, data privacy or other reputational red flags.
“To enhance our approach to responsible sourcing, we have begun screening for human rights with higher-risk potential suppliers before onboarding. This helps us make more informed decisions on human rights risks and gives us the chance to assess and mitigate the salient issues before we contract with a supplier,” says EABL.
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