Why Social Compliance Audit is Fundamental in Business Ethics
In today's corporate landscape, ethical considerations sit at the forefront of crucial business strategy, as well as investors’ and consumers’ decision-making process. One principal way companies adopted to assess and monitor their business ethics is through social compliance audits done at site. These mechanisms are instrumental and effective in ensuring not only the companies but also the value chains adhere to socially responsible practices, proving much-expected visibility in business ethics to customers and public.
The pressure is getting particularly high as regulations concerning due diligence and corporate responsibility are underway in recent years. Norwegian Transparency Act became effective in July 2022, the German Act on Corporate Due Diligence in Supply Chains (LkSG) went into force in January 2023, proposal of EU Corporate Sustainability Due Diligence Directive (EU CSDDD) was adopted by EU in June 2023, revision of New York’s Fashion Sustainability and Social Accountability Act was re-introduced in 2023 and Fighting Against Forced Labour and Child Labour in Supply Chains Act was enacted in 2023 in Canada – these are only a few prominent to name. While most of the regulations target multi-million corporates to begin with, it is believed that businesses of different sizes will fall under the regulated zones as the global supply chain is very much interconnected.
There are varied activities that businesses can take for compliance. Statement confirmation is a very common approach as everyone can see easily from corporate websites, annual reports and other collaterals. Self-assessment was much used in the early days when social compliance was first mentioned. Businesses have mostly moved to collaborative reliance (engagement of other parties) and full-scope on-site intervention, which is the social audit that we are referring to.
A social compliance audit is an examination of a company's management, processes and policies with specific attention to its social responsibility commitments. These audits assess compliance with set standards regarding working conditions, labour rights, occupational health & safety, and key human rights. In some occasions, environmental impacts are considered as well. Audits are conducted by trained independent auditors, offering an unbiased look at company practices and performance with aligned perceptions and evaluations.
Field audits play a crucial role in promoting ethical business conduct. They highlight company performance areas that may need improvement and provide recommendations on how to align practices more closely with regulatory requirements, industry benchmark and ethical considerations. Business ethics, in turn, promote brand reputation and consumer trust by identifying underlying risks and mitigating them.
One main focus of social compliance audits is enforcing labour rights and human rights at the supply chains. Auditors investigate whether companies adhere to local and international laws on human rights, including fair wages, safe working conditions, and statutory working hours. They also examine, through documentations and interviews, any trace of wrong doings around labour aspect, such as child labour and slavery.
Another critical role of social compliance audits is in mitigating risks associated with supply chain management. Irrespective of sector, all companies are exposed to a network of threats emerging from unfair trade practice. An audit of the supply chain is instrumental in identifying these risks, providing transparency and traceability. Complying with social audits signals a company's commitment to ethical trading relationships, supplier integrity, and shared responsibility for fair and safe working conditions.
With the findings from the social audits, businesses can engage with various stakeholders to drive improvements in collaborative manner. These may include workers, NGOs, and local communities who deliver valuable insight into how businesses can improve their social compliance patterns. This collaborative process opens up lines of communication and encourages a commitment to shared ethics and responsibility. It builds up also a more defined and connected brand image for talent and customer retention.
Social compliance audits are pivotal for businesses seeking to uphold high ethical standards. They offer companies a means to review their internal processes effectively, propose recommendations for improvement, and enforce labor rights and environmental standards. Beyond the audit's internal impact, these activities assure stakeholders, suppliers, and customers of a company's devotion to maintaining an ethically sound operation.
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