ESG Audits and Post-audit Improvement for a European Fashion Company
The client, a European private-label fashion company, had entered into contracts with four Chinese manufacturers for its main product line. Owing to its expanding business, the client initiated an ESG (Environmental, Social, and Governance) performance evaluation of its supply base. The primary purpose of this assessment was to pinpoint areas that required improvement and to strategically reorient sourcing expenditures based on the evaluation results.
ARC Consulting was chosen to support the client throughout the process, starting with an initial performance review via on-site audits and concluding with the formulation of a CAP (Corrective Action Plan) after the audits.
The client faced the task of ensuring its Chinese supply base complied with international standards and local ESG regulations. Given the EU’s enhanced sustainability reporting regulations and escalating stakeholder expectations on ESG, the client realized the need to evaluate their suppliers’ ESG performance.
As such, the client sought professional guidance and on the ground assistance to conduct the assessments effectively, perform on-site audits, and develop a CAP to resolve any identified non-compliances.
The assessment procedure was divided into three stages:
- Preliminary Preparations
- On-site Audit
- Post-audit CAP
The ARC Consulting team initiated the process by gathering essential information about the suppliers, identifying potential risk areas, and preparing for the audit trip. Further, additional recommendations were proposed to augment the client’s existing audit checklist, ensuring it aligned with local legal requirements and was comprehensive in scope.
The audit encompassed labour practices, EHS (Environment, Health & Safety), business ethics, and governance. During the audit, data was collected through plant tours, document reviews, and discussions with management and employees. Plant tours involved assessments of various facilities including production floors, waste storage units, dormitories, and canteens. Document reviews facilitated an examination of relevant records, policies, and commitments. Furthermore, dialogues with management and employees yielded additional insights into the suppliers’ strategies, governance structures, operations, and everyday practices, and served as a cross-checking mechanism for the records submitted.
Upon completion of the audit, suppliers were required to submit CAPs for review and approval before implementation. For each non-compliance, ARC Consulting verified credible evidence demonstrating the implementation of CAPs. For more severe findings, preventive actions were dictated.
To maintain transparency, the client received bi-weekly status reports detailing the progress made.
The project allowed for an in-depth evaluation of the suppliers’ ESG performance and the identification of associated risk areas. This provided the client with a comprehensive understanding of the suppliers’ landscape.
Based on the audit findings, the client decided to exclude one of the underperforming suppliers from its supply chain and demanded corrective actions from the remaining suppliers.
In just three months, through continuous coaching and follow-ups by ARC Consulting, Eventually, by instituting a thorough post-audit follow-up process conducted routinely, the client could enact dynamic modifications to their sourcing expenditures, calibrated to the evolving performance of the suppliers. This structured approach facilitated a holistic and proactive management of ESG risks within the supply chain.