Introduction

The Ethical Trading Initiative

The Ethical Trading Initiative (ETI) is a UK body which brings together businesses, trade unions and non governmental organisations (NGO) with the aim of improving working conditions in supply chains of member companies. It has the support of, and is partly funded by the Department for International Development. The employment standards adopted by ETI members are international standards that come from the Conventions and Recommendations of the International Labour Organisation. For further information please see the rest of this website.

Just Pensions

Just Pensions is a thinktank and lobby group promoting Socially Responsible Investment, with a particular focus on international development issues. For further information, explore the rest of the Just Pensions website, or contact info@justpensions.org.

Background

ETI is often contacted by fund managers seeking to improve investee company performance on labour standards in their supply chains. Many companies sound good on paper, and it is not always easy to distinguish genuine commitment from corporate spin. This paper offers some suggestions for the kind of questions that can help fund managers get to the heart of a company's approach. It covers how a company establishes credible policies, but just as important, goes on to look at implementation and management systems. We intend this paper to be the basis of discussion with fund managers and may produce further versions based on feedback, once fund managers start to use the document in their discussions with companies.

Appendix: Glossary of Terms 

Audit (of workplace labour practices)

A thorough formal examination of the labour practices of a particular workplace or company, based on corroborated evidence. The essence of an audit is the examination of evidence and the cross-checking of the evidence to establish its truth. This in turn implies the observance of established rules and procedures concerning the gathering and evaluation of the various kinds of evidence. [section 4]
 

Code of conduct

A code of conduct is a set of standards or rules for ethical behaviour. In the context, of ethical trading a code of conduct (or, more accurately, a code of labour practice) is a set of standards concerning labour practices adopted by a company and meant to apply internationally and, in particular, to the labour practices of its suppliers and sub-contractors. These kinds of codes are in effect the unilaterally adopted policy of a company and are sometimes considered as one kind of voluntary private initiative. [section 1]
 

Ethical trading and ethical sourcing

This refers to the assumption of responsibility by a company for the labour and human rights practices within its supply chain. The term concerns the behaviour of the sourcing company but does not imply complete responsibility or the existence of obligations that apply in every situation.
 

International Labour Organisation (ILO)

One of whose oldest and most important functions of the ILO is to set international labour standards. The ILO is unique within the United Nations system for its tripartite structure and for its ability to supervise the application of its standards. This tripartite structure gives employers' and workers' representatives - the "social partners" of the economy - an equal voice with those of governments in shaping the policies and programmes of the organisation. [section 1] [section 4]
 

Monitoring

In the context of the workplace, monitoring refers to the surveillance of labour practices against a standard by a person (or persons) with a continuous or frequent presence in the workplace and unobstructed access to management and staff.
Examples: A manager with a designated monitoring function, continuously or frequently in the workplace in question; an employee in that workplace with a designated monitoring function (e.g. a union delegate); a government or local authority official who is assigned to a particular workplace for monitoring purposes and is continuously or frequently present in the workplace. "Frequent", in this context, means being present in the workplace sufficiently often as to be able to detect variations from normal behaviour. [section 2] [section 3] [section 4] [section 5]
 

Social auditing & Social reporting

An audit of a company's performance and impact across a range of social indicators, including industrial relations, community impact, social dialogue, stakeholder consultation, observance of labour standards and contribution to social infrastructure. These terms were developed in the context of Corporate Social Responsibility (see definition) and are meant to cover a wider range of a company's performance than respect for minimum labour standards in the supply chain. They cannot be used interchangeably with terms such as monitoring , inspection and verification as used in the context of ethical trading. [section 4]
 

Verification

In the context of codes of labour practice verification concerns the impartial examination and certification of claims made about the actual observance of code provisions by suppliers or of claims made about the activities that a company undertakes to give effect to its code. The essence of verification is about the credibility of public claims. Verification implies a re-examining of the evidence in order to establish that previously reported results are accurate.
 
Because it is about credibility verification would have to be conducted according to rules and processes by qualified persons and organisations where the rules, processes and qualifications are previously established through a process widely regarded as legitimate and authoritative. Verification would have to be independent of the workplace being examined and of any authority that carried out an inspection or assessment being verified. Although some commercial enterprises offer "verification" services and some multi-stakeholder initiative "certify" auditors or workplaces, these enterprises and initiatives do not have sufficiently widespread acceptance of their legitimacy or authority.
 
Verification would be a rule-driven process where organisations and individuals performing verification follow carefully defined standards and obey rules that cannot be changed by the company that has engaged them to perform verification. The thinking is that both organisations and individuals would receive "accreditation" from an organisation created for this purpose. Verification would then be the process to the "certification" (of workplaces, companies or ethical trading management systems). [section 5]
 

ETI Base Code

Our Code of Labour Practice

We have adopted a ‘Base Code’ of labour practice based on International Labour Organisation standards, which contains provisions on the following broad areas:

• Employment is freely chosen
• Freedom of association and the right to collective bargaining are respected
• Working conditions are safe and hygienic
• Child labour shall not be used
• Living wages are paid
• Working hours are not excessive
• No discrimination is practised
• Regular employment is provided
• No harsh or inhumane treatment is allowed

The Base Code also includes important principles of code implementation.