Episode 12 (EN): BusinessShift – Social Audits by TÜV Rheinland

00:00:00: This English version of the podcast was created using AI-based voice synthesis from the original German recording.

00:00:06: BusinessShift.

00:00:11: BusinessShift.

00:00:12: The podcast for decision makers and executives who want to deal with the topic of sustainability in a sustainable way.

00:00:18: Welcome to a new episode of BusinessShift.

00:00:21: Today, we are tackling a topic that presents significant challenges for companies worldwide.

00:00:26: Social responsibility in the supply chain and sustainable corporate management.

00:00:31: Today, we have our sustainability expert Dr. Bahar Cat-Krause in the studio with us again.

00:00:36: Welcome, Bahar.

00:00:37: Hello Tobias.

00:00:37: Together, we will focus on one of the most pressing questions in business today.

00:00:41: How can companies ensure that their supply chains are not only efficient but also fair, sustainable and compliant with regulations?

00:00:49: How can transparency be created in global supply chains?

00:00:52: What are the legal frameworks and which strategies help implement these measures?

00:00:56: Hopefully, our guest today, Reinhard Bier, a global product manager supply chain at TÜV Rheinland, will provide some answers.

00:01:02: Hello, Reinhard.

00:01:03: Hi there.

00:01:04: Reinhard has over 11 years of experience in supply chain auditing.

00:01:07: A true expert?

00:01:09: He knows all the risks and opportunities that companies should address on their path to greater sustainability.

00:01:15: Whether from a regulatory perspective or corporate responsibility,

00:01:19: sustainable supply chains are no longer just a nice to have but a critical business necessity.

00:01:24: How companies can master this transformation?

00:01:26: What best practices exist and where there is still room for improvement?

00:01:30: We will discuss all of that today.

00:01:32: Reinhard, you originally trained as a commercial pilot and worked in the financial sector for 10 years.

00:01:38: How did your path eventually lead you to the topic of sustainable supply chains?

00:01:42: That's an interesting question.

00:01:43: And as it often happens in life, one thing leads to another until you're standing in front of the whole forest.

00:01:50: At some point, I decided to study part-time again.

00:01:52: It was business administration, and I had a professor who had a significant influence on me.

00:01:57: There was a course called Responsible Action in Society and Business,

00:02:00: and as is typical in studies, there were various seminar papers.

00:02:03: One of them was about the Honourable Merchant.

00:02:05: I think I started very classically in the field of sustainability,

00:02:08: which has fascinated me ever since, then came the next step,

00:02:11: and that's how I ended up here at Tovreinland, focusing on this topic.

00:02:14: Sustainability itself is a big word.

00:02:16: What does sustainability mean to you personally?

00:02:18: I learned that it has always been viewed as very green.

00:02:22: It quickly revolves around the topic of the environment.

00:02:24: But if you look at where the term originated in Germany,

00:02:27: where it was coined, we have Hans Karl von Karlowitz,

00:02:30: who coined and defined the term sustainability in Germany.

00:02:33: He wasn't really interested in protecting the forest or the trees for the sake of the environment,

00:02:38: but rather in his role, he was, I believe, a chief mining officer.

00:02:41: It was about wood being a resource,

00:02:43: and he realized that we need much more than what is being replenished.

00:02:46: Be an economic thought behind it even back then.

00:02:48: So everything was planned for the long term to ensure that one could continue

00:02:52: their business idea in the long run.

00:02:54: Since then, in all aspects of my life,

00:02:56: I've maintained the perspective that my actions must be something I can stand behind

00:03:00: and the long term consequences of.

00:03:02: Let's dive in.

00:03:03: What does social responsibility in the supply chain mean?

00:03:06: And what issues are there?

00:03:07: It's a very broad question, so I need to first see where to start.

00:03:10: What does it mean?

00:03:11: We are all used to obtaining any products online or otherwise.

00:03:14: Companies are accustomed to having a supplier for practically everything.

00:03:17: And for decades, the focus was primarily on price and product quality,

00:03:20: where it comes from and the potential harm caused by various products and services worldwide

00:03:25: was largely ignored.

00:03:26: Now, if we want to secure a business model in the long term,

00:03:28: we also need to consider the impact of producing and purchasing products from different countries.

00:03:32: I also think that we often overlook something when it comes to

00:03:35: responsibility in the supply chain.

00:03:37: We talk a lot about resources, but people are resources too.

00:03:40: I believe that protecting them is the main task of an entrepreneur,

00:03:43: protecting people, protecting children who ultimately produce our products or work

00:03:48: so that we can consume these products.

00:03:50: Well, I think it always has different facets.

00:03:52: Absolutely.

00:03:53: As I said, this is about social audits.

00:03:55: And when I look at Germany, I think, okay, social aspects are primarily regulated by the legislature.

00:04:01: I believe we also live in a society with a certain level of social cohesion.

00:04:04: And there's a certain standard, let's call it,

00:04:07: when we produce something here in Germany as it's regulated by the legislature.

00:04:11: What are the requirements for the social background of such things?

00:04:14: Outside of Germany, and that's why we look at the supply chain,

00:04:17: it's not always regulated.

00:04:19: And then the question arises, what do you experience when

00:04:22: such things are not regulated?

00:04:24: What kinds of grievances can occur?

00:04:25: There can be various issues.

00:04:27: If we stick to the social aspect, we are all used to buying a t-shirt somewhere,

00:04:30: or when a manufacturing industry like the automotive industry in Germany

00:04:33: orders or produces parts from abroad, we quickly get into regions where

00:04:37: there are conditions that we might not even be able to imagine.

00:04:40: The terms forced labor and child labor often come up quickly,

00:04:42: but I think we don't even need to go that far.

00:04:44: It already starts with questions like, what is the permissible working time per week?

00:04:48: How many days off do you get?

00:04:49: How many hours a day and per week are allowed to work or are actually worked?

00:04:53: And we have, of course, identified various situations in the past,

00:04:55: whether it's the 70 hour week without a day off,

00:04:58: and then at a wage that puts the worker in a situation

00:05:00: where they can't really live or survive long term,

00:05:03: then we are indeed talking about grievances that we need to think about.

00:05:06: Should we, for example, buy a t-shirt for two euros?

00:05:08: You also mentioned that we don't have to look very far.

00:05:11: In Germany, we are relatively well positioned with our labor protection,

00:05:14: health protection and legislation, which we sometimes lack.

00:05:17: We also talk about protective equipment.

00:05:20: For example, in production, that when you are sawing,

00:05:23: you have certain safety glasses that protect your eyes from getting splinters.

00:05:27: That's where it actually starts.

00:05:29: Absolutely.

00:05:30: When we talk about social issues or what is often referred to as ESG,

00:05:33: focusing on the social aspect, we quickly touch on labor rights and human rights.

00:05:38: This includes no child labor, no forced labor and fair wages.

00:05:41: As you mentioned, safe working conditions are crucial,

00:05:43: meaning whether an employee is provided with protective equipment

00:05:47: or if they have to pay for it themselves.

00:05:49: And if we imagine a situation where we can barely live off our wages,

00:05:52: how are we supposed to pay for protective equipment ourselves?

00:05:55: Is the Supply Chain Due Diligence Act,

00:05:56: which is currently being heavily discussed,

00:05:59: actually drawing more attention to these issues through audits,

00:06:02: do you, as an auditor, see that the focus is being directed towards these grievances?

00:06:06: Absolutely. That's, of course, the goal behind this law.

00:06:09: As you mentioned, it's currently being widely discussed at the EU level

00:06:12: with the upcoming CSDDD, the European version of this German Supply Chain Law.

00:06:16: And the question is, how far do we want to go?

00:06:18: In other words, we're talking about different levels within supply chains.

00:06:21: Tier one is the direct supplier.

00:06:22: Tier two, tier three are those who supply the suppliers.

00:06:25: So you can imagine it being sufficiently complex,

00:06:27: depending on the product being manufactured.

00:06:29: And the current legislation, especially here in Germany,

00:06:32: only refers to tier one because you can still exert some influence there

00:06:35: with contracts, supplier agreements, and so-called codes of conduct.

00:06:39: Beyond that, it becomes difficult.

00:06:40: Therefore, transparency in supply chains is what everyone is currently concerned with.

00:06:45: How can I identify who is still involved at a deeper level within my supply chain?

00:06:49: And how do I handle it when I become aware of any issues?

00:06:51: At the European level, the approach was to say

00:06:54: that the entire value chain is included in the scope,

00:06:57: or companies are held responsible, which, as mentioned earlier,

00:07:01: can be quite complicated because I might not even know

00:07:03: who is working for me at the lower levels,

00:07:05: but this is currently being discussed at the European level

00:07:08: because it's also for promoting the economy and not just implementing regulations.

00:07:12: Regarding the supply chain law, I read in the newspaper yesterday

00:07:14: that there is a very positive example of the impact of the supply chain.

00:07:17: Law is already having, but even though we still have all these question marks,

00:07:21: it's about Ecuador.

00:07:22: Ecuador is the world's largest exporter of bananas under the supply chain law.

00:07:26: They also supply retail companies here in Germany that we all know,

00:07:28: and where we all shop, where we see bananas with a nice label on them.

00:07:32: And in Ecuador, the workers have come together.

00:07:34: This means that the right to freedom of association

00:07:36: is by no means universally granted.

00:07:38: It means that as an employee, I have a say or can point out grievances,

00:07:42: but the supply chain law is cleverly set up.

00:07:44: It has established a channel so that these complaints can also be forwarded

00:07:47: by others such as NGOs, to Germany's Federal Office for Economic Affairs,

00:07:50: and Export Control, BAFA, for review.

00:07:52: And to cut it short, it turned out that wages in this sector

00:07:55: have now been significantly adjusted.

00:07:57: This means that we see a law here in Germany that holds companies accountable

00:08:01: for their supply chains, which can have an impact on workers in other countries.

00:08:04: That's a very positive example.

00:08:06: What do you say to the critics who argue that there's now even more bureaucracy?

00:08:10: That's the criticism of the current law.

00:08:12: It's not that the law doesn't help achieve transparency,

00:08:14: but rather the criticism is that it's too bureaucratic, too cumbersome,

00:08:18: or at least that's the perception.

00:08:20: What do you say to those people who see it from that perspective?

00:08:24: I would say that every criticism I've seen so far,

00:08:26: I can partially or even largely confirm,

00:08:29: because we're talking about a monstrosity here, one must say,

00:08:32: which places a lot of demands on companies.

00:08:34: And the first question is,

00:08:35: why are these demands being placed on the companies?

00:08:38: Why don't we have a government body that can influence this?

00:08:40: Now, you must understand that the Federal Republic of Germany

00:08:43: doesn't have much influence over working conditions in other countries.

00:08:47: Ultimately, it's only the companies that can have an impact there.

00:08:49: However, the law was introduced rather hastily,

00:08:52: leaving many questions unanswered as the deadlines approached.

00:08:55: This meant that many companies had to start addressing it

00:08:57: and asking themselves how to achieve transparency and comply with the law.

00:09:01: Due to the many gaps, there were also numerous loopholes

00:09:04: in how it could be handled, for example.

00:09:07: As already mentioned, a supplier contract typically outlines

00:09:09: the conditions of delivery, what is expected,

00:09:12: and also includes the so-called code of conduct,

00:09:15: detailing how environmental requirements or working conditions

00:09:18: should be met or what the expectations are.

00:09:20: However, simply renewing this for every supplier by mailing it out

00:09:24: and insisting on a signature doesn't initially change anything

00:09:27: in the supply chain because paper is patient.

00:09:29: This resulted in a significant administrative burden.

00:09:31: In the initial case, an annual report must be submitted to the German BAFA,

00:09:35: answering many detailed questions for which the information

00:09:38: is often not readily available.

00:09:39: Companies often find themselves operating in a gray area

00:09:42: to be able to answer these questions.

00:09:44: And there are still many approaches missing from the policymakers.

00:09:47: It has been repeatedly promised that there will be guidance documents,

00:09:50: but they have not yet been fully released.

00:09:53: So we've also sat down with many of our clients to discuss this very topic.

00:09:57: As you mentioned earlier, it is a monster.

00:09:59: It is indeed a monstrosity because there are just so many data points

00:10:03: that don't even exist within the company,

00:10:05: and it's not clear where to get them from.

00:10:08: And linking them is one thing, then there's the whole reporting aspect.

00:10:11: That means all of a sudden I have a ton of information

00:10:14: that I need to provide here.

00:10:15: What I might not be able to do today

00:10:17: because I need to prepare accordingly.

00:10:19: Therefore, I don't think it's entirely wrong

00:10:21: to discuss reducing bureaucracy in this context.

00:10:24: I'm actually taking a stand here

00:10:26: because I believe it gives companies a bit more breathing room

00:10:29: and a chance to properly organize themselves.

00:10:32: And as you just said, to implement things in a rush,

00:10:35: just like how the laws seemingly came about.

00:10:37: So I believe for everyone out there who has gained a bit of time now,

00:10:41: this is really an opportunity and a chance to take a proper look

00:10:44: and not just gather some data for the sake of having something.

00:10:48: All in all, legislation is important, yes.

00:10:50: But nonetheless, as an entrepreneur,

00:10:52: I also have a responsibility that I need to clearly address.

00:10:55: In my opinion, these discussions are valuable time

00:10:57: that we gain together with our customers

00:10:59: to actually shed some light on the matter.

00:11:01: Yes, let's address that directly.

00:11:03: So one thing is, let's say the legal requirement.

00:11:06: I'm already wondering, as you just mentioned, Reinhard,

00:11:08: if I have a tier three or four as a medium-sized company in Germany,

00:11:12: I don't even know anymore who the subcontractor sub-sub-sub somewhere in Asia is.

00:11:17: So what options do I have beyond legal requirements to actually get information on?

00:11:21: Let's call it the working conditions,

00:11:23: the working conditions of a sub-subcontractor that I might not even know.

00:11:26: Or do I have to travel there myself to find out?

00:11:29: Or does it ultimately come down to document verification

00:11:32: where I ask for a signed statement confirming

00:11:35: that general working conditions are being met?

00:11:37: I would say that is the biggest challenge in the whole topic

00:11:40: of let's call it sustainable supply chain.

00:11:42: Because of course, I know my direct suppliers,

00:11:44: although that has also changed in recent years.

00:11:47: Previously, one might have known about the direct suppliers,

00:11:50: such as which product, what quantity, what price, what quality,

00:11:53: but had no information about the working conditions.

00:11:55: This has changed, I believe, mainly due to the supply chain act.

00:11:58: However, the challenge for tier two, tier three,

00:12:00: meaning deeper in the supply chain, still remains.

00:12:03: There are now many providers on the market that offer software solutions

00:12:06: to bring some transparency into the supply chain.

00:12:09: This means that data points are collected somewhere else,

00:12:12: which I can access.

00:12:13: But it remains just pure data sets that someone has written down

00:12:16: and someone has either confirmed or not confirmed.

00:12:19: What all these laws have in common, however,

00:12:20: is the so-called risk-based approach.

00:12:23: It's by no means about identifying every supplier,

00:12:25: but rather about looking at where the greatest impact

00:12:27: or the greatest risk of a violation is.

00:12:29: And this can actually be quite easily determined for any company,

00:12:32: allowing them to delve deeper into these areas.

00:12:35: And then, of course, you also need to establish contact

00:12:37: with a tier three or tier four supplier,

00:12:39: with whom you may not have had any prior contact.

00:12:41: Either you go through your direct supplier

00:12:43: or you can address them directly.

00:12:44: So first, you need the information

00:12:46: about who is actually in your supply chain

00:12:48: in order to then see, okay, how can I take a closer look there?

00:12:51: And this risk-based approach is actually a great approach.

00:12:54: Of course, I can uncover grievances through this.

00:12:56: On the other hand, it can also lead to my supply chain

00:12:59: becoming much more resilient,

00:13:01: allowing me to counteract risks to my own product sales.

00:13:04: By identifying issues,

00:13:05: we naturally try to address them through measures

00:13:08: and also work together with suppliers

00:13:10: to develop in a certain direction.

00:13:12: But there are certainly situations where I might say,

00:13:14: okay, I need to turn to someone else to secure my supply chain

00:13:18: where there are fewer issues.

00:13:19: So again, it's about the big challenge

00:13:21: of ensuring the future viability of production and the company.

00:13:25: My supply chain makes up 80% of the company

00:13:28: in almost every industry.

00:13:29: We simply have to look more closely

00:13:31: and ask questions more often.

00:13:33: I also believe that training the suppliers

00:13:35: or meeting with them, onboarding them on the whole topic

00:13:38: is extremely important.

00:13:39: And if that's not possible,

00:13:40: then I would say to finally address your question to bias,

00:13:44: it absolutely makes sense to conduct audits.

00:13:46: That brings us directly to the next keyword, audits.

00:13:49: Reinhard, you conduct these audits, social audits.

00:13:53: What do they look like?

00:13:54: What do you do there?

00:13:56: You then go into the company.

00:13:58: You talk to the children standing there

00:14:00: and they say, "No, we don't work here."

00:14:02: No, what does such social audits look like?

00:14:05: So it's good that you bring it up

00:14:06: because I think there's a very, very big difference

00:14:08: from what we primarily know as audits.

00:14:10: When we often talk about audits,

00:14:11: it usually involves as probably all companies know,

00:14:14: quality management audits, environmental audits, and so on,

00:14:17: where there might be a certificate at the end

00:14:19: confirming that I meet all quality standards or processes.

00:14:22: With so-called social compliance audits, it's different.

00:14:24: We usually have a client, for example,

00:14:26: a company that falls under the scope of the supply chain act

00:14:28: or a large brand operating globally,

00:14:30: which has identified that before I check my own business

00:14:33: areas in Germany for sustainability or social aspects. I go to where, as you just said, I

00:14:38: have the greatest impact or where the greatest risk might lie. These companies are, of course,

00:14:42: informed that someone will come to audit them. But what has changed in recent years is that

00:14:46: they are often not notified in advance. This means that an auditing firm like ours can

00:14:50: be commissioned to audit a company anywhere in the world, according to certain standards

00:14:54: and social criteria. This can mean that our auditors show up unannounced at the gate, ring

00:14:59: the bell, and say, "We are here on behalf of company XY to audit you today." And then

00:15:03: the audit essentially begins. They immediately observe how openly the auditors are received.

00:15:08: Of course, the auditors have an audit plan with them as well as a checklist or criteria

00:15:11: that need to be reviewed. However, they are quite flexible during the audit because we

00:15:15: have to be aware that we are auditing a company on the suspicion that there may be violations

00:15:19: of human rights or labor rights. This means the likelihood that someone from the company's

00:15:23: management will tell us where violations have occurred is quite low. That means we also

00:15:27: need other sources and methods to look behind the scenes. The main tool for this is conducting

00:15:31: interviews with employees excluding management, which means anonymized so that no conclusions

00:15:36: can be drawn. And then, of course, the big challenge for an auditor is to quickly build

00:15:40: a trust relationship with these employees so that they can provide relevant information

00:15:45: on where the auditor should look more closely. Are there, for example, double payrolls? Are

00:15:49: the hours even recorded? Is there actual time tracking, meaning are the hours genuinely logged

00:15:53: or are we just presented with filled out documents? Things like that. Yes. And it's important

00:15:58: that these audits are increasingly unannounced because we can all imagine, we know from our

00:16:02: school days, if we're told there's a math test next week, we'll probably all sit down

00:16:05: and study for it. But if the math test is just placed on the table in the morning, then

00:16:09: the actual status quo is being checked. Yes, you just mentioned that social audits are

00:16:14: different. Do they then require different skills from the auditor compared to a traditional

00:16:19: QM audit? Yes, of course, there are similarities. But generally, I can't emphasize enough how

00:16:24: much respect I have for social auditors. They often find themselves in situations where,

00:16:28: first, they are usually not welcome. And second, they try to uncover things that no one wants

00:16:32: to see. So neither the client really wants to see them because that would mean they have

00:16:37: a challenge with their supplier and need to work on it. The company itself tries to hide

00:16:40: them during the audit because they know it can be damaging to their business and to push

00:16:44: through that to communicate with employees on an equal footing to build a relationship

00:16:49: of trust that takes something special.

00:16:51: What happens when an auditor identifies an obvious violation? Not a hidden one where

00:16:55: you can just say, "Okay, I'll note it in my report." Does the auditor just go home

00:16:59: and submit his report? Or are there cases where he can take immediate action?

00:17:04: I think we need to clarify the customer relationship or the way we work here. We are not an authority

00:17:08: in that sense, nor do we have any police duties. We are working on behalf of our customer on

00:17:13: site. This means that only the client receives the information about what we find on site.

00:17:18: It always depends a bit on the standard or what we call the scheme, whether it has rules

00:17:22: that certain incidents must be reported directly to the scheme. But usually, incidents are

00:17:26: only reported to the client.

00:17:28: You mentioned schemes earlier. Schemes are specific standards against which an audit

00:17:32: is conducted, right? That means there's a specific set of criteria that gets checked.

00:17:37: Is that correct? Are there different ones? Or could you perhaps name a few examples?

00:17:42: Numerous. Where does it all start? A company wants to know something that we as auditors

00:17:46: need to identify or check on site.

00:17:49: This can be criteria that the company has imposed on itself. That means their own checklist,

00:17:54: which we call a brand program or code of conduct program. However, this has led to what we

00:17:58: call audit tourism. It can naturally happen that to exaggerate a bit, the same auditor

00:18:03: is sent to the same company in the same week by two different clients to check essentially

00:18:06: the same thing.

00:18:07: This is, of course, not particularly beneficial or helpful for the supplier, who then has

00:18:11: to allocate this time twice. This led to the formation of so-called industry initiatives

00:18:16: where companies came together, agreed on a checklist, and often exchanged reports among

00:18:20: members. There are also standards that are firmly defined by a so-called standard holder,

00:18:24: which we as an automotive company can be authorized to use for audits. And these can then be chosen

00:18:28: by our customers. That means there are many different possibilities. Depending on the

00:18:32: industry and company size, I might choose a specific standard.

00:18:36: This means I can be active in an association somewhere, or can I as a company be audited

00:18:41: against any standard?

00:18:43: So basically, as a company, you have three options or paths you can take. Either you

00:18:47: create your own checklist, meaning the criteria are self-defined, perhaps with our help, the

00:18:51: result, the form of the result is self-defined as well, and the result is only for the company.

00:18:55: This means you have created your own universe. The second option is to join a company or

00:18:59: an initiative that exists in the market and has its own audit program. Typically, you

00:19:03: have to pay a fee for this, but in return, you can use their audit system and have the

00:19:07: chance that other members who might have the same suppliers will also benefit. This is where

00:19:11: the concept of industry initiatives comes in as the same suppliers are often used that

00:19:15: I might be able to use an existing audit report from Darshan and thus save myself and the

00:19:20: supplier another audit.

00:19:22: And then there are other established standards in the market that are completely independent

00:19:25: and have their own criteria and processes. Some of these even end with a certificate.

00:19:29: However, this is rather rare because we are in a field where it is difficult to say, "Yes,

00:19:34: everything is correct," which is necessary for a ZDK decision. Often we are in a situation

00:19:37: where there was a sample check, meaning there is a limited period during which an auditor

00:19:42: or a team is on site to check criteria and uncover issues. But it is, of course, not

00:19:47: guaranteed that something might not have been uncovered during that time.

00:19:51: I spoke some time ago with the lawyer Christoph Schork, among other things, about the topic

00:19:55: of greenwashing. And it was mainly about certain labels being placed on products, suggesting

00:20:01: that these products were environmentally friendly according to certain criteria. Do you also

00:20:05: see a tendency for greenwashing in the area of social audits?

00:20:09: Yes and no. There are certainly providers who have a certificate that is structured

00:20:13: in such a way that it feels like they just want to sell something that a company can

00:20:17: later use to claim that everything is in order. As I mentioned earlier, I find this particularly

00:20:22: concerning in the social context because the time auditors have to uncover issues is very

00:20:27: limited and therefore it cannot be ruled out that there are further violations, especially

00:20:31: considering that we know certain violations are extremely difficult to identify in an

00:20:35: audit. Particularly when it comes to forced labor, modern forced labor, we have to understand

00:20:39: that forced labor today doesn't mean someone is sitting with a chain and someone else is

00:20:44: standing behind them with a whip, but these are dependency situations that employees are

00:20:47: put into. For example, they are persuaded to move from one country to another. They might

00:20:52: have read the employment contract at home in their own language, but in the new country

00:20:55: they get it in the local language, which they don't understand. There are changes they can't

00:21:00: comprehend. They receive pay slips in languages. They can't follow. They are housed in accommodations

00:21:04: they have to pay for, which cost more than their first one or two months of salaries.

00:21:08: The IDs that is the IDs are not taken away, but it is suggested that you wouldn't want

00:21:12: to leave your ID in the accommodation. Not that it gets stolen. We would keep it safe

00:21:16: for you and suddenly you're in a situation you can't get out of because without an ID

00:21:20: in a foreign country with a contract and billing, you don't understand. You quickly find yourself

00:21:25: in a dependent situation and these are situations that are extremely difficult to uncover in

00:21:29: an audit because these are people under enormous pressure and influence and for them to disclose

00:21:35: that in a conversation. That is the big challenge for this industry to delve deeper into.

00:21:39: I also have a somewhat deeper question. So if an auditor finds that something might still

00:21:43: be hidden, do they include that in their report? Does the company receive it? What does that

00:21:48: mean for the company that hired the auditor? Are there specific cycles in these schemes

00:21:52: where auditors go back in or conduct a re-audit maybe even annually to identify positive or

00:21:59: possibly negative developments? Sure. Many of these schemes have the classic recurring

00:22:03: audit process. However, we are also seeing a change there. We just talked about the risk-based

00:22:07: approach. So if I as a company decide or determine that this supplier is associated with a risk

00:22:13: and I want to audit them, then it initially depends on the audit result, whether they

00:22:17: will still be considered a risk candidate in the next round or not. That means as a company,

00:22:22: I actually need to make sure I stay flexible because it's not about conducting as many

00:22:26: audits as possible, but rather the right audits at the right time. Therefore, I should ensure

00:22:30: that I keep my resources free from audits. That should no longer be the focus. On the

00:22:35: other hand, we've talked a lot about the problems like when social conditions aren't

00:22:39: as expected. We've discussed greenwashing and the need for another audit. But now let's

00:22:44: look at it from the other side. You've been an auditor for over 10 years, so what positive

00:22:48: effects do these social audits bring for the client but also for the company being audited?

00:22:54: There are, of course, many, many positive things that come out of it.

00:22:58: First and foremost, I think it's worth mentioning that as a company, you engage with your supplier

00:23:02: in a way you haven't done before. And what we often find is that these suppliers are

00:23:06: willing to create better conditions, but they are often left alone with the challenges that

00:23:10: may come from another country, especially in industries where you can't simply replace

00:23:14: a supplier but where you have also transferred knowledge to the supplier, for example, during

00:23:18: the development or production of a product in the past. There are now areas where you

00:23:23: need to help the supplier find the right path or take the right measures because these audits

00:23:27: naturally create a certain level of transparency. What does it really look like on site and

00:23:31: where does my supplier need help if I want to continue working with them in the long

00:23:34: term? Because as a company, it doesn't help me if today I get my product from the supplier

00:23:38: the way I want it. But in the next situation, something comes up in the media about a violation

00:23:43: that I have to deal with or my supplier runs into problems that prevent me from relying

00:23:47: on them anymore.

00:23:48: Maybe I can broaden the scope a bit. If we step away from just the social perspective

00:23:52: and consider the positive effects on other issues like ecology, greenhouse gas emissions

00:23:58: and securing raw materials, these are certainly all topics that can be equally discussed with

00:24:02: suppliers. For this, we naturally have industries where social issues perhaps hold a higher

00:24:08: priority because these are countries that, let's say, are not as legally advanced in

00:24:12: protecting their people. But I believe what you said about seeking dialogue and truly involving

00:24:17: the suppliers is crucial as a company sets sustainability goals and these goals are composed

00:24:22: of various criteria. And as a company, I can only improve in the long term if I don't just

00:24:26: keep switching suppliers, but rather try to take the entire supply chain along on the

00:24:31: sustainability journey to achieve these goals together. And I think that's actually the

00:24:36: most positive effect. And I see what you just mentioned, there is a willingness and there

00:24:41: are also industries, for example, in logistics, where I've experienced them saying, I think

00:24:46: it's great to sit down with the trading houses and see what they are planning because I also

00:24:51: learned from them as I might not be as deeply involved in certain topics or might not have

00:24:55: the knowledge, the know how or the time. And I believe that this exchange, this dialogue

00:25:00: is extremely important.

00:25:02: Yes, that's the current status. And Reinhard, if you look into the crystal ball from your

00:25:06: perspective, how do you see the next five to 10 years unfolding? How will this area of

00:25:10: social audits develop? Will technical aspects play a role? Will it become more open? Will

00:25:15: the world grow closer together? Or do you see it possibly diffusing and drifting apart

00:25:19: again? What is your prognosis?

00:25:21: So I believe that due to these numerous legislative processes or attempts to imitate laws, the

00:25:26: demand for these audits will naturally continue to increase. However, audits are definitely

00:25:30: not the ultimate solution. We initially talked about the transparency needed in supply chains.

00:25:34: In the future, there will be more and more tools for this. As I mentioned earlier, there

00:25:38: are already many platforms or IT companies working on bringing transparency to supply

00:25:42: chains, collecting data points and being able to map out supply chains. But I believe it

00:25:46: stops when we need the trust relationship with the employees to really uncover something.

00:25:50: In my opinion, there's no way around audits. There are other tools that allow for this.

00:25:54: Let's summarize it under grievance procedures, which are also required by many of these laws.

00:25:58: Channels where employees can directly reach out. This is also a very viable approach for

00:26:02: me, which is often underestimated, that employees have a way to think about their complaints.

00:26:06: Yes. And above all, anonymous. Sometimes there's also the fear or hesitation to speak up out

00:26:11: of concern that you might lose your job or face other repercussions, especially the anonymity

00:26:16: in all these complaint mechanisms is also important and relevant.

00:26:19: Yes, absolutely. I think that's the crux of the matter. If it was so easy to gather

00:26:23: opinions digitally, we would probably already be doing it today. But I mean, we're here

00:26:27: in Germany and as you mentioned earlier, we have a situation where everything is legally

00:26:31: regulated. And yet I would argue that even during an audit at a large, well-known company,

00:26:36: we would encounter employees who are unwilling to talk about issues out of fear of repercussions.

00:26:41: And that's something that only an onsite auditor can achieve through a completely anonymized

00:26:45: process.

00:26:46: Unfortunately, we have already reached the end of our all too short conversation. But

00:26:50: before we wrap up, Reinhard, our final question for you, if a businesswoman or businessman

00:26:54: is thinking, yeah, what Reinhard Bier is saying, is really good? I'd like to conduct

00:26:58: social audits. I'd like to take a closer look at my supply chain. What is the tip? Where

00:27:03: should they start? What is a sensible way to begin without getting overwhelmed?

00:27:07: Here we are again with the risk-based approach. Starting with two companies to take a closer

00:27:11: look at is already a bigger step than pulling back for a year to think about how to start

00:27:15: on a broader scale. Because what I definitely want to convey is if you look closely at something,

00:27:20: you will uncover something and you should be clear in advance about how you might handle

00:27:23: it. Dear Reinhard, dear Bahar, thank you very much for being here today and a heartfelt

00:27:28: thank you to everyone out there for listening. My name is Tobias Kirchhoff and today we learned

00:27:33: that supply chain audits are essentially indispensable in a responsible economy. Companies that do

00:27:39: not make their supply chain sustainable, risk not only legal consequences, but also serious

00:27:45: economic and social damage. And I hope that you, dear entrepreneurs, see these change

00:27:51: as an opportunity. Why not take the chance to talk to one or two suppliers and build

00:27:55: closer relationships? And if you want to learn more about sustainability and sustainable

00:28:02: business practices in theory and practice, just stay tuned to our podcast. Subscribe to

00:28:11: it and we'll deliver the most exciting insights and innovations on sustainable technologies,

00:28:19: resource management and future strategies efficiently right into your ear canals. You

00:28:27: can catch us anywhere podcasts are available, whether you're working from home, commuting

00:28:32: to work in your car, planning your day in the bathroom, mentally preparing for your next

00:28:38: meeting while ironing or recharging outside with your child and dog. As always, you'll

00:28:44: find all the information in the show notes. And remember, change starts with us with all

00:28:50: of us with each and every one of us. Until next time, your BusinessShift, BusinessShift,

00:28:55: the podcast for decision makers and executives who want to deal with the topic of sustainability

00:29:00: in a sustainable way. Stay curious. Bye bye.