Responsible supply chain management
We expect our business partners to act responsibly and to comply with the Fortum Code of Conduct and the Supplier Code of Conduct. We actively strive to reduce the environmental impacts caused by our operations and to improve economic and social well-being. We also manage risks related to our supply chain. Our key tools for this include country and counterparty risk assessments, pre-selection of suppliers and supplier audits.
Codes of conduct cover basic requirements
The Fortum Code of Conduct forms the foundation for ethical business conduct and the Supplier Code of Conduct covers the sustainability requirements for suppliers of services and goods. The Supplier Code of Conduct is based on the principles of the United Nations Global Compact initiative and is divided into four sections: business practices, human rights, labour standards, and the environment. The country and counterparty risk assessment follows the same basic structure with regards to sustainability, and addresses issues like the implementation of the guiding principles of human rights. The Supplier Code of Conduct is used in all our countries of operation and is included in all purchase agreements exceeding EUR 50,000.
The Supplier Code of Conduct was updated in 2014. The most significant changes were related to supplier responsibility for their own supply chain. The updated Supplier
Code of Conduct calls for the respective requirements to be passed on to the subcontractor chain and the requirements to be monitored. Also the link to human rights-related guiding principles was clarified: suppliers must identify the human rights impacts of their operations, mitigate the impacts, and address any rights violations with corrective measures. The requirements related to anti-corruption were made more specific, and a requirement for the protection of young workers was added to it. At the beginning of 2015, we will start internal training on the requirements of the updated Supplier Code of Conduct, and we will take it into use in new agreements.
Fortum is a member of the Bettercoal initiative and uses the Bettercoal Code and tools in assessing the sustainability of the coal supply chain. Bettercoal has defined the agreement text to be taken into use in new purchase agreements. In 2014, a total of 14 coal suppliers, one of which supplies coal also to Fortum, conducted a self-assessment in line with the
Bettercoal initiative, and one mine was audited.
At the end of the year, approval of the self-assessment and audit process of Fortum’s biggest coal supplier was still in the works.
Pre-selection and supplier audits to support assessments
We assess the level of operations of our business partners through pre-selection and supplier audits. Pre-selection includes verification of solvency as well as a supplier questionnaire, which is used to identify both general and sustainability-related practices. The questionnaire helps suppliers to understand our expectations for compliance with the Supplier Code of Conduct. It also helps us to identify potential high-risk suppliers and thus the need for further actions.
The Russia Division uses its own supplier pre-selection process. Pre-selection is done in accordance with Russian procurement law, and bidding is open to all companies. In the Russian operations, we set supplier requirements for business principles and ethics, and we pay special attention to anti-corruption and conflicts of interest. In order to participate in bidding, a potential supplier must commit to compliance with Fortum’s Supplier Code of Conduct.
In supplier audits, we assess the supplier’s compliance with the requirements in Fortum’s Supplier Code of Conduct. Audits are always done on-site, and they include production inspections, employee interviews, and reviews of documents and records. If non-compliances are found, the supplier makes a plan for corrective actions, and we monitor the implementation of it. The suppliers we select to be audited are from risk countries or they have a significant supply contract. Fortum’s classification of risk countries is based on the ILO’s Decent Work Agenda, the UN Human Development
Index, and Transparency International’s Corruption Perceptions Index.
In 2014, we conducted a total of 14 audits of suppliers who were in a direct contractual relationship with Fortum; the suppliers were in risk and in non-risk countries. In addition, the joint venture Fortum Värme conducted a total of nine audits of its own suppliers of biofuel and its biggest contractors. The most significant non-compliances identified in the audits were related to occupational safety, overtime hours, working hours of young workers and management of the suppliers’ own subcontractors. During the year we held one contractor training event in Sweden focusing on the Supplier Code of Conduct requirements and safe working procedures. A total of 50 contractors participated in the training event.
Our goal in 2015 is to audit 15 suppliers or contractors. The joint venture Fortum Värme has set its own goal of ten audits.
Our goal is also to update the supplier selection criteria to be based on a systematic comprehensive risk assessment and to take into use a simplified, lighter auditing model. The lighter model will enable also our purchases personnel to verify a supplier’s practices.
Own personnel as auditors
Our own personnel are responsible for conducting the sustainability-related supplier audits. An exception is the Bettercoal audits of coal suppliers, which are always conducted by a third, accredited party. By conducting the audits on our own, we gain a better idea of the supplier’s practices while increasing the supplier’s understanding of sustainability-related issues. Fortum’s auditors each receive 1.5 days of internal training, during which they review the requirements of the Supplier Code of Conduct, the sub-areas to be audited, and the tools to be used to verify compliance with the requirements. After the training, supplier audits are started together with an experienced auditor. We will continue
training auditors and developing competence in different divisions and countries in 2015. Those who have completed the internal training are recommended to complete auditor training also on the Social Accountability (SA8000) standard. With the exception of one auditor, the SA8000 auditor training has been completed by all of the trained auditors who regularly conduct audits.
In 2014, we trained nine auditors from Russia and Sweden. The goal in 2015 is for the Russia Division to start conducting the audits on its own.
To develop collaboration among auditors, in 2014 we established an auditor network. Individuals conducting internal audits, EHS audits and supplier audits can share information and develop their know-how about different auditing methods and processes. The network maintains a database of audits conducted, reports, the most significant non-compliances and corrective measures.