Ethical operating culture and human rights

Our customers and S Group employees are a diverse and mixed group of people. Valuing each other and respecting diversity is the foundation of our ethical operating culture.

Through our products, we are linked to farmers, factory workers and product manufacturers around the world. S Group is committed to respecting human rights in all our operations, and our mission is to ensure that human rights are respected and working conditions are decent in the manufacture of the products.

In 2017, S Group assessed in accordance with human rights due diligence the potential targets of human rights impacts and the operating methods aiming to minimise the impacts on human rights. However, the assessment of human rights impacts is an ongoing process at S Group. We monitor the realisation of human rights in the supply chains in many ways, including audits of suppliers in high risk countries and certifications of risk raw materials.

In terms of reporting human rights impacts, S Group has applied the UN Guiding Principles Reporting Framework, and next year, we aim to meet requirements of the framework in full.

Audits

99%

Share of purchases from countries with a high risk classification

Certification level of
private label products (of the sales volume)

86 %

coffee

62 %

tea

83 %

cocoa

Human rights in S Group

S Group's operations have impact on the human rights of customers, personnel and the employees and producer communities in supply chain, in particular.

From the customer perspective, the most central human rights are non-discrimination, the right to health and children's right to special protection. Non-discrimination includes equal treatment of customers and accessibility of the outlets. Ensuring the safety of products and outlets is part of our daily work, and we take care of the rights of children by means of product safety measures and by enforcing age limits.

From the personnel perspective, the central human rights include occupational safety, equality and non-discrimination. We also respect employees' right to join trade unions and do not tolerate any kind of discrimination or harassment.

S Group also has potential direct of indirect impacts on the rights of the people and producer communities working in the supply chains of goods and services. To prevent adverse impacts, we carry out continuous risk assessment and monitor the production conditions and our suppliers' practices by regular visits and surveys, among other things.

Personnel assessment of ethics

78.10

Ethics index

In 2017, we deployed the ethics index, which is part of S Group's job satisfaction survey. The index maps personnel's trust in their employer, measures how ethical they consider the company's operating methods are and how they think company's values and principles are complied with in the daily work. The index was used now for the first time, and the score was 78.1 (on a scale of 0–100), in other words, good.

Ethical principles and personnel training

We provide personnel with training on the contents of our ethical principles. Personnel training covers anti-corruption, incapacity in decision-making and equal treatment in the working community. The training is also included in the orientation of new employees.

Responsible procurement

Focus on human rights also at supply chains

S Group is committed to respecting and promoting human rights in its supply chains. Our procurement practices are guided by, for example, the principle of non-discrimination and respecting labor rights and human rights.

Our supplier contracts require all our suppliers to respect the central labor rights and human rights as well as to ensure that products can be traced to the source of the raw materials.

Third-party factory audits are required of suppliers of private labels whose products are manufactured in countries with high risk in terms of social responsibility or contain ingredients obtained from countries with a high risk classification.

S Group is a member of the BSCI (Business Social Compliance Initiative) and has actively participated in developing the system and its tools for many years. The BSCI aims to bring the working conditions of workers manufacturing products in risk countries to the level required by international agreements and to streamline and harmonise supplier monitoring carried out by companies. In addition to the BSCI, S Group uses the Sedex (Supplier Ethical Data Exchange) database to monitor supplier responsibility.

TOP 10 Procurement countries

 

84.3 %

Finland

 

2.4 %

The Netherlands

 

1.5 %

Spain

 

0.9 %

Italy

 

2.0 %

Sweden

 

1.5 %

Denmark

 

0.7 %

Great Britain

 

1.7 %

Germany

 

1.0 %

China

 

0.6 %

Belgium

TOP 7 Procurement countries with a high risk classification

 

50.0 %

China

 

9.7 %

Turkey

 

5.4 %

South-Africa

 

8.2 %

Thailand

 

4.8 %

Bangladesh

 

6.8 %

India

 

4.7 %

Pakistan

Table: S Group's procurement countriesHide the table

Human rights assessment in procurement

We follow the due diligence principle defined in the UN's Guiding Principles on Business and Human Rights in our operations. In other words, we work to carefully assess and anticipate the human rights impacts of our operations and to prevent and mitigate adverse human rights impacts.

Tools used to assess human rights risks include the amfori BSCI list of risk countries, which indicates country-specific risks, a risk assessment tool for raw materials, and other country and raw material-specific sources of information in use. In addition, we conduct regular surveys among all our suppliers concerning social responsibility practices and the origin of the products.

Direct purchases from risk countries

S Group has approximately 300 suppliers of private label products operating in risk countries. The share of direct purchases of private label products from risk countries is 12 per cent. Ninety-nine per cent of direct purchases from risk countries come from suppliers audited by third parties. In 2017, BSCI audits were performed at the factories of 249 S Group suppliers.

Indirect purchases from risk countries

Products which are manufactured in a low-risk country, such as in the EU region, but for which the main raw material originates from a country with a high risk classification, are considered indirect purchases from risk countries. S Group investigates the production location of the main raw material for indirect purchases from risk countries. If the raw material is produced in a risk country, we require that a third-party audit or certification be conducted to ensure its responsibility. Human rights issues typical of the production area in question are also reviewed with the supplier.

Service purchases

We updated S Group's service purchase agreement in 2017. In the agreements, we paid special attention to the risks of work-based exploitation in Finland, since the number of workers who are in a vulnerable position in the labour market has grown due to the refugee situation and increased immigration. Human rights assessments concerning service purchases and providing guidelines to the cooperatives will begin in 2018. S Group has approximately 18,000 service suppliers.

Low-risk purchases

Some of the products are assessed as low-risk products, since they, raw materials included, are manufactured and produced in low-risk areas defined by amfori BSCI. As we require respect for human rights and traceability of products in the production of all products, we regularly review our suppliers' practices regarding compliance with these principles by means of regular supplier surveys, for example. The most recent such survey was conducted at the end of 2017. The response rate among approximately 2,000 suppliers was 51 per cent.

Private label purchases (%)

*Direct purchases from risk countries refers to purchases from suppliers whose home country is a risk country according to amfori BSCI's classification. Indirect purchases from risk countries refers to purchases from suppliers whose home country is not a risk country, but the product they sell was manufactured in a risk country or the main raw material originates from a risk country.

Principles of good business practices

S Group is committed to the principles of good business practices, which aim to ensure fair ground rules among the operators in the food supply chain. The purpose of the principles is to secure the competitiveness of the contracting parties, strengthen mutual trust and consequently ensure the continuity of the contracts. The principles of good business practice include policies concerning written contracts, predictability and responsibility for risks, and they were agreed between the EU Commission and the EU organisations in the food supply chain.

In Finland, the Board of Trading Practices in the Food Supply Chain promotes procedures in line with the good business practice in the food supply chain. The Board may intervene in grievances it observes by issuing recommendations concerning the good business practice for example. In addition, the Board may develop the sector's ethical principles and issue statements concerning compliance with the principles of the good business practice. S Group takes the Board's recommendations into consideration.

Audits

Third-party factory inspections

When monitoring its suppliers, S Group focuses, in particular, on countries with the greatest risk of violating rights at work and human rights. Such risk countries defined by amfori BSCI include several countries in Africa, Asia, South and Middle America as well as certain European countries. S Group purchases from audited suppliers in risk countries.

Audits refer to factory inspections, such as the BSCI audit or an equivalent third-party audit. In the BSCI system, independent auditors inspect production plants to ensure that the criteria of the system are met in practice. Audits cover, for example, working time and occupational safety practices as well as the payment of the statutory minimum wage.

Ninety-nine per cent of the direct risk country purchases of S Group's private labels and own imports are audited (2016: 97 per cent). The goal is to audit all risk country suppliers of private label products through BSCI audits or an equivalent third-party audits.

 

Purchases from audited suppliers 2017, %
 

A day with a BSCI auditor

Amfori BSCI (Business Social Compliance Initiative) is one of the best-known and most regularly used third-party auditing models. The targeted factory is often informed of the time frame of the audit, but the exact date is not given. The BSCI audit is conducted in the language of the workers and it follows a list of 90 items to be covered, used in all BSCI inspections around the world. The audits look at whether workers can take a lunch break and have access to clean drinking water, for example.

"The audit started at 8 in the morning. First, the auditor talked with the factory directors about their management practices. We then headed for the factory and inspected the workers' facilities, cafeterias, first aid supplies and anything that had to do with occupational safety. The auditor verified that exits were unobstructed and that fire alarms functioned. They seemed particularly interested in the noise level and wanted to see proof of decibel measurements. They looked very closely at what kind of hearing protection the workers were wearing," says Senja Forsman, Senior Compliance Manager at S Group's grocery trade. Forsman participated in a BSCI audit at a Serbian food product factory, among others, as an observer.

The auditor wants to see the workers' timesheets and holiday schedules as well as their identity cards. Sometimes workers who live in dormitories want the employer to retain their identity cards. However, the auditor wants to ensure that this is being done at the worker's request. Forsman says that at the Serbian factory, the rounds ended with the auditor talking with workers without the directors and Forsman being present to find out how the employer treats the workers and whether they are paid decent wages.

"Sometimes an audit can last for several days. It is completed with a feedback discussion on the auditor's findings and on how the working conditions should be improved. This information is shared between the member companies in the amfori BSCI system."

Audit scores

The areas with the greatest need for improvement in the 2017 BSCI audits included management, working time, occupational health and safety practices.

If the audit result is poor, the factory will draw up a plan for corrective measures. A new audit will be performed to monitor compliance with the plan. Cooperation with the partner is not severed, since doing so would not help the workers' situation at the factories and plantations – the best way to develop the operations is to do it together. This is also backed by the results of the initial audits and re-audits.

Amfori BSCI organises training for suppliers so they can develop their operations and correct the defects typically observed in audits, and S Group encourages suppliers to attend such training. S Group also participates in a Nordic project with the aim to develop a new training tool for factory workers. The tool will be tested in food product factories in Thailand in 2018.

Results of S Group's BSCI audits in 2017

* There were no Zero tolerance observations in the 2017 audits. They refer to child labour, forced labour, safety defects causing immediate danger, or corruption.

A new assessment model to supplement audits

Concurrently with traditional auditing, S Group is in the process of developing a new kind of model for assessing root causes. The goal is to discover the typical and current human rights issues are and their root causes in the production regions or potential procurement areas of S Group's central products. This will help us identify measures and procedures which can help S Group to minimise the typical challenges. An external partner familiar with the target area will conduct the assessment. The tool has been developed in cooperation with civic organisations and other stakeholders. A pilot assessment will be conducted in 2018.

Certified products and raw materials

Choices aligned with one's own values

We want to offer our customers an opportunity to make choices based on their own values by making available Finnish products and products with environmental or sustainability certifications.

Coffee, tea, cocoa and chocolate

The production of coffee, tea and cocoa is associated with human rights and environmental violation risks, because the production centres round countries where compliance with laws and monitoring by the authorities may be low. S Group's objective is to use only coffee, tea and cocoa that have been certified or verified for responsibility in private label products and in S Group's restaurants.

For a product to be verified for responsibility, its supply chain must be verified by audits all the way to primary production. Acceptable certifications include Fair Trade, UTZ and Rainforest Alliance.

Certification rate in the sales volume of private label products

86%

Coffee

62%

Tea

83%

Cocoa

68%

Chocolate

Table: Certification ratesHide the table
Targets for raw materials certified or verified for responsibility

100%

Coffee 2019

100%

Tea 2020

100%

Cocoa and chocolate 2020

Palm oil

Palm oil is the most commonly used plant-based oil in the world, and its production involves issues, such as deforestation, weakening biodiversity and substandard working conditions of workers in south-east Asia, in particular.

S Group is committed to using sustainably produced palm oil. S Group's goal is that by 2021, only certified palm oil traceable to palm oil plantations (RSPO segregated) is used in private label products and in deep-frying oil in restaurants. S Group has been a member of the Roundtable for Sustainable Palm Oil organisation (RSPO) since 2011.

 
Palmoil certification rate
2015 2016 2017
97 99 99
Palm oil certification rate

99%

 

 
RSPO Segregated certification rate
2015 2016 2017
40 71 88
RSPO Segregated certification rate

88%

 

Target for the use of certified palm oil

100%

2021

Organic products

The demand for and product range of organic products continue to grow. At the end of the year, the product ranges of S Group's grocery stores included more than 3,500 organic products and sales grew by 16 per cent. The share of organic products in the sales of food products was 2 per cent. In particular, customers were interested to buy organic minced meat, eggs and coffee. The sales of organic bananas, apples and lemons also developed favourably compared to the previous year.

Organic products

3500

Number in the product range

 

16%

Increase in sales

 

2%

Share of food product sales

Fish and shellfish

S Group's grocery stores want to serve responsibly caught fish from sustainable fish stocks to consumers. Fish product procurement adheres to S Group's fish policy based on the species endangerment classification, WWF's seafood guide, the recommendations of the Marine Conservation Society, as well as research data from the Natural Resources Institute Finland. The policy applies to S Group's centralised procurement and purchasing by the cooperatives in both grocery stores and restaurants in S Group.

The basic principle is to not accept in the product range fish from fish stocks that are endangered, threatened or subject to overfishing, and the origin of fish must always be known. Undersized or protected fish are also not accepted in the product range. Separate criteria concerning the fishing areas or fishing methods have been set for many fish species, such as prohibition of bottom trawling, or prohibition of using drift nets in tuna fishing. The fish policy is updated every two years. The most recent update was carried out in 2016.

In addition to being required to comply with separate restrictions concerning fish species, fishing areas and fishing methods, the producers of private label tuna products also must participate in the activities of the International Seafood Sustainability Foundation (ISSF). The large purse seine vessels used to catch tuna should also be entered in ISSF's Proactive Vessel Register. The fishing operators who participate in the operations of ISSF are committed to sustainable fishing methods and third-party audits to verify the sustainability of their operations.

At the end of the year, the product ranges of S Group's grocery stores included 86 MSC-certified products, of which 43 were private label products.

MSC-certified products

86

Number in the product range

 

43

Number in private labels

Diversity

Employees and customers

S Group employs nearly 40,000 retail professionals, who work in a wide variety of positions ranging from sales assistants to warehouse workers and specialists. A working community where diversity is respected and supported ensures equal treatment and equal opportunities for everyone. Our key principles include respecting and valuing others, non-discrimination and equality.

S Group companies in Finland compile annual plans concerning personnel, training, equality and equal treatment of employees. The personnel and training plan is prepared in order to maintain and develop employees' vocational skills. The purpose of the equality plan is to promote gender equality in the workplace, whereas the equal treatment plan aims to promote equal treatment of employees with different backgrounds, prevent discrimination and improve the legal protection of individuals who experience discrimination.

We also want to promote diversity through communication and marketing. For example, Prisma's ‘Fashion belongs to everyone' slogan is promoted by models of different age, appearance and size.

Employee diversity

Nationalities

64

Average age of employees

37

 

Employee age (50 and over, 25–49 & under 25)
Gender distribution, %
Table: Gender distributionHide the table
Share of women

14.8 %

of Board members

14.0 %

of management team members

66.0 %

in supervisor and manager roles

Table: Share of womenHide the table

Diversity is an obligation in cooperative activities

"What resonates with me in the cooperative activities is how they span many generations and are based on values, such as democracy and equality. They create involvement, which challenges the individualism and increased inequality of today's world. For 160 years, the cooperative model has demonstrated that we can both conduct profitable business and do social good at the same time.

The cooperative principles and values also obligate us to ensure diversity. From the standpoint of equality, diversity is realised well in those cooperative bodies which apply a democratic process for electing their members. In large cooperative societies, the Council of Representatives is a fairly good cross-section of Finnish society, and often even the majority of the members are women.

On the other hand, the Executive Board, which is tasked with ensuring that the business operations are successful, is composed of professionals, and there diversity is not as broad. I do not believe this is intentional. I absolutely think that it is a matter of competence rather than of gender. However, there are competent women out there as well, and therefore, ensuring diversity requires management with open eyes. By simply looking a bit further than one's immediate network could help make changes."

Anu Puusa,

Member of PKO's Board & professor of management at the University of Eastern Finland