Aliging Profit with Purpose - Global Goals Yearbook 2019

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DUE DILIGENCE IN THE SUPPLY CHAIN: CHALLENGES AND PATHWAYS By Valentin Zhovtun, Marina Ee, Tatyana Derivedmid, and Natalia Gonchar, Sakhalin Energy Why the supply chain matters? The Sakhalin-2 project is one of the world’s largest integrated oil and gas projects. It is located on Sakhalin Island in the far eastern part of Russia. Hundreds of first- and second-tier contractors comprised of around 25,000 people with multinational backgrounds were involved during the construction, and around 10,000 people were involved during the operation phase. The major construction is over, but the project is still expanding. Planned project activities will soon involve another 2,500 people. The supply chain for such a complex project has a great potential for providing positive social impacts by contributing to economic growth, providing new jobs, and offering opportunities for local businesses. On the other hand, if it is poorly managed, this supply chain becomes a source of adverse impact and has a negative influence on community infrastructure while undermining the rights of local residents and workers. That is why Sakhalin Energy regards human rights due diligence in its supply chain to be a vital part of the company’s social responsibility. Three stages … and 33 challenges There are three stages of the supply chain where Sakhalin Energy applies holistic approaches to human rights due diligence. The first stage starts well before a contract is awarded. The second one comes when a contractor is selected and the details of contractual terms and 160 Global Goals Yearbook 2019
conditions are agreed upon. The third stage is contract implementation, when a contractor and its subcontractors demonstrate in their day-to-day activities adherence to the company’s standards. Let us look at these stages and the challenges they can bring as well as the tools that Sakhalin Energy uses to address them effectively. The first stage: Where it all starts Everything begins with the pre-screening of potential business partners to select the most prepared in order to meet the company’s standards. Even though environmental and labor safety practices have become standard for most businesses nowadays, the issues of social responsibility and human rights might still pose some questions. How can we ensure that potential contractors adequately assess their ability to meet human rights standards? Sakhalin Energy has developed a comprehensive questionnaire for the prescreening stage. It is a framework that refers to the clear criteria of what is expected from business partners when dealing with human rights issues. The bidders are requested to answer some of the following questions: Has the policy commitment been endorsed by management? Are human rights standards communicated to the staff on a regular basis? Have the responsibilities for tackling human rights issues been assigned to the relevant staff of the contractor? Is a grievance mechanism available? What if some project activities prove to be associated with heightened risks of human rights violations? In such cases, the potential contractor is required to develop a project-specific social performance plan – a comprehensive set of measures to be applied in each of the identified sensitive areas. These areas may include construction activities in the vicinity of local communities, landgrabbing, using local infrastructure, intense traffic, public or private security services, a large number of workers, etc. The second stage: To agree on every detail The second stage is contract conclusion. This is when social performance and human rights standards are to be negotiated in detail and set forth as contract provisions. The framework of contracts between Sakhalin Energy and contractors contains a solid block of social performance and human rights provisions (note: The code of conduct and Human Rights Policy – the company’s core documents on human rights standards – are imbedded into all the mandatory contracts and personnel policies for all incoming staff, both of the company and the contractors). The key ones are related to community-impact mitigation measures (based on social impact assessments), code of conduct, transparent recruiting process, community engagement, grievance mechanisms, as well as regular monitoring and reporting. But how to ensure that the contractor – among the extensive list of requirements – does not overlook the most critical ones concerning its activities? To address this, Sakhalin Energy runs compulsory social performance trainings on a regular basis for staff of the project and contractor. The training explains all aspects of social responsibility in general. In addition, the special workshops are held with contractors prior to the start of project activities. They offer an opportunity for a discussion on the specific issues and risks associated with planned operations: whether the construction is near the territories of indigenous people, intense use of public infrastructure is expected, or security contractors are to be engaged, as well as other areas where risks of human rights are foreseen. The third stage: Contract implementation Binding frameworks of the contracts and company policies alone do not ensure good practice throughout the supply chain. There are a number of challenges Sakhalin Energy needs to envisage and be prepared for at this stage: lack of transparency across supply chain partners, incidents or breaches, “tick-box” approaches to reporting that does not provide the whole spectrum of human rights issues, reluctance of contractors to employ local residents, etc. To address these challenges, Sakhalin Energy carries out a regular monitoring program, which includes, for example, communities monitoring visits, confidential face-to-face interviews with workers, direct observations to verify community impacts from the contractors’ activities, compliance with camp management standards, awareness and availability of the channels for lodging grievances, recruitment and labor practices. At least four social monitoring rounds are performed per year. The findings are immediately communicated to the project management and contractors to explore corrective measures. Big picture The tools that Sakhalin Energy applies to ensure due diligence in the supply chain have proved to be effective: For more than 25 years, the Sakhalin-2 project has demonstrated strong adherence to the best international standards of social responsibility throughout the project’s lifetime. In 2018 Sakhalin Energy joined the UN Global Compact Action Platform on Decent Work in Global Supply Chains, which is a great opportunity for further discussions about future challenges and ways to address them. Global Goals Yearbook 2019 161
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GLOBAL GOALS GLOBAL GOALS YEARBOOK
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H.E. António Guterres We have glob
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GOOD PRACTICE 40 Financing Common P
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PROFIT & PURPOSE John Elkington Fou
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PROFIT & PURPOSE Professor Colin Ma
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