Is there a choice between Being Legally Correct and Ethically Right?

Ethical sourcing is an approach to sourcing and supply chain management that considers the impacts of products on the people, communities, and environment who create them. It can help businesses improve their reputation, reduce risks, increase customer loyalty, and create positive social impact. Lt Col Vijay Nair (Veteran), Founder and Consultant, Saarthak Solutions (ex-VP-Reliance Retail), through this opinion piece, draws companies’ attention towards a very crucial topic — Is there a choice between being legally correct and ethically right?

Ethical sourcing is more than just a buzzword. It is a way of doing business that respects the people and the planet that make our products possible. Ethical sourcing means that businesses consider the social and environmental impacts of their sourcing decisions and take actions to ensure that their suppliers meet certain standards of responsible and sustainable practices. But ethical sourcing is not always easy or straightforward. Businesses often face complex and challenging situations that require them to balance their legal obligations, ethical values, and business interests.

While Ethical sourcing can have many economic benefits for businesses, such as enhancing their reputation, increasing customer loyalty, reducing operational risks, and improving supplier relationships, there is a cost associated with it and this could pose some challenges and dilemmas for businesses, such as balancing the costs and benefits of ethical practices, dealing with different cultural norms and expectations, and ensuring transparency and accountability throughout the supply chain process, while it may be legally covered if it does none of this. For example, a business may comply with the minimum wage laws in a country, but still pay its workers less than a living wage. Or a business may source its products from a supplier that meets the legal environmental standards, but still causes significant harm to the environment.

Can we measure the performance?

Can we measure, where we stand in Ethical sourcing Index? While researching on this, I came across Dow Jones Sustainability Index. The Dow Jones Sustainability Index (DJSI) is a global index that assesses the environmental, social and governance (ESG) performance of companies based on various criteria such as climate strategy, human rights, corporate governance, innovation, and stakeholder engagement. The DJSI is composed of different regional and thematic indices, such as the DJSI World, DJSI Emerging Markets, DJSI Europe, and DJSI Asia Pacific. Was pleasantly surprised to find 12 Indian companies have been included in the DJSI Emerging Markets 2020 Index, which covers the top 10% of the largest 800 companies in 20 emerging markets based on their ESG performance, (viz., Mahindra & Mahindra Ltd, Tata Motors Ltd, Glenmark Pharmaceuticals Ltd, Havells India Ltd, and more).

It’s not that we, here in India, haven’t developed such indices. The SEBI has a report, the Business Responsibility and Sustainability Report (BRSR), that mandates the top 1000 listed companies (by market capitalization) to disclose their performance on environmental, social, and governance (ESG) aspects in their annual reports. BRSR is not merely presenting the data collected, but an approach to drive an organization’s commitment to sustainability and demonstrate it to the interested parties in a transparent manner.

Need of the Hour

As consumers become more aware and demanding and willing to pay for ethical standards, businesses will need to overcome the legal versus ethical dilemma of should they comply with the minimum legal requirements or go beyond them to meet the expectations of their stakeholders? Such answers are not always clear-cut, but one thing is certain, businesses have a responsibility to act ethically and transparently in their sourcing decisions, and to ensure that their suppliers do the same. By doing so, they can contribute to preserving ESG values (environmental, social, and governance) and creating a more equitable and sustainable world for everyone. Ethical sourcing is not a choice, it is a necessity.