Ethics in today’s globalized supply chain network is no longer an option but a basic requirement. Suppliers who export their goods to countries such as those in Europe, the United Kingdom, and North America must conduct Sedex 2 Pillar and 4 Pillar ethical trade certification as part of ensuring their operations adhere to ethical trade practices. These audits, done based on the SMETA framework, can help organizations prove their conformance to the requirements necessary for certification of ethical trade practices.
This blog will delve into Sedex 2 Pillar and 4 Pillar ethical trade certification, including what they involve, their differences, and their importance in obtaining ethical trade certification.
What Is Sedex and Why Does It Matter for Ethical Trade Certification
Sedex (Supplier Ethical Data Exchange) is an international non-profit organisation that allows companies to manage, exchange, and publish information about their responsible and ethical business practices. This organisation maintains one of the most extensive data-sharing platforms regarding labour rights, health and safety, environmental issues, and business ethics in global supply chains.
The Sedex members, including multinational retail organisations and local manufacturers, utilise this platform to address supply chain risks and demonstrate their commitment to ethical trading practices. The core feature of this system is SMETA, which is an audit methodology that forms the basis of Sedex 2 Pillar and 4 Pillar ethical trade certification assessments.
If asked by buyers what a Sedex member’s ethical audit entails, the supplier will be required to explain the concept of SMETA – a commonly used audit methodology. The successful completion of the SMETA audit process means that the supplier receives a positive report which will increase his chances of obtaining the certificate of ethical trading practice.
Understanding Sedex 2 Pillar and 4 Pillar Audits: The Core Differences
Differences Between Sedex 2 Pillars and Sedex 4 Pillars The difference that exists between 2 pillars and 4 pillars Sedex is that they have varying scopes of assessment, but both are performed using SMETA.
Sedex 2 Pillar Audit
The Sedex 2 Pillar audit encompasses two pillars which include:
- Labour Standards – working hours, salary, right to form associations, preventing child labor, and avoiding any discrimination
- Health & Safety – workplace safety, emergency procedures, fire safety, and use of protective equipment
This type of audit is commonly conducted by the majority of the suppliers that are new to the Sedex system and where buyers do not require more detailed information. There are several organizations that conduct Sedex 2 pillar audits for Indian suppliers.
Sedex 4 Pillar Audit
In addition to the above-mentioned pillars, the Sedex 4 pillar audit encompasses two more pillars:
- Environment – proper waste management, energy use, water use, and pollution controls
- Business Ethics – preventing corruption, bribery, conflicts of interest, and transparency in business operations
The Sedex 4 pillar SMETA audit gives an overall insight into the supplier’s ethical activities. The demand for conducting 4 pillars SMETA audits increases among international buyers as they have to ensure supply chain transparency for their ethical trade certifications.
What Are the Ethical Requirements for Audit Under SMETA
One of the questions that suppliers ask when beginning the process is what ethical requirements need to be met during the audit according to SMETA standards. The audit is conducted according to international standards such as:
- The ETI Base Code
- International Labour Organisation (ILO) Conventions
- Local national laws and regulations
- UN Guiding Principles on Business and Human Rights
Regardless of whether a 2 Pillar audit or 4 Pillar audit is conducted, the auditor will check documentation, interview workers, physically check the facility, and analyze management systems to see if these standards are being followed. Issues found during the process are categorized and need to be addressed in order to pass the CAP (Corrective Action Plan) stage.
How Do Sedex Audits Help Meet Ethical Trade Requirements
This is made possible by their capacity to act both as a diagnostic and credentialing process. The roles played by SMETA audits include the following:
First, they help spot gaps. Through their systematic review of labor conditions, health and safety, environmental practices, and management systems, audits reveal weaknesses in the supply chain process in terms of ethical trading requirements. This, in turn, provides the supplier with a roadmap for change.
Second, they ensure that there is shared data. Being a collaborative network, an audit report done through the use of SMETA process can be sent at once to all the parties interested without each having to conduct its own audit.
Third, they provide proof. From the point of view of certification of ethical trade, an audit report done by an accredited organization provides the supplier with concrete, third-party proof that he/she complies with the required standards.
Does a 4 Pillar SMETA Audit Improve Ethical Trade Compliance
Absolutely. As the audit covers more than the simple questions around labour and safety, there is pressure on organisations to tackle environmental responsibilities and business ethics within their operations.
In this regard, companies which conduct 4 Pillar audits tend to enhance their waste management programmes and introduce more energy efficient practices in response to the environmental pillar. On the other hand, the business ethics pillar inspires firms to develop more formalised anti-bribery and anti-corruption practices. It means that, through audit, companies can address the problems identified during the audit and, at the same time, ensure better compliance with other standards such as ISO and others.
Indeed, ISO 27001: Does it require audits? Although it refers to information security management systems rather than ethical trading, the general idea behind this standard is that audits create pressure for better compliance.
Do International Buyers Prefer 4 Pillar SMETA Audits
Yes, according to the available information. Large retailers and brand organizations in Europe and North America, especially those with publicly declared CSR principles, have started mandating that a 4 Pillar SMETA be the minimum standard before onboarding a supplier organization.
Why so? This is because the 4 Pillar SMETA audit reflects the reporting standards mandated by the new regulations like the EU CSRD and the UK Modern Slavery Act. For buyers, especially in the current scenario, who are being forced to prove their ethical practices through and through in their supply chains, a 4 Pillar SMETA audit is a must.
However, many other buyers, especially small ones and others from outside, do not see the necessity of a 4 Pillar audit and are fine with a 2 Pillar audit only.
Is a 2 Pillar Audit Enough for Ethical Trade Certification
In reality, this depends upon who you ask. While for many suppliers serving the mid-range markets or those that are just starting their journey towards ethical sourcing, the 2 Pillar audit serves as an adequate base.
Nevertheless, for the suppliers trying to serve the leading multinational corporations and brands, especially in the food, apparel, cosmetics, and electronics sectors, the 4 Pillar audit seems to be fast becoming the norm. Suppliers using only a 2 Pillar audit seem to be at a significant disadvantage in the buyer qualification process.
The recommended strategy should include conducting a 2 Pillar audit first if the budget is tight, fixing any issues raised, and then upgrading to a 4 Pillar audit within one to two years.
What Are the 7 Ethical Guidelines That SMETA Audits Evaluate
Which are the 7 ethical criteria evaluated by SMETA audits? Although the ETI Base Code has nine criteria, the key ethical principles which are generally evaluated by SMETA audits are as follows:
- The employment process should allow people to freely choose – no forced, bonded, or trafficked labour
- Right to freedom of association and the right to collective bargaining
- Safe and hygienic working conditions
- No child labour
- Wages should be paid in a timely manner and should reflect living wages
- There should be no overwork and working hours should not be long
- There should be no discrimination of any sort
In both Sedex 2-pillar or 4-Pillar audit, the labour standards pillars rest on these ethical principles without exception.
How Can I Prepare My Factory for a Sedex 4 Pillar Ethical Trade Certification Audit?
Preparation is the number one factor affecting successful auditing. Following the steps below may help.
- Register on the Sedex Platform
Ensure registration of your business at Sedex as well as completion of your self-assessment questionnaire (SAQ). An SAQ will help auditors form expectations about the status of your business before their arrival.
- Conduct an Internal Pre-Audit
Go through your business premises by means of a SMETA audit checklist provided on the official website of Sedex certification and identify problems in advance developing necessary action plans.
- Organise Documentation
Prepare payroll forms, employment agreements, health and safety policy documentation, environmental permits, employee training materials, and anti-corruption policies for auditors to look into during auditing.
- Brief Your Workers
Worker interviews will become inevitable within the SMETA audit process. Make sure employees are informed about their rights and know how to communicate with auditors.
- Address Environmental Compliance
During the 4 Pillars audit, make sure that waste disposal, water consumption, and emissions have been recorded and that you hold up-to-date environmental permits.
- Review Business Ethics Policies
Establish clear and effective policies for fighting corruption and bribery. Obtain signatures from top executives certifying the policies, and maintain records of your training.
Which Companies Offer Sedex 2 Pillar Audit Services in India
Which organizations provide Sedex 2 Pillar audit services in India? There are many organizations accredited to provide SMETA audit services within India. These organizations include but are not limited to Bureau Veritas, SGS, Intertek, TÜV Rheinland, and ELEVATE. Additionally, there are organizations within India that provide pre-audits training specifically for the exporters in India looking to export their goods into the United Kingdom and European Union countries.
While choosing an audit organization, it is necessary to check whether they have been trained in SMETA consultant and have been included in the Sedex approved auditor list.
Key Takeaways
- The Sedex 2 Pillar audits include Labour Standards and Health & Safety, whereas the Sedex 4 Pillar audit includes Environment and Business Ethics along with the above two categories – which makes the latter more appealing to international buyers.
- SMETA is a well-known method for achieving ethical trade compliance by providing buyers with third party evidence of their supply chain performance.
- Conducting an SMETA 4 Pillar audit considerably increases the certification credibility of ethical trade for any supplier and is consistent with the new regulations coming into force in the EU and UK.
- Conducting a 4 Pillar Sedex audit involves much preparation in advance in terms of documentation, internal audits, workers’ awareness, and environmental and governance compliance.
- It would be advisable for Indian suppliers and others involved in sourcing countries to conduct a 2 Pillar audit first if required but then move towards obtaining 4 Pillar certification.
Frequently Asked Questions
Q1. What is a Sedex member’s ethical audit?
A Sedex member conducts an SMETA (Sedex Members Ethical Trade Audit) assessment at the supplier’s premises for ethical trading purposes. The audit aims to test the performance against labour rights, health and safety, environment, and business ethics standards and thus forms the basis for ethical trading credentials.
Q2. What are the ethical requirements for audit under SMETA?
The core requirements for an audit under SMETA are freely chosen employment, safe working conditions, fair remuneration, absence of child labor, and freedom from discrimination. All these criteria are derived from the ETI Base Code and ILO conventions/national laws.
Q3. Does ISO 27001 require audits?
Yes, ISO 27001 includes the requirement for regular internal audits and periodic management review. However, these audits relate only to information security management system and not ethical auditing processes such as SMETA.
Q4. What are the 7 ethical guidelines assessed in SMETA audits?
The seven key ethical criteria evaluated include: freedom of choice at work, freedom of association, health and safety, absence of child labor, living wage, reasonable working hours, and non-discrimination. This list forms the foundation of all Sedex 2 pillar or 4 pillar ethical trading certification audits.
Q5. How do Sedex audits help meet ethical trade requirements?
Sedex audits certification contribute towards meeting ethical trade standards through identifying deficiencies in supplier compliance, documentation of third-party audit findings, and data sharing on the Sedex platform to allow multiple buyers to use one audit report rather than duplicate efforts and expenses.
Q6. Does a 4 Pillar SMETA audit improve ethical trade compliance? Do international buyers prefer 4 Pillar SMETA audits?
Yes, the 4 pillar SMETA audit improves ethical trade compliance since it includes not only labor and safety pillars but also the environmental and business ethics pillars. The latter is preferred by international buyers, particularly those from Europe and the UK due to their regulations and corporate social responsibility needs.
Q7. Is a 2 Pillar audit enough for ethical trade certification, and which companies offer Sedex 2 Pillar audit services in India?
The 2 Pillar audit process might suffice for some buyers as a minimum standard; however, it may not necessarily be enough in most cases. Those looking to conduct their first audit in India can seek firms like Bureau Veritas, SGS, Intertek, TUV Rheinland, and ELEVATE to do a Sedex 2 Pillar Audit.
