Ethical trading

Ethical trading means looking beyond strictly economic objectives to consider the wider implications of your business decisions. It is becoming increasingly important for those trading internationally.

This guide will show how socially responsible policies can benefit your business. It will outline how unethical trading can cause harm and it will help you assess your current record in social responsibility.

This guide contains basic information on what fair trade products are, how they can help you improve your business’ environmental record, ensure workers and producers are fairly treated, and support the overseas communities in which you are involved.

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The benefits of ethical trading

Implementing socially responsible policies is not just good for the environment and the wider community, it can benefit your business too.

By considering social and environmental objectives as well as your economic aims when trading overseas, you can:

• build sales, as customers increasingly choose to base their purchasing decisions on more than strict financial factors
• attract investment, as ethically motivated investors grow in number
• maintain staff loyalty and motivation, by treating people fairly and offering them chances of development
• enhance trust in your business, by fostering good relations and being transparent in your activities
• boost revenue, by opening up your business to new ideas
• save money, for example by implementing better waste-management procedures

All of the above will make your business more competitive and therefore more successful.

Read a business case for responsible business on the Business in the Community (BITC) website- Opens in a new window.

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How socially responsible is your business?

To promote your business as socially responsible, you need to chart your progress in implementing socially responsible activities and identify areas where further improvements can be made.

First though, you need to assess how far your business goes beyond fulfilling its minimum legal obligations. This means carrying out a social responsibility audit in which you consider your business’ impact on:

• the market – for example, how you promote yourself, how and where you obtain supplies and how you sell your products or services
• your workforce – the wages you pay, your employees’ conditions and your equal opportunities policies
• the environment – for example, your emission, waste and consumption strategies
• the community – for example, whether you are a ‘good neighbour’ and what you put back into the community
• human rights – such as taking into account not just your own direct relationships but also your suppliers’ business relationships

The nine principles of the UN Global Compact, covering human rights, labour and the environment, also provide a template against which you can assess your business. Find out about the UN Global Compact on the Global Compact website- Opens in a new window.

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Steps to protect the environment

All businesses have an impact on the world in which they operate – and sometimes this can be a damaging one. However, even the smallest of businesses can minimise its impact on the environment – and even help repair damage already done – by implementing sustainable development policies.

That means considering the social and economic wellbeing of current and future generations, both here and abroad, when making all kinds of business decisions. To start implementing such policies it can help if you first:

• Assess your current environmental impact, here and overseas. See the page in this guide on how socially responsible is your business?
• Appoint someone to champion and oversee sustainable development.
• Make small, simple and manageable changes.

You could give close scrutiny to the following areas:

• Your design processes – for example, could you replace toxic substances with less harmful ones? Are your products designed to be multifunctional or reusable? Read about sustainable design on the Design Council website- Opens in a new window.
• Your energy consumption – for example, could you replace equipment with newer, more energy-efficient or less polluting models? You can call the Environment and Energy Helpline on Tel 0800 585 794.
• Your resources – are you using renewable or recyclable materials? Do you recycle your own waste? You can find more information on the page recycling waste in our guide on your waste options. 
• Your environmental and health and safety training for employees.

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Ensure staff welfare in your supply chain

Businesses are increasingly being required to look beyond their own direct relationships, such as those with their own employees, and to consider those further back in the supply chain. This is in direct proportion to the rise in investor and customer concern over worker and human rights.

It makes good business sense for you to ask pertinent questions about your overseas suppliers’ labour practices. Such questions might include the following:

• Is employment freely chosen and are workers free to organise themselves?
• Is child labour used?
• Are working conditions safe and working hours reasonable?
• Are fair wages paid?
• Is discrimination practised?

A written questionnaire can be a useful way of getting information about workplace conditions from your suppliers, though onsite visits – if practical – are the most reliable way of checking these conditions. You can download guidance for small businesses on ethical trading [opens in a new window]. Alternatively, a workbook on ethical sourcing is available for purchase from the ETI Helpline on Tel 020 7841 4350.

Although there are few legal requirements for you to take responsibility for the behaviour of your suppliers, it could bring you significant business benefits if you consider the ethical dimension of the supply chain.

Benefits to your business include the ability to:

• promote your corporate social responsibility credentials
• attract ethically motivated customers
• attract ethically motivated investors
• avoid harmful publicity linking you to your suppliers’ practices

Read a business case for responsible business on the Business in the Community (BITC) website- Opens in a new window.

Membership of the ETI can also help you develop the skills and share the experiences of trading ethically. You can find out about joining the ETI on the ETI website- Opens in a new window.

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Dealing in Fairtrade products

One way in which your business can help ensure that producers’ basic rights are respected and sustainable development is promoted is by dealing in Fairtrade products.

Fairtrade products are those which carry the Fairtrade label known as the Fairtrade mark. They will have been certified by the Fairtrade Labelling Organisation (FLO) as conforming to standards which improve the development of disadvantaged producers in developing countries.

There are two sets of standards. The first is designed to protect the rights of smallholders organised into co-operatives and the second applies to workers on plantations and in factories.

These standards cover a range of basic rights including wages, health and safety, trade union membership and housing. They also cover issues including environmental standards. For example, FLO certification ensures producers are not only fairly paid but also receive a premium to invest in community development. Read about Fairtrade standards and commodities covered by the Fairtrade mark on the Fairtrade Foundation website- Opens in a new window.

Fairtrade products are mainly agricultural commodities, eg tea and sugar, though manufactured products including footballs, clothing and beauty products have now been certified.

It is estimated that UK sales of Fairtrade products exceeded £799 million in 2009. Many large organisations have adopted the standards so they can benefit from the increased consumer awareness of and desire for Fairtrade products.

Fairtrade isn’t only for large organisations. By dealing in Fairtrade products you can bring significant benefits to your business as well as helping ensure a fair deal for producers. Your business can also:

• promote its corporate social responsibility credentials
• attract ethically motivated customers
• attract ethically motivated investors

Find out about Fairtrade on the FLO website- Opens in a new window.

Source Fairtrade products on the World Fair Trade Organization (WFTO) website- Opens in a new window.

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Contribute to communities where goods and services are produced

Businesses are increasingly discovering the benefits of supporting communities in which their goods and services are produced or in which they operate. These include:

• good PR from promoting their corporate social-responsibility credentials
• attracting ethically motivated customers and investors and loyal employees

Ways in which you can support communities overseas include:

• linking up with charities working in the area
• sponsoring specific workplace projects, such as factory training
• sponsoring wider initiatives, such as village literacy projects
• offering employment to disadvantaged groups

Business in the Community (BITC) has developed the CommunityMark standard to recognise the work that small and medium-sized enterprises do in the community, both here and abroad. You can explore the community investment section on the BITC website- Opens in a new window.

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Avoid corruption and bribery overseas

An essential element of corporate social responsibility is honest and transparent trading. Bribery and corruption create a disincentive to trade as well as uneven trading conditions that can damage economic systems and the individuals within them.

Under UK law, there is:

• a general offence of bribery, which is defined as giving someone a financial or other advantage to induce them to perform their functions or activities improperly, or to reward them for having already done so
• an offence of bribing a foreign public official in order to win business, keep business or gain a business advantage for the organisation
• an offence relating to failure by a business to prevent a person associated with it from committing the above offences on its behalf in order to win business, keep business or gain a business advantage for the organisation

You will have a statutory defence to the last of these offences if your business has adequate procedures in place to prevent bribery on your behalf. See the page on anti-bribery policies in our guide on how to set up employment policies for your business.

As well as having adequate procedures in place:

• if you suspect a business of corruption, inform the local authorities
• ensure you keep accurate financial records so you can demonstrate that all transactions are completed fairly and legally

You can also find information on UK bribery and corruption law on the UK Trade & Investment website- Opens in a new window.

Read guidance on bribery law and managing the risks of international corruption on the Business Anti-Corruption Portal website- Opens in a new window.

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CASE STUDY

Here’s how I began importing with ethical trading in mind

Scientists-turned-entrepreneurs Jeremy Torz and Steven Macatonia started Union Coffee Roasters in 2001 after spotting a gap in the market for high-quality, ethically sourced coffee. The London-based business now sells its award-winning coffee to high-street chains such as Sainsbury’s and turns over £2 million a year.

What we did

Research the market for ethical products

“During the early 1990s I worked as an optician and Steven worked as an immunologist, both in America. During this time we became increasingly passionate about coffee and the way it was being produced around the world. We spent much of our spare time researching coffee and looking for related business ideas. And as our interest grew and we travelled around we witnessed first-hand the devastation being suffered by coffee growers as a result of the record low in the price of world coffee. Our observations made us realise two things. First, we wanted to make a positive contribution to the growers’ situation. Second, there is a voracious appetite among coffee-lovers for high quality, ethically produced coffee.”

Create a clear ethical strategy

“So when we started Union Coffee Roasters we knew that importing ethically wasn’t a highbrow aspiration – it was a necessity. In order to sell premium coffee in the long-term we have to ensure its production is sustainable. And developing ethical partnerships with our coffee producers is one of the ways we’ve ensured this.”

Help our suppliers to help us

“Through these links we’ve helped to educate our suppliers on improving their quality control and crop processing. We’ve also helped support newly created co-operatives made up of smallholder growers in some of our coffee-producing regions. By transferring this knowledge to farmers this enables them to know the value of the coffee they sell to achieve realistic prices. For us the advantage is confidence in the improved quality of the coffee.

“In return, the farmers are working towards adherence to social and international labour laws regarding the conditions of workers. By treating our producers fairly we’re benefiting from a continually improving crop.”

Respect the environment

“Another aspect is playing our part in making sure farmers understand the impact that growing coffee crops has on the environment. For example, systems have been installed to conserve water usage and minimise soil erosion, plus eliminate water pollution by creating filtration methods. In turn, this has guaranteed that we continue to import some of the highest-grade quality in the world.

“Some of our suppliers have created purpose-built coffee washing stations which means the farmers can work together as small collectives. By operating in this way, not only is quality and consistency improved but it also allows external inspections to monitor water quality and thereby reduce pollution. All together, this fuels a virtuous cycle of improving coffee quality for us and a better price for the farmers.”

What I’d do differently

Realised the commercial potential of an ethical business earlier

“Perhaps we could have started the business earlier than we did to capitalise on the demand for ethical products. We didn’t fully appreciate that consumers are prepared to pay a premium for higher quality, ethical products.”

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