Case study: How Huawei promotes sustainability across its supply chain

What are the material issues the company has identified?

In its 2020 Sustainability Report Huawei identified a range of material issues, such as climate change/ carbon emission reduction, cyber security and privacy protection, circular economy, renewable energy. Among these, promoting sustainability across its supply chain stands out as a key material issue for Huawei.

Stakeholder engagement in accordance with the GRI Standards

The Global Reporting Initiative (GRI) defines the Principle of Stakeholder Inclusiveness when identifying material issues (or a company’s most important impacts) as follows:

“The organization should identify its stakeholders, and explain how it has responded to their reasonable expectations.”

Stakeholders must be consulted in the process of identifying a company’s most important impacts and their reasonable expectations and interests must be taken into account. This is an important cornerstone for CSR / sustainability reporting done responsibly.

Key stakeholder groups Huawei engages with:

How stakeholder engagement was made to identify material issues

To identify and prioritise material topics Huawei engaged with its stakeholders through stakeholder surveys.

What actions were taken by Huawei to promote sustainability across its supply chain?

In its 2020 Sustainability Report Huawei reports that it took the following actions for promoting sustainability across its supply chain:

• Promoting environmental sustainability
• Huawei has incorporated environmental requirements into its procurement strategy and processes. Environmental factors are considered during supplier qualification, selection, review, performance management, and in selection of materials. In addition to complying with all applicable environmental laws and regulations, Huawei is also building a competitive and green supply chain by offering proper incentives to suppliers. In 2020, Huawei encouraged its top 100 suppliers to calculate their carbon emissions, set carbon emission reduction targets, develop plans, and implement programmes. By the end of 2020, all the top 100 suppliers had calculated their carbon emissions. 93 suppliers had set targets for reducing emissions, and were implementing their emission reduction programmes. The remaining 7 suppliers were also making progress. Total carbon emissions by Huawei’s suppliers generated in the course of working with Huawei in 2020 were about 12.46 million tons, down 300,000 tons compared with 2019.

• Implementing a Supplier CSR Agreement
• Huawei requires that all suppliers sign and abide by its Supplier CSR Agreement. This agreement covers areas like labour standards, safety and health, environmental protection, business ethics, and management systems. Huawei sees the use of child labour or forced labour as a red line issue, and regards compliance in this respect as a prerequisite for supplier qualification. Huawei has zero tolerance for violations of CSR red lines, and will immediately terminate relationships with any supplier that breaches these rules. In furtherance of its goal of sustainable procurement, Huawei also regularly delivers CSR training to all procurement staff. This training covers procurement CSR agreements, red lines, processes, and audit practices. CSR requirements are incorporated into the performance indicators of all teams in Huawei’s procurement department.

• Auditing suppliers
• Huawei adopts a risk-based approach to supplier audits and every year audits all major suppliers. Combined, these suppliers represent 90% or more of Huawei’s procurement spending. Huawei assigns each supplier one of three risk ratings (high, medium, or low) after a comprehensive assessment of indicators such as procurement amount, material category, supplier locations, severity of CSR risks, and CSR score from the previous year. Huawei develops an annual sustainability audit plan to deal with suppliers that are assessed as posing a medium or high risk. Huawei performs onsite assessments on all potential suppliers to examine their sustainability systems, their capacity to comply with applicable laws, regulations, and the Supplier CSR Agreement, and their actual level of compliance. No company that fails the assessment is eligible for consideration to become a Huawei supplier. Huawei has developed its Supplier CSR Audit Checklist which references industry best practices and is adapted to the specific features of its suppliers. This checklist is regularly reviewed and updated. The CSR audit covers issues including prohibition of child labour, modern slavery, and forced labour; protection for underage workers; prevention of discrimination and punishment of employees; freedom of association; working hours; wages and benefits; fire control; safety and health; environmental protection; carbon emissions reduction; business ethics; and management of the CSR practices of tier-2 suppliers. Huawei conducts supplier CSR audits using internationally recognised methods, such as onsite inspections, employee interviews, management interviews, documentation reviews, and online searches, and uses the Blue Map developed by the Institute of Public and Environmental Affairs (IPE) to assess suppliers’ compliance with environmental requirements. Prior to audits, Huawei provides suppliers with coaching on CSR self-assessments. During audits, Huawei arranges for experts to work onsite with suppliers so that they can identify problems and suggest improvements. In 2020, Huawei assigned CSR risk ratings to more than 1,600 major suppliers, and conducted onsite audits on 319 suppliers, including new suppliers and current suppliers that posed medium or high risk. 116 of these suppliers were audited by third-party auditors. If Huawei discovers a problem during an onsite audit, it helps the supplier resolve the issue using the CRCPE methodology (check, root cause analysis, correct, prevent, evaluate). This methodology helps suppliers to identify common problems and develop targeted solutions.

• Appraising suppliers’ sustainability performance
• Every year, Huawei appraises suppliers’ overall performance based on their sustainability performance, onsite audit results, and improvements made. When Huawei appraises the sustainability performance of its suppliers, it takes into account how they manage their suppliers’ sustainability. Huawei encourages its suppliers to develop a CSR management system based on the IPC-1401 Supply Chain Social Responsibility Management System Guidance. Suppliers are classified into four grades (A, B, C, and D) based on their sustainability performance. The amount of business Huawei does with each supplier depends partly on their sustainability performance, which is also a factor considered in tendering, supplier selection, portfolio management, and other processes. Where other factors are equal, suppliers that perform well in sustainability are given a larger share of business or more business opportunities. The reverse is true for low-performing suppliers. Depending on the situation, Huawei may instruct suppliers with poor sustainability performance to resolve existing issues within a specified timeframe; or it may reduce their share of business or offer them fewer business opportunities; or it may even terminate its business relationships with those that display exceptionally poor performance.

• Providing training
• Huawei regularly provides sustainability training and coaching for its suppliers. Huawei asks its suppliers to adopt industry best practices and to embed sustainability requirements into their business strategies in order to reduce risk and boost their efficiency. Huawei is aware that each supplier brings unique experience and competencies to sustainability that may benefit their peers, so it encourages its suppliers to learn from each other and grow together through benchmarking. Based on its many years of experience, Huawei has developed a cost-effective and efficient “Learning by Benchmarking” model for suppliers. This model includes the following steps:
  • Setting priorities: Huawei asks suppliers about their CSR concerns, lists the most common issues, and ranks them in order of priority.
  • Identifying benchmarks: Huawei identifies which suppliers perform best, and analyses their best practices.
  • Sharing and learning: Huawei invites the benchmark suppliers to share their best practices, and encourages all suppliers to learn industry standards and norms.
  • Implementation: Huawei asks experts to develop templates and checklists, and helps suppliers assess their own performance and introduce best practices.

Which GRI Standards and corresponding Sustainable Development Goals (SDGs) have been addressed?

The GRI Standards addressed in this case are:

1) Disclosure 308-1 New suppliers that were screened using environmental criteria

2) Disclosure 308-2 Negative environmental impacts in the supply chain and actions taken

3) Disclosure 414-1 New suppliers that were screened using social criteria

4) Disclosure 414-2 Negative social impacts in the supply chain and actions taken

Disclosure 308-1 New suppliers that were screened using environmental criteria does not correspond to any SDG.

Disclosure 308-2 Negative environmental impacts in the supply chain and actions taken does not correspond to any SDG.

Disclosure 414-1 New suppliers that were screened using social criteria corresponds to:

• Sustainable Development Goal (SDG) 5: Gender Equality
• Targets: 5.2
• Sustainable Development Goal (SDG) 8: Decent Work and Economic Growth
• Targets: 8.8
• Sustainable Development Goal (SDG) 16: Peace, Justice and Strong Institutions
• Targets: 16.1

Disclosure 414-2 Negative social impacts in the supply chain and actions taken corresponds to:

• Sustainable Development Goal (SDG) 5: Gender Equality
• Targets: 5.2
• Sustainable Development Goal (SDG) 8: Decent Work and Economic Growth
• Targets: 8.8
• Sustainable Development Goal (SDG) 16: Peace, Justice and Strong Institutions
• Targets: 16.1

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References:

This case study is based on published information by Huawei, located at the link below. For the sake of readability, we did not use brackets or ellipses. However, we made sure that the extra or missing words did not change the report’s meaning. If you would like to quote these written sources from the original please revert to the following link:

https://www-file.huawei.com/-/media/corp2020/pdf/sustainability/sustainability-report-2020-en.pdf

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