Risk Assessment
Given the various activities of CHANEL and the plurality of risks these can be associated with, the company has adapted the risk assessments to the specificities of its three divisions and Indirect Procurement: the Fashion, Fragrance & Beauty and Watches & Fine Jewellery divisions and Indirect Procurement.
The different risk maps are based on a common policy, yet tailored to the specific issues of each of these divisions. This flexible risk mapping methodology allows the incorporation of feedback from audits and site visits, regulatory and sectoral developments specific to each division and to Indirect Procurement. The risk mapping covers all suppliers with an established business relationship (level 1) with CHANEL who are required to provide extensive and in depth information regarding the traceability of their upstream chain (level 2 and up).
Each methodology incorporates the following core criteria:
- External risk using international databases, indexes as well as internal expert knowledge, presenting risks by country and sector of activity to evaluate criteria such as health and safety, foreign labour, environmental pollution or respect of human rights and fundamental freedoms or bribery risk
- Risk linked to the manufacturing activities, including business criteria such as dependency, spend with the supplier or percentage of purchase within a specific category to assess the importance of this supplier for CHANEL
- Reputational risk for CHANEL
Risk Management
The company’s Risk Management revolves around its Sustainability Excellence Programme (SEP), an internal audit programme with a team specialised in supply chain and third party audits and assessments.
The SEP audits were first developed in 2011. These are performed using a common methodology, which assesses the compliance of suppliers against four main pillars and over 40 themes, using social health and safety and environmental standards such as SA8000, ISO 45001 or ISO 14001, as well as industry standards such as the RJC, SAC Higg Index, or the Leather Working Group and is reviewed annually to incorporate new themes identified during the audit carried out during the year:
- Ethics: regulatory aspects, anti-corruption policies and intellectual property
- Health & Safety: employee well-being and safe working conditions
- Social: regulatory aspects such as wages and insurance, equality policies
- Environmental: risk of pollution in the water, air or soil, waste management, biodiversity impacts
On the basis of these benchmarks and standards, the CHANEL Minimum Requirements have been developed to ensure compliance with common standards regardless of local ones. These Requirements are shared with all auditors, purchasing teams and suppliers during audits.
Issues of non-compliance for each topic are raised during the audit process, to evaluate the suppliers performance and to obtain an overall score corresponding to the SEP performance.
Every quarter, all audits are reviewed during audit committees by divisions, in order to decide on the follow-up to be given to this evaluation. An audited supplier can be either considered as “qualified” and he will be re-audited in the next cycle to keep this qualification, or “in progress” and a corrective action plan will be requested as well as a follow-up audit within 6 months to 2 years. If the SEP performance of this supplier remains insufficient after this time, business can be stopped with the supplier. Those audit committees are also the occasion to review pending and on-going corrective action plan or take decisions about specific actions (see targeted corrective actions).
The SEP team is formed of seven CHANEL internal auditors and ten external auditors, trained and certified for the SEP methodology. These auditors communicate and exchange regularly to ensure consistency in the audit approach and ranking, as well as to share lessons learned and observations. This audit team also relies on independent third-party organisations with local audit teams to provide support for local regulation and cultural approaches tailored to each country.
Since 2012, CHANEL has built its internal capacity and audit programme as shown below:
2019 SEP audit results
In 2019, the SEP auditors conducted 451 audits (covering 470 sites) globally.
These results highlighted the main area of progress to be health and safety - through topics such as chemical management, fire protection or the wearing of protective equipment. This trend is due in part to the lack and/or regulatory weakness of some countries in terms of health and safety, as well as the large proportion of small sites (less than 15 employees), which do not always have the resources to implement health and safety procedures.These would be part of the collaboration put in place by the company through an improvement plan.
Overall grade on social practices is globally satisfactory, which is explained by audits in countries with strong regulatory requirements that supervise companies of all sizes. Nevertheless, this performance should be nuanced by the fact that some audits raised significant social deficiencies such as forced labour, excessive overtime or non-compliant remuneration. For some of those topics such as working time, CHANEL initiated a collaboration with HR Without Frontier (detailed further below) to support suppliers in a process of continuous improvement.
CHANEL takes a zero tolerance approach to findings of forced labour by suppliers. Where audits have raised concerns that a third party supplier does not fully comply with applicable laws relating to forced labour or health & safety and is not willing to change, it immediately stopped working with these suppliers. This represented 4% of audited suppliers in 2019 resulting in 17 suppliers terminated. 95% of the audited suppliers were given improvement recommendations and another 1% a necessary plan of action which included a follow-up audit within 6 months to 2 years.
Targeted corrective actions
In addition to the above audits, CHANEL has been working to develop targeted actions to prevent serious human rights abuses. These targeted actions are the result of the findings identified onsite among CHANEL suppliers, but also of the knowledge shared by the experts who accompany CHANEL on these projects. These actions may involve several countries through a specific theme or sector, or be linked to a situation shared by the globality of suppliers in a given country.
Forced labour: development of a forced labour categorisation grid
In order to allow a more detailed analysis of situations deemed to be at risk by the auditor, a system of categorisation of forced labour (defined as unfree labour in which persons are coerced to work through the use of violence, intimidation or by more subtle means such as accumulated debt, retention of identity papers or threats of denunciation to immigration authorities) has been developed in order to determine the nature of a situation: excessive work, forced labour, child labour, modern slavery.
This grid allows the auditor to make a preliminary diagnosis and answer concrete questions such as: Is the recruitment of this employee the result of a financial debt? Is this employee free to come and go outside the accommodation provided by the employer? Does the employee have travel documents?
Based on this preliminary diagnosis, the audit results are shared with CHANEL's legal teams in order to implement the appropriate actions.
On the basis of this grid, training was provided to all auditors in the SEP audit team, allowing to categorise these situations of forced labour during the 2019 financial year.
Excessive working hours: partnering with HR Without Frontiers
As part of its human rights assessment, prevention and risk management efforts, CHANEL wanted to work specifically on the risks of excessive overtime in certain countries. Human Resources Without Frontiers (HRWF) has the uniqueness of investigating with highly operational methods and a broad experience in the subject. The company has therefore been leveraging their expertise since 2018. Specialising in preventing the risks of abusive work, HRWB is a field NGO proving that unfit working conditions, including forced and child labour, can be prevented without sacrificing product quality and productivity. HRWB builds on the ILO (International Labour Organization) conventions and implements its guiding principles on Equitable Recruitment, a major risk prevention process.
The launch of a comprehensive project involving two key CHANEL suppliers aimed at:
- Equipping both suppliers with solutions to reduce (or maintain the reduction of) excessive overtime
- Validating a replication model of the methodology allowing it to be extended to other suppliers with similar risk profiles.
This project included:
- The analysis and formalisation of practices that work in terms of reducing overtime
- Adapting training modules for local companies to ensure learning and ownership of HR fundamentals
- The trial, within a pilot production department, of the HR management model built with suppliers based on the fundamentals transmitted and the practices observed and validated in the field.
CHANEL seeks ongoing dialogue with stakeholders and experts to help guide and support its human rights approach. The company is, for instance, a member of Shift’s Business Learning Programme (BLP). Shift, a leading centre of expertise on the UN Guiding Principles on Business and Human Rights, advises and supports individual companies through the BLP, across different industries and regions, on implementation of the UN Guiding Principles. It develops shared learning to support improved business practices with regard to human rights globally. Based on CHANEL’s work with Shift to date, certain raw material supply chains, including mica, gold, and precious stones, have been prioritised as representing a potential risk for rights holders. These raw materials will continue to be a focus for its supply chain responsibility efforts going forward through direct interventions and through its ongoing participation in multi-industry collaborative initiatives.
