Target 2030: At least 80 percent of our supply spending in focus countries will be covered by our sustainable supply base management approach, which includes surveillance of environmental, social and governance performance
We partner with our suppliers to ensure that ABB’s sustainability expectations, aspirations and targets are understood and met. The ABB Supplier Code of Conduct, which is available in multiple languages, sets forth our expectations in clear terms. The Supplier Code of Conduct reflects the 10 principles of the UN Global Compact, as well as the core tenets of the broader ABB Code of Conduct.
Our Sustainable Supply Base Management approach, first implemented in 2021, addresses sustainability topics and performance at each stage of supplier life cycle management, forming part of our “beyond audit” initiative. Building on its successful predecessor – the Supplier Sustainability Development Program (SSDP), which operated from 2010 to 2020 – SSBM integrates sustainability principles more comprehensively into ABB’s supplier selection and qualification processes.
Through SSBM, we address issues that fall within six main categories: general management, labor rights, social benefits, health, safety and the environment. The approach is backed by risk-based monitoring that covers a broad range of suppliers and incorporates Group-wide standards and targets. The management and implementation of the SSBM system is handled by ABB’s four business areas, allowing for business-specific programs and processes. The approach is governed by a steering committee and a working group comprised of representatives from our business areas and the corporate sustainability team.
Under SSBM, new suppliers registering with ABB must review and acknowledge ABB’s Supplier Code of Conduct. In addition, to qualify for consideration, suppliers must complete a self-assessment that incorporates questions on how suppliers manage issues such as labor and human rights, the environment, health and safety, and integrity, as well as management of their own supply chains. Depending on the results from the self-assessment and other parameters, further due diligence is carried out. Once the supplier has become part of ABB’s supply chain, a risk-based approach is used to monitor their sustainability performance, much like the procedure under the previous SSDP system. Under this approach, we engage with the supplier for training, onsite assessments and follow-up audits until closure of all deficiencies is achieved.
We consider geographical and commodity risks (health, safety and environmental risks associated with the manufacture and supply of certain commodities) to prioritize among suppliers selected for on-site assessments.
ABB’s 2030 sustainability strategy includes an ambitious target to cover at least 80 percent of our supply spending in focus countries with SSBM by 2030. We have also introduced a mid-term target to cover at least 80 percent of our high-risk supply spending in focus countries by 2025. Our calculation of the coverage of the SSBM program considers supplier self-assessments (such as those received during supplier onboarding and qualification) and on-site assessment processes.
To assess the effectiveness of our approach, we have set a goal of closing 75 percent or more identified risks from supplier assessments by 2025. Closure timelines for identified risks vary from a month to a year, depending on the severity of the case. Some complex issues may require a joint effort to resolve, under a longer timeline. Due to the ongoing identification of new risks and the time required to mitigate them, the closure rate of identified risks can never reach 100 percent.
2022 highlights in responsible sourcing
At the end of 2022, 22 percent of high-risk supply spending in focus countries was covered by our SSBM system, and 87 percent of identified risks were closed. Plans are in place to ensure that we achieve our mid-term target by 2025.
In 2022, we assessed 58 suppliers at their sites. The number of on-site assessments completed in 2022 was lower than planned due to continuing travel and access limitations in certain jurisdictions, most notably China. In many cases, virtual assessments were not possible due to limited personnel availability associated with access restrictions. Where on-site assessment possibilities were limited, we focused our attention on closing out corrective action plans, resulting in a risk closure rate significantly above our target (75 percent) and five percentage points higher than in 2021. Planning for 2023 has been adjusted to incorporate the additional assessments remaining from 2022.
In other activities related to responsible sourcing, we trained 26 ABB employees and 54 suppliers in the course of the year. ABB terminated relationships with seven suppliers due to unsatisfactory progress on their corrective action plans.
To strengthen ABB’s monitoring and evaluation capacity, in 2022, we held further courses of ABB’s lead assessor qualification training program in China and India. The program combines classroom sessions with field experience. All program graduates are prepared to perform independent SSBM assessments and follow-up audits. During the year, 18 employees from China, India and Poland were either qualified or requalified to be ABB lead assessors.
In 2022, we revised our method for assessing location-based risks. We also reviewed ABB’s Supplier Code of Conduct to clarify our commitments in certain key areas and to address changes in the regulatory environment since the last revision. The review process incorporated feedback from suppliers and customers, as well as consultations with both internal and external subject-matter experts. The updated Supplier Code of Conduct will be released in early 2023, along with internal and external training materials.
During the year, three cases of working conditions that could involve modern slavery at ABB suppliers were reported via our business ethics hotline. No allegations have been substantiated; two of these cases were still under investigation at the close of the year.
Case study Framing ABB’s approach to sustainability in the supply chainReveal case study
Ensuring that our supply chain is sustainable is vital to each of the pillars of our 2030 sustainability strategy. While we run several longstanding supply chain programs that serve to address various aspects of sustainability, we decided to reexamine these programs in 2022.
The rationale for reviewing our existing programs was straightforward enough: We wanted to establish a common action plan, to clarify targets and to ensure appropriate and comprehensive governance for purposes of internal accountability. We also wanted to articulate an overall supply chain sustainability approach – one that would be consistent with our sustainability strategy, easy to understand, and capable of facilitating engagement with our suppliers.
We established a cross-business steering committee to review the established programs related to material compliance, conflict minerals and sustainable supply base management. The steering committee also focused on understanding the status of ABB’s newer programs related to circularity and GHG emissions in the supply chain. The committee consulted broadly within ABB, with suppliers and with other external stakeholders, including customers and investors.
The resulting Supply Chain Sustainability Framework is structured around the four pillars of our sustainability strategy, establishing clear ambitions for each pillar.Close case study
We remain focused on understanding and limiting ABB’s exposure to conflict minerals, as defined by section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. We regularly request supplier information on tin, tungsten, tantalum and gold (which comprise the most prominent conflict minerals, sometimes referred to as “3TG”) sourced from conflict-affected and high-risk areas (CAHRAs), as defined under EU Regulation 2017/821. We filed ABB’s annual Conflict Minerals Report with the U.S. Securities and Exchange Commission for the ninth consecutive year, summarizing ABB’s approach to minerals and the status of our programs.
ABB’s efforts to source minerals responsibly are reinforced by the ABB Policy on Conflict Minerals and our continued collaboration with the Responsible Minerals Initiative (RMI), which works to encourage smelters and refiners to undergo audits aligned with OECD guidelines.
Under our own internal programs, we also cooperate with suppliers on an ongoing basis to ensure that ABB’s products do not contain minerals from mines that support or fund conflict within the Democratic Republic of Congo or adjoining countries and CAHRAs.