A background
Since 2017, Qualifyze has been dedicated to conducting high caliber, on-site audits for the pharmaceutical industry. While our main focus has always been on the pharmaceutical industry, we could no longer ignore the pressing importance of sustainability socially, politically, and personally. In 2022, we began looking deeper into sustainability as a company, and realized that our auditing experience made us the perfect candidate for becoming sustainability audit providers, so we got to work. By the end of 2022, we had already developed our Sustainability Audit protocol, and had secured our first sustainability audit pilot, which took place in November last year. Today, we will share with you our journey, our process, and what we learned along the way.
Why sustainability audits?
Developments in the context of the EU Sustainability Due Diligence Directive and the upcoming Supply Chain Due Diligence Law of Germany are pushing the sustainability for businesses agenda into the spotlight like never before. Thanks to this, the protection of human rights and the environment are now seen as not only essential for a sustainable future, but also non-negotiable for business owners should they want to stay in business. With this as context, we’re expanding our global audit expertise to now include sustainability audits to help companies, as well as current customers, meet the requirements of the new sustainability legislation.
Due diligence and changes to European policy
On both national and international government levels we observed an increased importance on sustainability measures. In February 2022, the EU decision-makers proposed a Corporate Sustainability Due Diligence Directive (CSDD) implementing a regulatory framework on companies’ due diligence affecting global supply chains. The directive aims to improve corporate governance practices by requiring large EU- and third country-companies active in the EU to follow the six-step due diligence process as outlined in the UN Guiding Principles on Business and Human Rights (UNGP).
Moving our angle from the European to the national level, we observe an attenuated approach in Germany. With the start of 2023, the Supply Chain Due Diligence Law (LkSG) came into effect for German companies with more than 3.000 employees and then for companies with 1.000 or more employees from the second year after it came into force. German companies are only responsible for their direct suppliers, not for those who supply them, unless there are concrete indications of a violation of human rights and environmental obligations.
The challenging road towards sustainability
Various social and environmental violations or prohibitions (e.g., the ban on child labor, forced labor, and discrimination or the treatment, storage, and disposal of hazardous waste) are embedded in the LkSG and the CSDD and represent negative impacts businesses can have on value chains. Companies will have to identify, assess, prevent, mitigate and end these negative impacts in their operations, their subsidiaries, and their value chains which leads to huge expectations but also ambiguity when it comes to related assessments and the question of when and how member state authorities will investigate compliance. However, embedding a solid due diligence process in companies’ processes and, thus, understanding social and environmental risks in companies´ supply chains will help businesses comply with upcoming legislations.
After looking deeply into the underlying requirements, we concluded that our global on-site audit services could help identify and assess supply chain risks and areas for improvement. We then developed a sustainability audit checklist containing four chapters: Audit Core Data, Management Compliance, Social Compliance, and Environmental Compliance. These four chapters strive to increase supply chain transparency across sustainability´s social and environmental pillars. Within each of the chapters, there are multiple sections related to diverse topics, including sector specific requirements. In total, we arrived at 320 criteria that allow full customization by offering a modular auditing concept applicable to various sectors.
Our pilot customer
For this test run, we had the great chance to collaborate with Greenyard, a publicly listed company with its headquarters in Sint-Katelijne-Waver, Belgium. Greenyard is a global player in fruit and vegetables in fresh, frozen and prepared form. It’s a strategic partner of one of the largest retailers and their customers in Europe, and has sales in more than 80 countries. The group achieved a turnover of 4.4 billion Euros in 2021 with a total of around 8.500 employees, of which approx. 800 are based in Germany.
Due to the various products offered, the company’s business takes place all around the globe. Both European and overseas countries play a vital role in connecting Greenyard to approx. 5000 growers globally. Yearly, the group receives 100k tons of citrus from Spain, which makes the country one of Greenyard’s most important origins for citrus products, especially for organic and conventional oranges, lemons, and clementines.
We have conducted the announced audit at a cooperative, producing conventional and organic lemons, oranges, tangerines, and grapefruits. Multiple associated farmers belong to the cooperative, and the products harvested are further processed in two packhouses. Concerning the considerable relevance of organic lemons for Greenyard, we agreed to focus the audit on all production processes referring to this product. Within one audit day, we set ourselves the target to inspect the production from a social and environmental angle, covering as many criteria as possible from our newly developed sustainability audit concept. Two locations were in scope, one field and one packhouse intending to inspect Greenyard’s sourcing sites precisely.
Conducting the audit
During the audit, we observed a high level of cooperation and transparency from all parties involved, including the interviewed workers and management, and learned about professional human resources and production conditions. More importantly, we did not identify any severe risk which resulted in a satisfactory audit result presented to our customer Greenyard.
In principle, the audit has shown that
(1) it is recommended to gather insights into packhouse and field conditions during harvest season, ensuring a comprehensive audit result,
(2) to plan sufficient audit time depending on the auditee´s size and the audit scope taking into account the number of worker interviews and the types of documents to check, and
(3) to treat an audit report as an opportunity to work with supply chain stakeholders on continuous improvement rather than treating it as a certification.
What we learned
Expanding our business to the sustainability area has taught us much about audits. On the one hand, we could make use of our global GxP audit experience (e.g., concerning recruiting auditors, communicating with stakeholders, and preparing the audit process), and on the other hand, we recognized differences compared to our existing services (e.g., expectation of stakeholders, level of information transfer and reporting preferences). Indeed, a sustainability audit must be treated and proceeded differently following other requirements that touch the social and environmental pillars.
We are delighted that our services are seen as an option for further supplier audits in Greenyard’s supply chains and can also give back positive feedback. We enjoyed our professional collaboration ultimately and thanked Greenyard’s trust in our work. Thus, we are open to new opportunities and discussions shaping tomorrow’s fruit and vegetable supply chains!