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presents

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Risk management is often considered ‘boring’

because it smells of “grey suits” and “playing

it safe”

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But think of it this way…

What worries you?

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The trade environment challenge: Supply chain blind spots

The less you see, the less you know.

The less you know, the greater the risk.

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Newsworthy risks; Ethical “Disconnect”

Social issues Product recalls

Cargo theft and terrorism

Environmental issues

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Analyze your risk… Risk Assessment

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Let’s say we identify 5 Major Suppliers in 5 Cities in 3 High Risk Countries in this risk assessment

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And lets focus on the hypothetical 3 in China

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You contact Intertek to work on scheduling audits of these 3 suppliers… Intertek Offices reach out

=

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And those initial 3 suppliers, after working with Intertek…

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…discover production is actually occuring in 9 locations…

…Harbin

…Tianjin

…Beijing

…Wuhan

…Chengdu

… Suzhou

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This happens often…

40% … of Intertek Audit requests from global clients have

something wrong with the audit request entity… address, contact at production facility, etc.

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We need to understand the difference…

SUPPLIER / VENDOR

PRODUCTION FACILITY This is where your risk lies

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The dangerous reality:

Many companies do not know the full extent of their supply chain… up to

70% In a recent survey

?

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Sustainability & CSR Heavily Regulated

2

1

• Increasing disclosure of non-financial due-diligence areas such as climate change (SEC)

• Disclosures on Human Trafficking and related labor issue areas (California Supply Chain Act SB657) and possible Federal Legislation

• Department of Labor Country Lists for ‘Child Labor’ and Forthcoming policies around Farm Labor

• UK Bribery Act

• Conflict Minerals Reporting

• USA: Section 1502 of SEC Requirements

• Australia due diligence guidelines

• European Commission proposal for EU

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1970 1980 1990 2000 2002 2004 2006 2008 2010 2012

Early independent ESG

research & ratings

companies launch

Enhanced Analytics

Initiative launched

Formation of

established SRI/ESG

money managers:

Calvert, PAX, Walden,

etc

Rio Earth Summit,

coining of term

“Sustainable

Development”

Carbon Disclosure

Project launched*

DJSI launched Principles for

Responsible

Investing

initiated**

Modern roots of SRI

industry, including

negative screening on

tobacco, ‘sin stocks’,

apartheid,

UNEP Finance

Initiative begins

Bloomberg ESG

Product launched

Consolidation of

ESG data providers

INCR

launched

Pa

st

Fu

ture

• Increasing penetration into non-ESG/SRI motivated investor markets

• Broadening of ESG integration beyond equities into financial institutions, commodities, other securities

• Focus on data quality, standardization, and materiality

ESG to breakout in mainstream analysis

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Socially Responsible Investors are on the Rise

2

3

Significant growth in both the number of firms disclosing ESG as well as the proliferation of ‘environmental ‘ and ‘socially

responsible ‘fund category on the terminal further supports the trend

Co

mp

an

ies

Re

po

rtin

g E

SG

S

RI/

ES

G r

ela

ted

Fu

nd

s

2005 2006 2008 2007 2009 2010

300

600

900

1,200

1,500

700

1,600

2,500

3,400

4,300

+84%

2005 2006 2008 2007 2009 2010

+219%

•SCALE: UN PRI signatories (783); UNGC participants (8,474); GRI participants (1,000+); CDP respondents (2,456)

•HSBC, Barclays, Goldman, UBS, Merrill, Credit Suisse all managing ESG-related funds

•VALUE: DJSI $8 trillion; FTSE4Good; S&P Carbon, HKSE Sustainability Index

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Exposure can have material consequences:

85 percent of companies with global supply chains had experienced at least one supply chain disruption in the previous 12 months.

1. Sudden demand change (53 percent)

2. Margin erosion (42 percent), such as due to a cost increase, lost

revenue, or unanticipated taxes/regulatory changes.

3. Physical product flow disruption (37 percent)

4. Product quality failure (28 percent)

5. Regulatory non-compliance and/or worker-safety failure (20 percent),

6. Social responsibility failure (18 percent).

One study suggests that companies have experienced 30% lower shareholder returns compared to their peers in the wake of a publicly-announced disruption.

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Complexity of global supply chains and increased regulation create challenges:

Complex supply chain • Facilities • Vendors • Licensees • Wholesalers

Constantly changing facility locations and contact details

Traceability and accountability challenges

Supplier information that is time consuming and difficult to verify

A Holistic Solution is needed…

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4 Essential pillars for Effective Supply Chain Management

1. Visibility

2. Flexibility

3. Collaboration

4. Control

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Intertek saw a market need for…

A complete solution – people & platform

A consistent process and system

A collaborative tool

✔

✔

✔

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Global Supplier Management The 4 steps for better visibility & control :

Collection and cleansing of supplier information

Business profile completion

1

2

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Step 2 Business profile completion

• Company Profile

• Operational Controls

• Capabilities

• 4 Compliance Areas:

• Quality

• Social

• Environmental

• Security

• Integrity & Anti-Corruption Practices

• Additional Modules

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Global Supplier Management The 4 steps for better visibility & control :

Collection and cleansing of supplier information

Business profile completion • Additional Modules

Verification services

Risk-based analysis

1

2

3

4

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GSM Case Study 1: Chemicals, Netherlands

The challenge:

• Need to capture water and carbon foot printing within their top 250 suppliers.

• Essential for managing preferred supplier relationships and reporting needs for Dow Jones Sustainability Index, and maintaining innovation in their business

• Education Key, but also Score, analyze, benchmark in one place

• Outsourcing Key

The Solution and Take-Away:

• Online website based system with 24/7 access

• Option to invite all their suppliers onto the system and automate communication to them, supported by in country Intertek staff

• Customized questionnaire to ask key information designed by Intertek Environmental team

• Scoring based on business needs

• Full reporting options to see results defined by their reporting needs

• Risk reporting of Strengths and Weaknesses for supplier guidance

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Water Footprint Report – example

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GSM Case Study 2: Automotive, Germany

The challenge:

• Wanted a risk screening platform for new suppliers and management of current suppliers with regards to sustainability needs

• Important to have multiple modules depending on supplier type for relevance

• Important to be used in compliance management decisions

• Suitable to share with other clients

The Solution and Take-Away:

• Designed multiple modules within the sustainability area to meet different supplier types

• Scoring made relevant and similar within each module to ensure comparability

• Results designed to make clear where the supplier has compliance issues to ensure clear next steps

• Incentivization steps explained to all suppliers during on-boarding to encourage completion

• Option to show improvement during the year and adjust scoring

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Automotive Example Report

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1. The less you see, the less you know; the less you know, the greater the risk.

2. If you don’t know, how can we expect supply chain partners or agents to? Do we?

3. Supply chain complexity must be acknowledged but not ‘crutched’: Consumer Retailer/Customer Subsidiary/Brand Agent Production Facilities Subcontractor

4. … Because the pressure to comply goes ‘all the way upstream’

5. Information Management and Enforcement Key

Key Takeaways