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Executive summary

Much of the effect of our environmental, social and ethical impacts is felt in our supply chain. In some cases these impacts are directly related to the security of our supply, making sustainable procurement not only the right thing to do, but a strategic imperative for our business. While we cannot directly control our supply chain, we can help our suppliers improve their sustainability.

Performance against targets

Following is a summary of our performance against the targets we set out last year:

Target
by 2011		 This year’s performance
2010 - 2011		 Achievement
Launch sustainable agriculture sourcing guidelines Launched in August 2010. For more information click here. Achieved
Develop an initiative on cream with the Baileys brand team, as the first of our priority materials Launched programme with main cream supplier in Ireland focused on promoting sustainable dairy farming. For more information click here.
 Achieved
Ensure all 700 'potentially highest risk suppliers' complete a self-assessment through SEDEX. 519 suppliers completed. For more information click here.
 Not achieved
Audit 50 highest risk suppliers and work with them to improve performance. 64 suppliers audited either by Diageo or through AIM-PROGRESS. While no significant issues surfaced, corrective actions relating to identified issues are being addressed. For more information click here.
 Achieved
Ensure that 50% of electricity for supply sites is renewable 52% is now renewable or low carbon. For more information click here.
 Achieved
Engage 30 suppliers in projects to support sustainable packaging improvements More than 30 engageed. For more information click here.
 Achieved
Include key suppliers’ environmental performance in our sourcing and supplier management processes We created a pilot scorecard and engaged key suppliers but have since decided to join the 2012 CDP Supply Chain Project. For more information click here.
 Not achieved

1 The target we set out in the 2010 Corporate Citizenship Report said we aimed to ‘assure’ 700 high risk suppliers. This has been redefined to align with the Sedex process.

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Our partnership approach

We aim to work in collaboration with our suppliers and other businesses in the industry to maximise their positive impacts on society and the environment. As part of our programme, we work towards three goals:

Optimise due diligence

Diageo is a member of groups such as the Suppliers Ethical Data Exchange (SEDEX) and AIM Progress that give us access to social and environmental performance information. This allows us to identify areas of improvement with other companies and relieves suppliers of the duplication of working with many global organisations like ours.

Build capacity

Where possible, we help suppliers meet our standards through capacity building and training. Thus far we have engaged suppliers in a number of capacity building projects targeted towards the areas where we feel we can have the most impact, such as carbon reduction, water efficiency and animal welfare. For example, in Ireland, we have helped launch a sustainable agriculture project along with our main cream supplier and other key Irish stakeholders. The focus has been on areas such as carbon reduction, water efficiency and animal welfare. Likewise in Nigeria, we have provided support to a packaging supplier to help reduce overtime for their workers and create a safer working environment.

Support local businesses

The purchase of goods and services represents Diageo’s largest single item of expenditure. We therefore see working with local suppliers as a significant opportunity to contribute to local economies, particularly in developing markets. Towards this end, where possible we work with local businesses and farmers. In addition to bringing economic and social benefits, this approach also simplifies our supply chain, reducing our costs and minimising our environmental impact. Our challenge is to move towards local sourcing as far as possible while meeting our high standards of quality.

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Highlights of the year

  • We made significant progress in working with the Irish dairy industry, which supplies cream for our Baileys products, to establish a programme to improve its sustainability. We brought together our cream supplier, the farmers they source from, a well known environmental NGO and other stakeholders to form a multi-agency programme to enable our cream supplier to apply the sustainability principles we developed together to all their suppliers and customers, not just Diageo. Read more.
  • We refreshed our supplier code ‘Partnering with Suppliers’. Having benchmarked it against best practice, we believe this is now one of the best supplier codes in the consumer goods sector. This included extending the confidential ‘SpeakUp’ helpline for employees to our suppliers as well. This accords with a call for effective access to human rights remedies as highlighted in a series of reports by John Ruggie, United Nations Secretary-General on the issue of human rights and transnational corporations and other business enterprises.
  • We have taken over the chairmanship of AIM-PROGRESS, a forum for leading consumer goods companies to promote responsible sourcing practices and sustainable supply chains.
  • In Africa, we have a goal to source 65% of the raw materials used at local sites from the region and are proud that currently we are up to 57%.
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Outlook

As commodity prices rise, the challenge for our procurement team is to safeguard our commercial interests while upholding our reputation for fairness and ethical behaviour and assuring the sustainability of our supply chain.

More specifically, we will look at taking a more strategic approach to local sourcing and improving our performance in packaging, energy and ethical sourcing. We will report on progress in these areas next year.

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