Our Sustainable Supply Chain

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1 Our Sustainable Supply Chain The journey of Sustainable Supply Chain Management (SSCM) at the Westpac Group Westpac is Australia s first bank, with a long and proud history. We started out in 1817 as the Bank of New South Wales, with a single office in Sydney. Westpac Banking Corporation ABN

2 The Westpac Group now employs over 37,000 staff in Australia, New Zealand and around the world, has ten million customers and more than 540,000 personal and institutional shareholders 1. Sustainability, Procurement and Brand The challenging economic and social climate of the late 1990s fostered widespread anti-bank sentiment. Banks stood accused of abandoning their social responsibility by pursuing the bottom line at any cost. Our response: We must judge ourselves by how others see us, rather than how we see ourselves. The legitimate expectations of the communities from which we profit must set our social, economic and environmental agenda - Leon Davis, former chairman (2002, Social Impact Report pg 4) For almost ten years now, being a global leader in sustainability has been one of The Westpac Group s key strategic goals. To achieve this goal we have committed to six key objectives: building sustainability into our products and services; local social leadership and responsible banking; managing our own environmental footprint; helping customers and employees transition to a low-carbon economy, speaking out in support of sustainable business practices and building our solid foundations through corporate governance and risk management. In our quest to manage sustainability, Westpac recognised that many of our social, ethical and environmental impacts reside as much in our supplier relationships (or the supply chain ) as in our own activities. As a result, we set out to manage these risks through our business practices. Risks to procurement linked with failure to improve Westpac s sustainability include negative publicity, reputational damage and actual losses of customer base with an adverse impact on brand. The quality and nature of our brand is of great importance to Westpac, and since the 1990s, ours has been linked through advertising campaigns and sponsorships to social engagement, environmental protection and sustainability. These key pillars are detailed in Our Principles for doing business 2. Becoming a principal corporate signatory 3 to the United Nations Global Compact in 2002 established much of our corporate responsibility agenda. Socially responsible policies followed, strengthened further by public commitments to other international principles including: OECD Guidelines for Multinational Enterprises The International Covenant on Civil and Political Rights The International Covenant on Economic, Social and Cultural Rights The ILO Tripartite Declaration Concerning Multinational Corporations In Westpac, sustainability started at the top, but alignment with our CEO s sustainability objectives filtered down to the Sourcing team (Procurement) and contributes to each Sourcing employee s overall performance rating. Hence it is clear how our procurement practices involving: The Sustainable Supply Chain Management (SSCM) Policy 4 An SSCM Code of Conduct 5 (our minimum standard) and; The more detailed SSCM Questionnaire 6 plays an integral role in safe-guarding Westpac s wellknown brand and embedded company values. Westpac s journey into SSCM In 2002 Westpac set out to improve the sustainability of its supply chain and was the first Australian bank to introduce this concept. Constructive, long-term relationships with suppliers and partners that share our commitment to socially responsible and sustainable business practices are positive for our customers, staff and shareholders (2002, Westpac Social Impact Report) In developing our SSCM policy, in addition to utilising the international principles to which we subscribed, we consulted our Community Consultative Council 7, suppliers and Non Government Organisations (NGOs). We included feedback from organisations such as the Australian Conservation Foundation, Australian Consumers Association, Australian Council of Social Security, Finance Sector Union, Human Rights and Equal Opportunity Commission 8. We listened, piloted and responded to the issues raised by these groups. We established an SSCM Policy Review Committee where internal and external stakeholders perspectives on SSCM could be heard and used to improve our processes. This engagement method has systematically refined our SSCM model and continues to do so today.

3 Some thoughts from suppliers who were part of the 2004 consultative process: Was a good opportunity as a supplier to Westpac to be involved with the direction strategically Westpac are moving Interesting to see the impact on other s products/services, I m sure with this focus we can do more 9 Our initial objectives involved establishing a sustainable supply chain framework and firmly incorporating it into existing procurement practices. Sustainable Supply Chain Management (SSCM) The initial SSCM process consisted only of a detailed assessment process the SSCM Questionnaire - and feedback that compares a supplier s performance with their sector peers. The assessment encompasses international standards, declarations, and principles in governance and ethics e.g. UN Global Compact, labour standards e.g. International Labour Organisation (ILO) standards, community involvement, and marketplace (supply chain) management. Our approach in each area questions the following: Does the supplier have policies that demonstrate awareness of key issues, risks and opportunities of relevance to their operations? Do management systems exist to effectively manage these issues, risks and opportunities? Are there performance measurements to monitor the success of implementation activities? Is there transparency about strategies and company performance to policy? Are targets set to guide improvement? Our suppliers receive a powerful message about their strengths, weaknesses and performance relative to competitors. The graph also shows our suppliers how they compare to Westpac in each area of business practice. It has been a concrete way of demonstrating what we have achieved through our own hard work, and what we could lose by allowing lower standards of business practice in our supply chain. Continuous improvement and developing the SSCM Code of Conduct Our earliest approaches to our suppliers offered few tools and templates. Back then, we needed to ascertain the amount of support our suppliers would need to completely understand the issues being raised. In late 2006 we completed an external review of our SSCM processes and both suppliers and Westpac staff were engaged to provide comment on their experiences of SSCM to date. The results told us we needed to focus our resources for greater effect, ensuring our high spend and high risk suppliers receive the greatest portion of our attention. Similarly, our one size fits all assessment tool (the SSCM Questionnaire), while an excellent tool for identifying high risk suppliers, was not appropriate for all of our suppliers. We needed to apply a shorter, simpler mechanism for lower risk suppliers. We have now implemented an SSCM Code of Conduct within the tender process. Compliance with minimum sustainability requirements is essential to contracting with Westpac. For the bulk of suppliers in our supply chain, accounting for only 30% of our spend - the SSCM Code of Conduct is a simpler, more relevant screening process. It's important that we set out clearly our minimum standards and expectations, and we will be working closely in partnership with our suppliers to support them in achieving these goals. Lyn Lennard. GM Group and Risk Services (May 2008, Media Release) The requirements are universal, measurable, unambiguous and transferable. Hence we ask our suppliers to adopt similar principles with their key suppliers, to truly tackle sustainability throughout our supply chain. From this assessment, suppliers receive a comparative feedback chart, showing their performance against sector peers. Currently we have more than 470 suppliers in our scoring database making our comparative data very robust. For suppliers where our annual spend is greater than $3 million (i.e. high value suppliers) or higher risk in terms of product type, location or known sensitivity, the SSCM Questionnaire remains essential to assessment and engagement. These suppliers make up 85% of Westpac s spend. Educational materials and information forums are now provided on the SSCM Questionnaire to ensure suppliers have more information and support throughout this comprehensive process. In addition, an SSCM validation process to confirm suppliers compliance with minimum standards and their

4 own SSCM Questionnaire responses commenced in Both verification (checking of evidence) and assurance (improvement-focused review of material risks and strategies) occurs. The integrity of the SSCM process is protected and additional direction is provided to suppliers in areas of greatest need. Over time we have modified our SSCM process as we have learnt about its positive and negative impacts and we expect to keep doing so. Shaping suppliers and the marketplace Westpac exists in a competitive and changing marketplace. We are subject to regulation, the need to manage risks to our reputation, the activities of our peers and competitors, the high expectations of our own employees and customers, and our desire to build a strong and pervasive brand. Since 2003 Westpac has led the Australian market in sustainability initiatives in the supply chain. Our peers and competitors are making great strides, and many other large and small organisations now implement a broad sustainability agenda, including SSCM. On completing the pilot SSCM Questionnaire process in 2004, we noted some responses from our suppliers: This isn t a problem for anyone else why for Westpac? We don t have to worry about all these antidiscrimination/harassment policies we don t employ women As our suppliers have progressed through their own sustainability journeys, attitudes have changed. We have compiled a booklet of ten (10) case studies 10 on how exposure to Westpac s SSCM process triggered or assisted the development of sustainability within other organisations. This was published to champion the benefits of sustainability in the supply chain and the broader marketplace. Westpac strongly advocates for sustainability in the supply chain. We believe that facilitating compliance with currently perceived new business requirements requires the market to use similar terminology, highlight best practice and initiate debates. SSCM presentations were given at conferences and events hosted by CIPS Australia, Corporate Express and Stream Solutions, as well as to the CEO s Institute, the Corporate Environmental Managers Group and the UN Environment Programme Finance Initiative. SSCM articles were provided for publication in the Procurement Professional magazine 11 in 2007, for the Macquarie University ARIES project and shared with the University of Wollongong for an Emerald Insight research article 12. In 2009 we assisted the University of New South Wales in a project aimed at including SSCM in their accounting studies curriculum. In 2009 we were a key contributor to a Commonwealth Government-funded initiative (run by The St James Ethics Centre) to assist small to medium enterprises to record their sustainable business practices. This support resulted in the launch of the Good Business Register 13 on 1 st December, In May 2008, a Westpac media release regarding the SSCM Code of Conduct received positive coverage from 10 different media outlets 14. In 2008 and 2009, Westpac s SSCM process was recognised as World s Best Practice for Banks according to the Dow Jones Sustainability Index. While we initially stood alone in our SSCM screening approach, we now regularly hear of other corporations screening their supply chains for sustainable business practices. While the questions and formats used by many companies are not as comprehensive as Westpac s, in a great many instances they are recognisably based on Westpac s long standing SSCM Questionnaire. Conclusion Corporate sustainability was once considered to be primarily an issue of competitive advantage. Now we see significant growth in the acknowledgement and pursuit of sustainable business practices. As a result, we now have greater opportunity to benchmark our own processes against those of other organizations. Westpac will continue to share our policies and procedures publicly as we believe that, in doing so, we are helping others with their own sustainability improvement journey. We encourage other organisations to do the same. There is no doubt that sustainable business practices lead to conditions that reduce costs, improve productivity and generate new income streams. SSCM is a win-win initiative; empowering and helping companies meet the expectations of an increasingly discerning customer base.

5 Westpac Group website [online] / 2. Westpac, 2009 Our Principles for Doing Business, [online] 3. Westpac, 2002 Social Impact Report pg 26 [online] 4. [online] 5. [online] 6. [online] 7. [online] 8. Westpac, 2004 Social Impact Report, pg 50 [online] 9. ibid. pg [online] Clark, S., 2008, Westpac s journey into sustainable supply chain management, in Procurement Professional, No April/May pg Keating, B et al, 2008 In pursuit of a sustainable supply chain: Insights from Westpac Banking Corporate in Supply Chain Management: An International Journal, Vol. 3 Number 3. pg [online] From Carbon and Environment Daily website [online]: