Tips and insights for ASI Members on Supply Chain Due Diligence

11 June 2024

In his recent ASI Auditor Update article, “Practical Tips and Techniques from Auditors to Auditors”, Gangaa C Sharma, an experienced ASI Auditor, shares practical approaches for auditors to audit supply chain due diligence during an ASI Performance Standard audit. We find that Gangaa’s insights are equally applicable to ASI Members, and we have adjusted his article to help Members effectively implement supply chain due diligence with an eye to what auditors would be looking for during an audit. Therefore, this guidance can help ASI members to understand what to expect during an audit and to enhance their compliance with the ASI Performance Standard.

Understanding the Context

1. Importance of Supply Chain Engagement

Engagement within the supply chain is increasingly essential, reflecting the expectations of stakeholders and market regulators. Your supply chain’s performance can significantly impact your organization’s sustainability outcomes across social, environmental, and governance areas. 

2. ASI Performance Standard Requirements

To align with the ASI Performance Standard (Criteria 2.4, 9.1, 9.8), all members, regardless of their position in the value chain (from bauxite mining to downstream production), must undertake comprehensive supply chain due diligence. The scope of due diligence should be tailored to your company’s specific context, considering factors like enterprise size, activity location, geographical context, sector, and product/service nature. 

3. Preparing for Supply Chain Due Diligence

Ensure your supply chain due diligence process is: 

• Ongoing: Integrated into management systems and regular processes. 
• Proactive: Designed to identify and mitigate risks, preventing adverse impacts. 
• Reactive: Capable of responding promptly to actual and potential risks. 
• Risk-based: Proportional to the severity and likelihood of risks within your supply chain. 
• Improving over time: Enhance understanding and systems over time. 

Key Areas of Focus 

1. Supply Chain Composition

Understand that your supply chain may include: 

• Aluminium suppliers 
• Other raw material suppliers (e.g., alloying elements, process chemicals) 
• Packaging material suppliers 
• Spare parts suppliers 
• CAPEX for new projects (e.g., construction, equipment suppliers) 
• Logistics 
• Service providers (e.g., environmental monitoring, auditing, calibration, employee transportation) 
• Labour service providers 
• IT service providers 

2. Traceability and Risk Assessment

1. Demonstrate Full Traceability: Ensure traceability over your aluminium supply chain up to bauxite mining. Downstream entities should obtain evidence from smelters of their supply chain due diligence, covering traders, warehousing, and transit routes.
2. Verify Documentation: Review purchase orders, material receipts, and check for missing suppliers or sources, considering process yields.
3. Focused Discussions: Engage with responsible employees to collect relevant information.
4. Supplier Assessments: Review a sample of supplier assessments such as questionnaires, checklists, or risk assessments, ensuring they are signed off by responsible personnel.

3. Documentation and Disclosures

Ensure transparency by maintaining and disclosing documents such as: 

• Responsible sourcing policies 
• Supplier codes of conduct 
• Purchasing guidelines 
• Supplier grievance handling mechanisms 

Include supply chain-related disclosures in sustainability reports, covering materiality assessments, supplier engagement efforts, and performance indicators (e.g., number of suppliers screened on ESG performance, acknowledgment of the supplier code of conduct). 

4. Applying Risk Management

Adopt a systematic risk management approach, possibly leveraging frameworks like ISO 31000, and consider indicators such as: 

• 204-1: Proportion of spending on local suppliers 
• 308-1: New suppliers screened using environmental criteria 
• 308-2: Actions taken for negative environmental impacts in the supply chain 
• 408-1: Risks for child labor in operations and suppliers 
• 409-1: Risks for forced or compulsory labor in operations and suppliers 
• 414-1: New suppliers screened using social criteria 
• 414-2: Actions taken for negative social impacts in the supply chain 

Evaluate social, environmental, and governance risks of non-aluminum suppliers using a risk-based approach, considering factors like purchasing volumes, relationship proximity, and duration of business relationships. 

Consider integrating these practices to ensure robust supply chain due diligence and enhance sustainability performance in alignment with ASI standards. 

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