Structures and Systems

Supply Chain

Against a backdrop of an expansion in our business areas, ITOCHU's supply chain has become wider and more complex. There is now a further need for risk management concerning human rights, labor and the environment in the procurement of raw materials, producing areas, intermediate distribution and regions of consumption in addition to in the processes directly managed by us. We pay particular attention to the on-site management of suppliers who account for a relatively high share of our purchases. We view our consideration and sense of responsibility for these areas as matters of great importance to be addressed with high priority.
ITOCHU has established the Sustainability Action Guidelines for Supply Chains. We strive to prevent the occurrence of problems by conducting investigations and reviews as below. If we discover a problem, we aim for improvement through dialogue with the concerned supplier.

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Figure of Supply Chain Management Promotion

Sustainability Surveys

Since FYE 2009, we have set the seven core subjects of ISO26000 as essential survey items to realize a sustainable procurement and understand the actual conditions of suppliers. Following on from that, each company and applicable group company selects important suppliers based on certain guidelines (e.g., high risk countries, products handled and monetary value handled). The sales representatives of those companies and representatives from overseas subsidiaries and operating companies then visit those suppliers to conduct interviews. They also conduct sustainability surveys in a questionnaire format (sustainability checklist).

We conduct supply chain sustainability survey information seminar for employees who procure various products in a variety of countries ahead of the sustainability survey. We also provide training (buyer training) using the handbook to understand the Sustainability Action Guidelines for Supply Chains and ESG perspective that must be kept in mind in dealings with supply chains.

Sustainability Checklist

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Supply Chain Communication Handbook

The Sustainability Checklist is used to conduct supplier surveys on their management of relevant sustainability risks. The Checklist is based on the seven ISO26000 core topics (organizational governance, human rights, labor practices, environment, fair business practices, consumer issues, community involvement and development) and is supplemented by department and product specific issues that we identified as relevant to our business and by extension our suppliers (see table below for our list of supplementary topics. Furthermore, based on opinions provided by external subject matter experts, we have constructed the survey questionnaire to consist of 19 core items centered around human rights and labor and environmental topics particularly associated to high sustainability risks – these items are our priority in supplier engagements.

Outline of Sustainability Survey
Applicable Survey Criteria
  • High risk countries
  • Over a certain amount of money
  • Handling of certain product groups
Main Questions Common to All Companies
  1. Organizational governance: Establishment of a responsibility-taking structure and internal report system
  2. Human rights: Risk assessments of human rights violations in business, abolition of child labor, forced labor, harassment and discrimination, and payment of appropriate wages
  3. Labor practices: Working hour management, health and safety management, and worker health
  4. Environment: Waste and drainage treatment, handling of hazardous substances, and climate change and biodiversity initiatives
  5. Fair operating practices: Prevention of corruption, information management, prevention of intellectual property right infringements and a sustainable procurement policy
  6. Consumer issues: Quality control and traceability
  7. Community involvement and development: Dialogue with consumers and neighboring residents
Department and Product Specific Supplementary Sustainability Items
Procured Resource Type Additional Survey Items
Paper, Wood-chips, Timber, Timber Products
  • Implementation of forest conservation measures
  • Third-party certification
Livestock Products (Meat)
  • Implementation of food safety measures
  • Management of traceability
Textile (Including Raw Materials)
  • Management chemical substance
Agricultural Products (Including Palm Oil)
  • Management of traceability
  • Management of chemical fertilizers and pesticides
Seafood
  • Management of traceability
  • Management of fisheries

We have also prepared a handbook on communication with suppliers. We are using this to inform our employees of how to communicate with suppliers. At the same time, we have set up a check system that enables those in charge to understand concretely the management situation in terms of the environment, human rights, labor practices and corruption prevention in important suppliers to give advice on making improvements. We will continue to conduct surveys and communicate with suppliers in the future to improve the awareness of our employees and to seek understanding and implementation from our suppliers.

Example Excerpt from the Handbook

Prohibition on forced labor: Companies must not force employees to work

Forced labor means all labor forced on a person against his or her will. Examples include restrictions on an employee's freedom to leave his or her job until he or she repays a debt to the company or restricting an employee's freedom to leave his or her worksite under contract. Forced labor may be identified by asking employees what their work shifts are like, whether they have break times and whether they are able to eat meals. It may also be ascertained by observing their facial expressions. In a worst-case scenario, people are deprived of the freedom to live their lives; they have to live in a dormitory on the premises of the company's factory and are not allowed to go outside those premises. It is also effective to check whether there are employees who have come to work from areas far away or other countries in a company. Employers must be prohibited from taking the originals of passports, IDs and work permits because this can lead to force labor.

Reference

It is necessary to check for forced labor in factories in Japan as well as in emerging nations. In recent years, Japan's Technical Intern Training Program (TITP) has been criticized by some from overseas. Accordingly, please also check whether suppliers in Japan employ anyone from overseas and whether there are problems in terms of working hours and wages.

FYE 2021 Sustainability Surveys

We conducted surveys on a total of 310 companies, including 83 suppliers of overseas offices and group companies, in FYE 2021. We did not discover any serious problems requiring an immediate response from those results. We have also checked the prompt improvement measures and countermeasures taken by our business partners on problems raised as concerns at the time of the survey. We will continue to seek understanding for the concept of ITOCHU from our business partners and to communicate with them in the future.

Number of Suppliers Surveyed
All (Non-tier 1 Suppliers)
Textile Company Machinery Company Metals & Minerals Company Energy & Chemicals Company Food Company General Products & Realty Company ICT & Financial Business Company
FYE 2021 310 (83) 57 9 21 29 104 87 3
FYE 2020 316 (72) 50 15 20 39 102 85 5
FYE 2019 343 (101) 49 13 19 39 110 108 5
FYE 2018 333 (98) 46 9 20 45 103 105 5

In addition to the supplier survey based on our Sustainability Checklist as introduced above, our Textile Company conducted a domestic supplier survey in FYE 2020 on their management of technical intern trainees. For more information, please refer to Foreign Technical Intern Trainee Survey on Working Environment.

The Sustainability Management Division also visits and surveys important suppliers together with external experts as necessary.

Results of Survey for Department and Product Specific Supplementary Sustainability Items (Number of Suppliers Surveyed)
Procured Resource Type FYE 2020 FYE 2021
Paper, Wood-chips, Timber, Timber Products

64

66

Livestock Products (Meat)

19

11

Textile (Including Raw Materials)

6

5

Agricultural Products (Including Palm Oil)

4

60

Seafood

22

33

Human Rights Audits in the Poultry Industry in Thailand

Inspection of the CPF Saraburi Factory

We conducted a human rights audit targeting foreign workers in the Saraburi Factory (a chicken meat processed product factory) of Charoen Pokphand Foods Public Company Limited (CPF) — one of the main suppliers of the Food Company — accompanied by external auditors.
Recent years have seen an increase in cases where Japanese companies with Thai firms in their supply chain have been warned by NGO groups about human rights violations of foreign workers in the livestock and fishing industries in Thailand. We checked the factory for human rights risks in our supply chain through this audit.
This factory (slaughterhouse and food processing site) employs 3,400 Cambodians — equivalent to approximately 50% of its workers. That makes them an important part of the factory's labor force. We checked a number of items in this audit. These included the extent of signage in Cambodian in facilities in the factory, a check of the evacuation routes, the attendance management situation, and the personal storage situation of passports and work permits. In addition, we also randomly chose some Cambodian employees actually working there and interviewed them about their actual working conditions.
This audit did not find any violations of the human rights of foreign workers, and reaffirmed there is sufficient consideration for human rights and the proactive approach CPF takes toward sustainability.

CPF has developed a safe working environment for its foreign workers.

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CPF Saraburi Factory
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Those from CPF Who Cooperated with the Audit
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Interview with a Cambodian Worker on His Actual Working Conditions
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All Signs in Cambodian on Fire Prevention Facilities
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Advice Not to Over-stack Auxiliary Feedstock

Regular Visits and Surveys of Food Processing Factories

The Food Company has been regularly visiting and surveying the food processing factories of its overseas suppliers since FYE 2012 in regards to imported foods under the initiative of the Food Safety and Compliance Management Office. In FYE 2021, we surveyed 238 overseas suppliers and deployed preventive measures to ensure safety in food transactions. We established a China Food Safety Management Team in Beijing in January 2015. With this, we have set up a structure to be able to audit our Chinese suppliers. We conducted regular audits and follow-up audits on 49 companies in FYE 2021. Please refer to Responsibilities to Customers to learn about our initiatives in detail

Response to Suppliers in Violation of this Policy

When we have confirmed a case in which there has been a violation of the intent of this policy, we request corrective action from the applicable supplier. Together with this, we conduct an on-site investigation to give guidance and improvement support as necessary.

In the FYE 2021 survey, the Sustainability Management Division carefully examined the answers from suppliers to key questions including the prohibition of child labor, the prohibition of forced labor and the payment of living wages, and identified issues that are necessary to share and to reconfirm with suppliers. As a result of this survey, the Sustainability Management Division requested the business departments in charge of the supplier to reconfirm the 10 extracted issues. The department in charge explained and shared the reconfirmation of these issues with the suppliers, and conducted a detailed survey of the suppliers' responses to them.

As a result, it was determined that the reconfirmed issues were being addressed by each supplier, and no requests for corrective actions were made to suppliers in FYE 2021. Through this survey, suppliers actively report issues and engage with the business department involved. When a problem is identified, suppliers are requested to take corrective actions, thereby encouraging them to make efforts to correct the issue.

If it is judged that correction is difficult even though we have made continuous requests for correction, we deal with this under a stance of reviewing our business with that supplier.

FYE 2021 Sustainability Survey Result
Key Questions Request of Reconfirmation and Request of Corrective Action
Questions Checking Contents Number of Reconfirmation Number of Corrective Action
Clarifying Responsibilities for Sustainability A Sustainability Manager is appointed and the system for promoting sustainability is clear. - 0.00% -
Fair Operating Practices We have established a policy and monitor the status of compliance with the policy by a person in charge. - 0.00% -
Preventing Information Leakage We have established rules and informed all of our employees of the rules. - 0.00% -
Prohibition of Child Labor We have clearly defined a minimum age for employees in light of the standards of the International Labor Organization (ILO) and we check the self-reported age of each person before employing them. - 0.00% -
Prohibition of Forced Labor We have a policy of not using forced labor and we do not take a passport or a master copy of ID before employing them. 1 0.30% -
Prohibition of Harassment We have specified in writing that we prohibit harassment, and we have informed all of our employees to that effect. We also check whether any harassment actually occurs. 5 1.60% -
Right to Organize and Bargain Collectively We recognize the right of employees to organize and bargain collectively and regularly offer them opportunities, at least once a year, to communicate with the management regarding improving their labor environment. 2 0.60% -
Prohibition of Discrimination No restrictions on recruitment by gender, race, religion, etc. in recruitment conditions or requests to agent companies. 1 0.30% -
Payment of Living Wage We pay employees wages that exceed the legal minimum wage for each country. - 0.00% -
Working Hours We have a system for the appropriate management of working hours throughout the entire business establishment. The working hours do not exceed the legal standards of the country. - 0.00% -
Taking Holidays All of our employees have at least one day off every week. - 0.00% -
Identifying Dangerous Areas and Tasks We acknowledge all labor accidents that have occurred, and we have a system under which we take measures to reduce their occurrence. - 0.00% -
Operating Procedures We have operating procedures of occupational health and safety, and we review their contents at least once a year. - 0.00% -
Response to Labor Accidents We acknowledge all labor accidents that have occurred, and we have a system under which we take measures to reduce their occurrence. - 0.00% -
Hygienic Ancillary Facilities All of our facilities are kept in a sanitary condition. No issues were identified in the inspections undertaken by the local authorities or the like in the last five years or more. - 0.00% -
Treatment of Waste We have a manual and apply the manual by reminding our employees of it at least once a year. - 0.00% -
Treatment of Exhaust Air and Discharged Water We control them by applying standards that are stricter than the requirements of the local regulations. - 0.00% -
Procuring Raw Materials in a Responsible Manner We ensure the traceability of more than 90% of raw materials, as far back as to the land of origin, and have a system in which we do not purchase them until we confirm that they are not problematic environmentally or socially. - 0.00% -
Development with Consideration for Local Residents Grievance mechanism from local residents about noise, bad odor and environmental pollution of air and water, etc. 1 0.30% -
Total 10 3.20% 0

Business Investment Management

The business activities of companies in which we invest must recognize and deal with their possible impact on the environment and society. To that end, we strive to understand ESG risks and work on preventative activities. We perform risk assessments on ESG in general through the utilization of a checklist and visits and surveys to formulate the necessary measures. These are continuously reviewed and improved in the framework of our environmental management system.

ESG Risk Assessment for New Business Investment Projects

It is compulsory in new business investment projects for the division making the application to use the ESG Checklist for Investments to evaluate the project in advance (perform due diligence). The division making the application looks at whether policies and structures have been established from a perspective of ESG. It also looks for the risk of a significant adverse effect on the environment, violation of laws and ordinances, and complaints from stakeholders. This checklist consists of 33 check items. These include elements of the seven core subjects* in ISO26000 — the CSR international guidelines.
The division making the application also then refers to review opinions based on risk analysis from relevant functional divisions (management divisions). If there are any concerns, it requests additional due diligence from external specialist organizations for matters requiring a professional point of view. The project is then only undertaken upon confirming that there are no problems in those results.

  • Organizational governance, human rights, labor practices, the environment, fair operating practices, consumer issues, and community involvement and development

ESG Risk Assessment for the existing business (Group Company Fact-finding Investigations)

We have continued to conduct on-site visits and surveys in group companies since 2001 to prevent environmental pollution and risk assessment of labor practice. We have completed investigations into a total of 285 offices in the world as of the end of March 2021.
These investigations inspect the factory and warehouse facilities, the situation of drainage to rivers, the environmental law and regulation compliance situation, labor practice, labor safety and human rights, and communication with the local community in addition to holding a question and answer session with management. We identify problems or demonstrate preventative measures. We then check to see whether the situation has been corrected.

Visit and Survey Report: DOLE PHILIPPINES Fact-finding Investigation

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We visited and surveyed DOLE PHILIPPINES, a company which produces banana, pineapple and other fresh fruits and manufactures fruit cans in the Philippines, on January 20 to 23, 2020. We performed a detailed check concerning the environment and labor safety related risk management and legal compliance situation (e.g., soil pollution, waste, chemical substance management and safety measures) based on the findings of external experts well-versed in the local laws and regulations. We confirmed that these matters are being appropriately managed. In addition, we confirmed that the company is proactively working on activities that contribute to society and the environment (e.g., biomass power generation on its premises and donations to local schools).