We undertake a process
of engagement with
our suppliers, our
procurement colleagues
and the industry at large.

First of all, we explain our Responsible Sourcing Standards and Suppliers’ Code of Practice to all of our suppliers. We are making compliance with our Responsible Sourcing Standards a key part of our new commercial contracts with molasses and alcohol suppliers.

We undertake a process of engagement with our suppliers, our procurement colleagues and the industry at large. First of all, we explain our Responsible Sourcing Standards and Suppliers’ Code of Practice to all of our suppliers. We are making compliance with our Responsible Sourcing Standards a key part of our new commercial contracts with molasses and alcohol suppliers.

We encourage our suppliers to review their own performance and post the results on the Sedex database. Sedex allows member businesses to share ethical performance data about suppliers so a company does not need to run its own audit of every supplier and suppliers can avoid several customers conducting largely similar ethical audits.

A supplier registers with Sedex, then links to its customers. Next it fills in the Sedex self-assessment questionnaire and if required completes an audit. Both the questionnaires and audit results are accessible to the suppliers’ customers.

By the end of March 2010 there were 175 supplier sites linked to Bacardi on Sedex; with 95 self-assessment questionnaires completed (54%) and 10 audits accessible. Bacardi had conducted two of its own audits. More will be completed in the coming year as auditing becomes a focus for our Global Operations team.

Since joining the AIM-Progress taskforce — an initiative of AIM (the European Brands Association) — we have become more aware of the constraints suppliers face. We are also more adept at interpreting the answers suppliers give in the self-assessment questionnaires and clearer about when we need to ask for a third party ethical audit.

We are also taking a leading role in Bonsucro (formerly known as Better Sugarcane Initiative), a group of producers, consumers and NGOs working toward a more responsible sugarcane industry. We see a major opportunity both to improve working conditions in the communities where sugarcane is grown and harvested, and to ensure Bacardi is well placed to source sustainable supplies of the raw materials that are vital for the production and growth of our BACARDI brand.

Working with suppliers

We have worked very hard to develop the effective communication of our Responsible Sourcing Standards to our suppliers. Our teams in India and China have been systematically engaging their packaging and ingredients suppliers, introducing them to our Responsible Sourcing Standards and Suppliers’ Code of Practice. This is challenging work that takes a lot of time as many suppliers in these areas have a lower awareness of responsible sourcing requirements. We do commit to helping suppliers who may in the first instance struggle with meeting our standards.

Encouraging shared audit information

Bacardi is encouraging more suppliers to join Sedex through its membership of the Progress-Sedex Work Group (PSWG). The PSWG is a mini-task force involving 11 members of AIM-Progress who co-fund a Sedex Project Manager to assist in recruiting suppliers to the Sedex database. This approach has worked well because suppliers hear a consistent message about what is required and how to join, and for PSWG companies there is a reduced administrative burden and an increased rate of recruitment.

By the end of March 2010, the number of suppliers recruited to Sedex on behalf of the 11 PSWG members grew from 2,909 to 6,505. Of these, the number who registered and linked to their suppliers grew from 1,773 to 4,647.

Although these are impressive numbers, the ongoing challenge is to ensure this outreach is followed up properly and any indications of commitment are followed through efficiently. Improvements to the Sedex system may help in this respect. The second version of the Sedex database is much more user-friendly for all members. There is now a function which provides instant analysis of self-assessment questionnaire (SAQ) responses to establish the risks those suppliers’ practices may pose.

Improving sugarcane production

Bonsucro (formerly known as Better Sugarcane Initiative) is creating a framework to enable businesses in the sugar industry to reduce their environmental and social impacts.

Bacardi is actively involved in the Bonsucro

Management Committee and in 2010 became Chair of the Marketing sub-committee. Its brief is to develop the Bonsucro brand and its brand positioning as well as produce a robust communications strategy. Workshops were held to examine the feasibility of a brand concept, which is part of the organization’s business plan. In November 2010, Bacardi hosted the Annual General Meeting (AGM) at its distillery in Catano, Puerto Rico, the world’s largest premium rum distillery. As a result of the Marketing sub-committee engaging with the membership through these workshops, at this AGM, the Better Sugarcane Initiative was rebranded as Bonsucro.

Developing standards for the sugarcane industry

Bonsucro is creating an ethical standard for sugarcane producers and growers. The target is to see the first certified sugar on the market by the end of 2010.

In the year up to March 2010, significant steps were taken toward this goal. As members of the Management Committee, Bacardi helped to discuss, agree and sign off the content of the first draft of the standard at the organization’s Annual General Meeting, which was held in India in November 2009.

A regular annual review of the Bonsucro Standard will provide a clear set of updated principles, criteria, indicators and verifiers to enable sugarcane producers, processors and suppliers to improve their social and environmental operations and check their progress on an ongoing basis.

What are some of the challenges in this area?

One of the outcomes of implementing the Bonsucro Standard in the sugarcane industry is product standard certification. This could result in a price premium on certain Bonsucro-certified sugar or ethanol products. While we welcome the assurance that certification brings, like any business we are concerned about increases in the prices we pay for our raw materials. We are aiming to produce premium and super-premium products while also delivering sustainable shareholder value. This means we need to correctly balance the prices we pay for our raw materials with our standards on quality and sustainability.

We want our suppliers to demonstrate compliance with a set of ethical standards, covering human and labor rights, health and safety, environment and business integrity. Many suppliers do this already, but many others in less developed areas either have not yet considered standards or are still in the early stages of establishing how this might affect their businesses. We are tackling this situation by discussing standards with our suppliers on a one-to-one basis and communicating the long-term benefits of adopting this way of working.

How do we assess our progress overall?

We were pleased to have reached a total of 175 suppliers either joining Sedex or linking to Bacardi if they were existing members in 2010.

In our new role as Chair of the Bonsucro Marketing sub-committee, we have a significant part to play in ensuring that Bonsucro markets itself in a successful way. While the full impacts of this activity are yet to be seen, we engage as part of industry efforts to improve working conditions in the sugarcane industry, as this is a significant raw material for us.

The Responsible Sourcing Coordinator for the Europe, Middle-East and Africa (EMEA) Point-of-Sale (POS) team implemented the first phase risk assessment of POS suppliers in this region to establish the initial focus for resources in this complex area.

Progress has been made in the key local markets of Brazil and Mexico with suppliers buying into the concept of Sedex and engaging in an Ethical Audit schedule, but we have seen slower progress in India and China.

Working to overcome this issue is the main benefit of the collaboration with AIM-Progress but there is no guarantee of shared suppliers, so direct influence is not always successful. In these cases, it can be a slower process to build relationships and trust with suppliers with whom we want to do further business, but who need to develop greater awareness about responsible sourcing issues.

How well is RS practice embedded in the business?

Although there is one central Responsible Sourcing Coordinator, the program only gains real traction through the activities of the regions. It is the procurement teams in the key markets of Mexico, Brazil, India and China that are engaging their suppliers on a direct face-to-face basis and building the trust needed to make progress in this area. In the past year, knowledge of our Responsible Sourcing Program and the related standards and issues has grown significantly within our business, especially within the global and regional procurement teams. This has resulted in more independent activity between regional procurement management and suppliers, with oversight being maintained by the central procurement function.

Although we have made progress this year, we still have a lot to do. We are confident that our Category Management approach will accelerate our Responsible Sourcing Program in the right areas. For example, we now have a Category Director responsible for Raw Materials and Flavors based in the Americas. Responsible sourcing will be a key part of this role as we build the emerging Bonsucro Standard into our requirements for molasses and alcohol.