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The Gradient Index is a benchmark of 35 FTSE350 companies, taken from 6 sectors.
Taking the Gradient methodology as a starting point, a set of criteria has been developed against which companies' own reported practice on managing labour standards risks and impacts has been assessed. The criteria are organised within the following five categories:
- Governance and risk management
- Policy
- Management
- Stakeholder engagement
- Auditing and reporting
Each company has been evaluated against a total of 19 criteria spread between these five categories. The full set of criteria are set out in 'Gradient: promoting best practice management of supply chain labour standards '.
Companies were assessed solely on the basis of their own non-confidential published literature, such as annual reports, corporate social responsibility (CSR) reports or similar, and information on their websites available as of September 5, 2003. Other public domain literature not generated by the companies themselves was not taken into consideration.
The six sectors chosen as the focus of this study are:
- Beverages
- Food and drug retailers
- Food producers and processors
- General retailers
- Telecommunications
- Tobacco
These sectors were chosen because:
- Their principal activity is to manufacture and/or retail products to consumers and they are therefore potentially more exposed to brand damage and criticism than sectors that are not as 'customer facing'.
- They typically rely extensively on developing country supply chains.
Within the six sectors, those companies in the FTSE350 believed to have an extensive developing country supply chain, or that are in the process of developing one, and that have significant, direct control over those suppliers, are included in the analysis.
For the purposes of this analysis, an illustrative weighting has been chosen for each category, shown in the table below.
| Management issue
| Weighting (% of total score)
|
| Governance and risk |
20% |
| Code for labour standards in the supply chain |
15% |
| Management |
25% |
| Stakeholder engagement |
15% |
| Auditing and reporting |
25% |
| Total |
100% |
Over the last two years, AccountAbility has been working with a number of experts in the US, the UK and continental Europe to develop the innovative Gradient tool. This tool calculates percentage scores for discrete aspects of companies' performance regarding supply chain labour issues and allows users to weight each element of performance according to their own views and priorities. The online tool allows users to explore aspects of performance in greater detail by altering the weighting of the core index criteria so as to construct their own index, reflecting their own priorities and interests.
This approach has been tested in a number of workshops and was used as the basis for FTSE's consultations on how it should incorporate labour standards into the FTSE4Good Index. The criteria and index structure used here have been developed and refined further for this analysis. In particular, because this analysis uses only publicly-available information, the criteria have been amended to reflect data availability.
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