Responsible Sourcing: The First Step Is the Hardest

Abstract

By sourcing responsibly, companies promote corporate social responsibility (CSR) throughout their global supply chains. However, most consumable good firms' product lines contain only a few targeted products certified by Fair Trade or other third-party certifiers, which suggests that CSR initiatives are limited. We instead present evidence that certifications enable firms to learn how to source responsibly. By successfully certifying even a single product, companies may enjoy positive, knowledge-based spillovers encouraging responsible sourcing throughout their product lines. Using data tracking the sourcing decisions of US consumer coffee companies ($48B market) and their CSR violations reported in global disclosures and news sources, we find that firms' CSR violation rates drop upon certifying---but surprisingly, by a similar magnitude whether the resulting penetration of certified products within a firm's product line is high or low, consistent with initial certifications enabling disproportionately large CSR improvements through firm-level learning. Consequently, incremental certifications by firms with little to no previous certifications realize 46-fold larger reductions in violations over equivalent expansions made by firms with substantial certified sales. In contrast, companies without certifications show no improvement in their CSR violation rates upon making their own reputation-backed CSR claims. We further examine the degree to which country-based sourcing mediates certification's effects. Dual-sourcing companies achieve significantly lower CSR violation rates even when sourcing from countries in which violations are frequent. Our work suggests that prevalent dual-sourcing amplifies, rather than limits, responsible sourcing in supply chains, and that certified sourcing uniquely develops the pool of responsible suppliers in high-risk countries.

Keywords: certifications, corporate social responsibility, human rights, labor abuse, sustainable sourcing