Ignite establishes a basis for evaluating suppliers' risks associated with human rights violations and decent working conditions, also known as social risk. To arrive at this basis, we use risk factors related to the suppliers country and industry, then a weighted average of these factors are used to calculate to social risk.
Continue reading this article to understand more about how the calculations used to establish a risk for geography and industry are done, and how this is weighted to a social risk.
Geographic Risk:
We use a weighted combination of two indices to provide an estimate for a suppliers geographic risk. First, we have the International Trade Union Confederation's (ITUC) index of labor conditions. Secondly, we use the Corruption Perception Index by Transparency International.
The default field we use to determine which country a supplier is based in is the supplier country field. The default field can be overruled by setting a production country for the supplier.
If multiple production countries are set for a supplier, the estimated geography risk is equivalent to the risk of the production country with the highest risk. For each country, the risk is estimated as a weighted average of the two indices.
Industry Risk:
To say something about the risk associated with an industry, we use the European Bank of Reconstruction and Development's (EBRD) index that links industry risk to NACE codes. These are standardized codes in the EU to be able to compare economic activity across countries.
The EBRD divides risk into "Low," "Medium," and "High," and we use this directly as Industry Risk in Ignite.
For all available suppliers, NACE codes are automatically retrived by our supplier enrichment service. This is done based on a match of organization number and supplier country.
Note: If we have not been able to find a NACE code for your suppliers, the "Industry Risk" field will be blank. You can then go to the supplier and add the correct NACE code, rerun the evaluation, and get updated information on industry risk.
Social Risk:
To establish a basis for social risk, the following happens:
We quantify geographic and industry risks to a score.
We calculate an average of the score for these two factors and set the risk to "Very low", "Low", "Medium", "High", or "Very high".
Note: If you want a different risk score for the supplier, you can adjust the risk in Social Risk Management