Shareprice

Executive responsibility:

Commercial Director

Link to foundations:

Committed suppliers

Link to principal risks:

Brand damage, regulatory and compliance, climate change

Our targets:

  • All own brand cotton products to be from responsibly sourced cotton by 2025.
  • All Dunelm and Pausa own brand products which contain palm oil to be 100% responsibly sourced by the end of FY21.
  • 100% of all timber to be from legally harvested sources by FY20, and 50% of all timber used in Dunelm own brand products to be responsibly sourced by FY25.
  • 30% of all plastic packaging of own brand products to be from recycled content by 2022.
  • 100% of Tier 1 factory base for own brand products to have an audit that is no more than two years old by FY20.
  • 90% low or medium risk factory audits by FY21.

Our commitment

We are committed to helping everyone create a home they love and this includes making it easy and affordable for our customers to shop and live sustainably. To achieve this, we need to understand and improve our environmental, social and governance (ESG) impacts across our supply chains.

Our commitments include reducing our carbon footprint, progressively improving the sustainability of raw materials and packaging, and ensuring that our suppliers (and colleagues) operate in accordance with recognised standards that uphold human rights and safety, and prohibit modern slavery.

ABOUT OUR SUSTAINABLE SUPPLY CHAINS AND PRODUCTS

We need to ensure our products are legal, fit for purpose, sourced ethically and, increasingly, meeting customer demand for higher environmental credentials. We have a pragmatic, risk-based approach, focusing primarily on products which are Dunelm branded or exclusive to us. These ranges account for 80-90% of our revenue and are sourced from around 150 suppliers with approximately 850 manufacturing sites. Gradually, we have extended our overall approach to cover other products such as food and drinks served in our Pausa cafes and third-party warehouses which store our products.

Our focus on ethical sourcing and the prevention of modern slavery extends to all of our suppliers of goods and services, and all suppliers are required to commit to our Code of Conduct (or equivalent policy). Further details are set out in our Ethical Code of Conduct, which is available here, and our most up-to-date modern day slavery statement, which is available at here.

COVID-19 IMPACT AND LEARNINGS

Although Covid-19 related restrictions on travel and the closing of operations limited the number of site audits against our Code of Conduct that were carried out during the year, overall our progress was not materially affected. We learned that during the Covid-19 crisis our customers became more mindful about the environment and the sustainability of products, including evaluating ways to ‘make do’, reuse and upcycle, backing up the rationale behind product development ideas that were already in our pipeline.

OUR POLICY

Suppliers have to demonstrate compliance before we onboard them.

  • All sites that manufacture a finished product for a Dunelm brand, including warehouses that hold Dunelm brand products, must have a social and ethical audit.
  • The audit must be under two years old and carried out by an independent approved audit body that is APSCA accredited.
  • Audits must be unannounced or semi-unannounced i.e. within a minimum two week window.
  • All manufacturing sites in Asia must provide a valid structural report or buildings certificate.
  • Vertically shared manufacturing sites are not permitted.
  • Sites with annual turnover less than £25,000 ($35,000) including warehouses may provide an audit or complete a Self-Assessment on the online portal.
  • Failure to obtain and provide an audit or risk assessment will subject the site to inactivation.
  • Failure to notify Dunelm of a new site will lead to a £25,000 fine and loss of profit if goods cannot be sold.

Our Quality Manual sets out our standards including factory approval process, audit requirements, sharps policy and manufacturing standards.

UPDATE ON ACTIVITIES 2019/20

During the year, we developed our sustainability 2021 sourcing roadmap, taking into consideration environmental and social risks. This work helps set product sourcing priorities, standards and aspirations on a risk-assessed basis and covers five areas: materials, manufacturing, packaging, transportation and customers.

MATERIALS

We are currently assessing our carbon footprint, but based on industry estimates the materials used in our products account for around 40% of our total carbon footprint. Some of our high-volume materials also entail other environmental and social risks. Based on these factors, our priority focus areas for materials are: cotton, timber, animal-derived materials (e.g. sheepskin, leather and feathers) and palm oil.

Cotton

We use cotton in most of the textile-based products that we sell, such as bed linen, curtains and fabric. Cotton is farmed in over 100 countries and its production and export is vital to economies in many developing countries. However, there are also environmental and social risks associated with its farming and processing (e.g. high water and pesticide use, and poor regional working conditions). In 2019 we worked with a third-party specialist to map our cotton supply chains against these risks and identify high-risk regions or suppliers. Our first step is to work with suppliers to increase scrutiny and seek documented evidence to demonstrate compliance with our responsible sourcing standards. If no action is taken within an acceptable period, Dunelm will stop buying products from that supplier and supply chain. More information can be found in our Cotton Responsible Sourcing Policy, available to view and download here.

Timber

Timber is a scarce resource owing to illegal harvesting and deforestation. This is a global issue as forests play a critical role in limiting climate change and supporting biodiversity. In Europe, timber importers must comply with the European Timber Regulations (EUTR), which enforce demonstration of legal sourcing, and we request this information from suppliers who use timber or paper in Dunelm products. We also support the Forestry Standards Commission (FSC) certification scheme, which sets standards for well-managed forests. 

We are working with an independent third-party to assess risks in our timber supply chains based on timber type and country of origin. This work is part of our commitment to source 100% of timber and paper in our own brand products from responsibly managed forests by 2025. We are also looking to introduce recycled timber in our products and reviewing other certified schemes. More details can be found in our current Responsible Sourcing Policy: Timber and Paper, available here.

Animal-derived materials

Although we aim to seek alternatives if possible, some materials used in our products come from animals. These products include sheepskin and leather (used predominantly in our furniture ranges), down and feathers, wool and animal hair (used in quilts, pillows, cushions and upholstery). Our policy is unequivocal – we only use humanely-sourced materials, which are a by-product of the food industry and from conventionally farmed animals. No materials are sourced from reptiles, exotic or domestic animals, and no real fur may be used. We ban imports from certain countries where poor practices have been identified, for example, in the tanning process. Our animal and welfare policy is guided by the Farm Animal Welfare Committee’s Five Freedoms and used in conjunction with all current UK, EU and international animal welfare legislation and relevant import and trade regulations. More details can be found here.

Palm oil

We set ourselves the target of using sustainably sourced palm oil in all Dunelm brand and Pausa products by the end of FY20. At June 2020 our compliance was 90%. We have engaged a third-party assessor to manage this on our behalf alongside our responsible timber and cotton programme. We anticipate meeting our target of 100% by December 2020.

MANUFACTURING

Environmental assessment

In 2019 we established a process to assess the environmental practices of all sites that manufacture our own brand products. This covers assessments for water, energy, waste and emissions reduction. We have assessed over 50% of our sites and already have a far better view of where we can make the most positive impact. For example, we have identified opportunities to reduce emissions by reducing pack sizes and weight and optimising use of transport. Much of this work overlaps with our packaging reduction initiatives. We will align this work to the carbon reduction targets that are being developed in FY21 to enable us to set priorities with our suppliers.

Promoting an ethical supply chain

We use a third-party assessor to manage our social compliance auditing and modern day slavery due diligence. The Dunelm Quality team receives ‘live’ updates of supply chain risk ratings and works closely with our third-party assessor to actively manage continuous improvement of factory standards. We hold an industry-leading position, having carried out ethical audits in over 99% of Tier 1 supplier factories (for Dunelm own brand and exclusive products) with over 37% of audited supplier sites graded low risk, and a further 35% medium risk. The programme has been extended to our Pausa suppliers and third-party branded suppliers. In 2020 we launched our supplier portal that sets out compliance standards for working conditions in all our factories.

EXAMPLE OF SUPPLY CHAIN RISK RATING QUESTIONS: ETHICAL EMPLOYMENT AND TERMS AND CONDITIONS

  • Work is not voluntary, for example, unpaid overtime, bonded, forced or trafficked.
  • Any involuntary prison labour.
  • Retention by employer or employment agent of original identification papers and/or passports unless required by law.
  • Complete absence of toilet and rest breaks.
  • Substantial loans held by workers, with excessive interest rates and/or onerous financing schemes and/or unreasonable repayment terms.
  • Workers are led to believe that if they do not comply with what is being asked of them they, or their family, will be subject to physical, social or financial retribution.
  • Workers are controlled through religion/faith, violence or threats either to self or others.
  • Undocumented migrant workers have been subjected to threats of being returned to their home country and/or reported to authorities if they leave employment.
  • Workers who refuse overtime are penalised, for example, threats of dismissal, pay cuts, demotion, etc.
  • Workers are not allowed to leave the facility when shifts end.
  • Workers are not able to resign from the factory.
  • Workers paying deposits when they commence employment.
  • Unreasonable delays in payments due to workers when they leave.
  • Monetary deposits, for example, for work tools, PPE, training.
  • Excessive monetary deposits for accommodation.
  • Workers monitored when they go to the toilet.
  • No policy on prison labour.
  • No free employment policy.
  • Extended probation period.

Packaging and recycling

With growing consumer awareness of plastic pollution, increased consumer demand for more recyclable packaging and rising producer responsibility associated with the UK Government’s proposed plastic packaging tax, reducing our overall packaging has been high on our agenda.

We launched our first Sustainable Packaging Manual, which sets out best practice for the packaging used by all our suppliers on our products. We have reduced our overall use of plastic by around 50 tonnes in the year and virtually eliminated all single-use plastic (plastic that cannot be recycled) on the packaging of our own brand products. Where we need plastic to protect products, we use polyethylene-based materials (which can be recycled) and plastics with recycled content.

A major initiative during the year was to roll out On Pack Recycling Labelling on our products to make it easier for customers to understand the best disposal or recycling option for all packaging types. We also reviewed the feasibility of providing to customers a textiles ‘take back’ scheme.

Customers

We are committed to making it easier for our customers to make sustainable choices – reducing their own environmental footprint and saving money in the process. For example, we indicate clearly which products can be washed at low temperatures or do not need to be ironed, and we have introduced product ranges made from recycled materials. For the kitchen, we sell fully biodegradable beeswax wraps as an alternative to plastic wraps, food storage containers made from 100% recycled plastic (with a lifetime warranty) and glassware made from recycled and reclaimed glass. Bedding and throws made from a mix of recycled plastic bottles and upcycled cottons and high-quality polyester curtains spun from reclaimed plastic bottles are also available.

We also offer water-saving and waste-segregation products and advice in our stores and on our website. During the Covid-19 crisis, our customers recycled, repaired, reused and upcycled more, and became increasingly aware of environmental impacts. We were already in the process of incorporating these trends into our product development and are accelerating launches of products that help customers live more sustainably.

PERFORMANCE AGAINST TARGETS

% OF SUSTAINABLY SOURCED PALM OIL IN DUNELM AND PAUSA OWN BRAND PRODUCTS

90%

 

Why this measure is important

  • Palm oil has been and continues to be a major driver of deforestation of some of the world’s most biodiverse forests.

2019/20 performance

  • We increased our compliance to 90% (2019: 80%).

% OF TIER 1 FACTORY BASE (FOR OWN BRAND PRODUCTS) WITH ETHICAL AUDITS LESS THAN TWO YEARS OLD

99%

Why this measure is important

  • This provides an independent assessment of supplier compliance with our policies.

2019/20 performance

  • 99% of factories have a valid audit which is no more than two years old.

% OF FACTORY AUDITS WITH LOW OR MEDIUM RISK RATING

72%

 

Why this measure is important

  • This demonstrates how compliant our factories are with our policies.

2019/20 performance

  • 72% of our factories are graded low or medium risk.

What’s next for 2020/21

  • Introduce more sustainable materials into our product ranges, including more recycled, responsibly sourced and alternative materials.
  • Continue to reduce packaging and work towards our target to increase the recycled content of plastic packaging to 30% by 2022.
  • Help customers live more sustainably by introducing more re-usable, energy-saving and waste saving products alongside providing advice and tools to help them repair and upcycle the products we sell.
  • Grow business with suppliers that meet our ethical and environmental standards.

SUPPLY CHAIN POLICIES

Sustainable sourcing

All suppliers sign our Code of Conduct, which requires them to minimise waste and dispose of it in accordance with legal requirements, reduce packaging to optimise usage/best-fit and improve the recycled content of their products and packaging; and to commit to a strategy of carbon reduction. Suppliers of our own brand products are also required to comply with the cotton, timber and animal welfare policies mentioned on page 52 of the Annual Report.

Human rights and modern slavery

Effective management of human rights throughout our supply chain is built into our product procurement procedures. All product suppliers are asked to sign our Code of Conduct, based on the Ethical Trading Initiative (ETI) base code, with a strengthened section on slavery. This requires that suppliers provide a clean and safe work environment, workers must be treated with respect and earn a reasonable wage, and relevant local laws and regulations must be met.

All suppliers of Dunelm branded products must have a satisfactory audit in place which is no more than two years old, and a valid building and fire safety certificate. Supplier branded products are not subject to audits but suppliers sign our Code of Conduct (or equivalent) and an assessment is made of their standards and capability.

We have assessed our own facilities and supply base (products and services) for modern slavery risk and have required the major providers to sign our Code of Conduct. Our statement made pursuant to the Modern Slavery Act 2015, which contains further information, is available here.

Fair and consistent

One of our business principles is to deal with suppliers in an open and honest way. We require all of our suppliers to sign our standard terms and conditions in advance of commencing trade, and we have signed up to the Prompt Payment Code. The average time taken to pay suppliers in the period was 46 days (2019: 45 days), and we consistently pay over 98% of our invoices within agreed terms (2019: 97%).

Our commitment to suppliers during Covid-19

We engaged with our suppliers early on and by 9 April 2020 had agreed our commitments to them, all of which we kept. These included:

  • Ongoing payment (if deferred, by prior agreement only).
  • Honouring range developments due for launch in July 2020 and January 2021.
  • Taking end-of-season stock.
  • Placing orders with them for replenishment as soon as possible.
  • Supporting them with health and safety, financial and banking advice.