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We base our procurement activities on the Hitachi Guidelines for Procurement Activities, while sharing global supply chain issues within the Group. All Group companies follow these guidelines. The guidelines were created in line with the United Nations Global Compact and include the elimination of discrimination in employment and occupation, the rejection of all forms of child and forced labor, and environmental protection activities. Suppliers are selected strictly in accordance with the Hitachi Guidelines for Procurement Activities.
In fiscal 2016, we released the Hitachi Group CSR Procurement Guidelines, a full revision of the 2009 Hitachi Group Supply Chain CSR Deployment Guidebook. This revision incorporates the provisions of the Hitachi Group Codes of Conduct and also makes references to version 5.1 of the Electronic Industry Citizenship Coalition (EICC) Code of Conduct, promulgated in January 2016. To ensure that the guidelines' provisions are strictly followed, we distribute the Guidelines to the approximately 30,000 suppliers of Hitachi business units and Group companies, from whom we request acknowledgment of suppliers' understanding in writing. Tier 1 suppliers are further asked to confirm that tier 2 suppliers also follow the provisions in the guidelines.
We plan to revise these guidelines regularly in the future to ensure that they always reflect the demands of global society regarding corporate supply chain management.
These guidelines define business transaction standards which shall be applied to all HITACHI executives and employees in connection with their activities purchasing necessary materials, products, services, and information from outside sources.
Revised in 2009
Given the global reach of Hitachi's business, there is a growing likelihood of supply chain risks creating management problems, and we are working hard to identify and mitigate these risks beforehand as much as possible.
CSR supply chain management and green procurement policies and initiatives are discussed within Hitachi's Value Chain Integration Division, which is headed by the chief procurement officer (CPO) and reports directly to the president of Hitachi, Ltd. Policies and initiatives adopted after this discussion are shared throughout the Group through the Hitachi Group CSR Green Procurement Committee, which includes members from business units and key Group companies.
In order to share the philosophy of Hitachi among our suppliers, in fiscal 2015 we also introduced a new initiative to provide suppliers directly with information in a face-to-face format, in addition to the information shared on the Hitachi website as well as our CSR monitoring (self-checks), CSR audits, and other measures. The most recent of these face-to-face events was held in January 2017 at a CSR and green procurement seminar held in Shenzhen for Hitachi Group partners in China. The event was attended by 45 people from 32 companies. At the seminar, Hitachi explained topics including its fundamental CSR philosophy, the CSR audit situation, regulatory trends under Chinese environmental laws, and Hitachi's related policies. Feedback from participants included a comment from one person who was "impressed by the emphasis the company places not only on monozukuri craftsmanship but also on fulfilling its social responsibility in a range of areas." Another participant "gained a sense that profitability is not the sole aim and that it is important to adhere to environmental laws." As reflected in the comments, the seminar served to deepen the understanding of Hitachi initiatives related to CSR and green procurement.
To procure parts and materials manufactured with reduced environmental impact, so that suppliers help to protect the environment, it is crucial that we share our commitment to environmentally conscious monozukuri craftsmanship throughout our entire supply chain. In fiscal 1998, we led the industry in developing Green Procurement Guidelines to define our basic position on procuring parts and products that do not have a negative impact on the global environment, as well as our requirements of suppliers, so that we can work together to promote green procurement. The guidelines set out supplier requirements for environmental conservation, including building an environmental management system and acquiring certifications. There are also requirements for reducing the environmental impact of products supplied to Hitachi, such as conserving resources and energy in production, recycling, managing chemical substances, and fully disclosing related information.
There is a global trend toward tighter regulations on chemical substances. In fiscal 2013, we reviewed our categories for controlled chemical substances in our Green Procurement Guidelines to comply with the stipulations on restricted substances, authorized substances, and substances of very high concern (SVHCs) in Europe's Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) regulation for managing chemical substances within the European Union. Specific changes include: (1) moving some chemicals to the prohibited substances list, (2) further breaking down the controlled substances list, and (3) adopting the industry association list. The previous guidelines were revised to version 8.4 and distributed through Group companies and business units to suppliers to ensure that they are fully informed. We have built A Gree'Net, an Internet-based green procurement system, to collect information about chemical substances contained in products and other environment-related data from suppliers as soon as it becomes available. The goal is to manage chemicals carefully. Under this system, we encourage suppliers to use the MSDSPlus*1/AIS*2 reporting templates published by the Joint Article Management Promotion Consortium*3 to achieve smoother and more efficient transmission of information.
Hitachi released a Conflict Minerals Procurement Policy in September 2013. Our Request to Our Suppliers, based on this policy, is published on our website as a clear statement of our position.
In fiscal 2016, we revised this policy to ensure that procurement of components incorporating conflict minerals does not benefit armed groups in the Democratic Republic of the Congo (DRC) or adjoining countries. The policy now explicitly lays out the measures to be implemented, including inquiries based on international guidelines, to ensure responsible procurement.
There are numerous types of mineral resources buried within the lands of the Democratic Republic of the Congo, located in central Africa, and its neighbouring countries. Ores containing minerals such as tin which is used in solders to secure electronic parts to printed circuit boards, tantalum which is used in capacitors, tungsten which is used in superhard materials, and gold which is used in lead frames can be found in this region. The locals extract these ores, which traders and brokers export to other countries in order to earn valuable foreign currencies, but part of those foreign currencies are forcibly collected and used as funds to purchase weapons by armed groups that repeatedly engage in conflict and violate human rights in the same region, which has become a major problem. As such, the minerals listed above are called "conflict minerals".
The policy for procurement departments in all Hitachi Group companies have always been and will continue to be to ensure that procurement activities do not result or aid in conflicts within the same region and that the armed groups described above do not benefit from those activities, while continuing responsible procurement activities of minerals that are not related to the conflicts in the region based on local laws. Additionally, we will continue to support the practice of due diligence based on the "OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas" among companies. With these in mind, Hitachi Group would like to request all our suppliers to utilise the Conflict Minerals Reporting Template developed by EICC/GeSI to continue checking the country of origin and supply chain of minerals, and also to procure from the CFS (Conflict Free Smelter)*1 listed within.
A key element of the Hitachi Group Vision is to improve the competitiveness of our value chain based on partnerships with our suppliers. Given our business aim to expand internationally, we need to extend our procurement globally, looking toward increasing local production for local consumption. In fiscal 2011, we appointed procurement officers to oversee local procurement in China, the rest of Asia, Europe, and the Americas.
A global supplier database built in fiscal 2013 was followed in fiscal 2014 by a new global procurement scheme using the professional service functions available in the Group at the time (Hitachi High-Technologies, Hitachi Capital, and Hitachi Transport System). We are expanding our suppliers in emerging nations while also strengthening our response to CSR-related risks expected to arise from the global expansion of our supply chain.
To monitor how well Hitachi's CSR supply chain management philosophy has been adopted by our suppliers, since fiscal 2007 we have asked key suppliers to conduct CSR Monitoring (self-checks) using the JEITA Supply Chain CSR Deployment Guidebook and detailed checklists. After collecting and analyzing the results, we provide feedback for the business operations related to the suppliers, and then work with those involved in the operations to resolve issues related to the suppliers. Since fiscal 2011, we have expanded the scope to include suppliers in China and the rest of Asia, and in fiscal 2016 we asked 316 suppliers inside and outside Japan to conduct CSR Monitoring.
Additionally, alongside the revisions made to the Hitachi Group CSR Procurement Guidelines, the checklists have also been fully updated to allow us to obtain a more detailed understanding of the challenges our suppliers face. Starting in fiscal 2017, we will be asking our suppliers to conduct CSR Monitoring using the updated checklists.
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Since July 2012, Hitachi, Ltd. has been auditing the manufacturing bases of its and Group companies' suppliers in China and the rest of Asia. In fiscal 2016, we conducted CSR audits of 20 suppliers.
For these audits, we engaged the experienced CSR auditing company Intertek Certification.*1 Our audits are based on the international SA8000 certification standard developed by Social Accountability International (SAI), an American CSR evaluation institution. These audits investigate our workplace practices, and an EICC-recognized auditor checks suppliers' CSR initiatives from the perspectives of labor and human rights, health and safety, the environment, and ethics.
No major infringements were found at the 20 suppliers audited in fiscal 2016, but some small areas needing improvement were noted, such as overtime work exceeding stipulated rules (19 suppliers), failure to conduct periodic inspections of machinery and equipment (6), and insufficient management of hazardous waste (9). The relevant suppliers were requested to submit improvement action plans, and Hitachi, Ltd., together with Group companies, will work with and advise the suppliers until they complete the planned improvements.
We are improving our green procurement rate—the ratio of environmentally conscious products purchased to total office supplies—by using a Group-wide online procurement system: the E-sourcing Mall. This system has a range of environmentally conscious products and promotes procurement by clearly labeling these products. In fiscal 2016, our green purchasing rate reached 88%.
Starting in fiscal 2015, the Hitachi Group Procurement Division began implementing human rights due diligence based on the Hitachi Group Human Rights Policy. With the assistance of the consulting services of the nonprofit organization Shift, we have created a working group centered on the procurement and CSR divisions at Hitachi, Ltd., which serve as the corporate divisions overseeing activities throughout the Group, including the procurement and CSR divisions of two in-house and four Group companies and the CSR division of Hitachi Asia. The working group has evaluated human rights risks within the supply chain, set priorities, and considered measures for reducing risks.
In fiscal 2016, we published the fully revised Hitachi Group CSR Procurement Guidelines based on results obtained from human rights due diligence activities in fiscal 2015 as well as input from a range of sources and perspectives, including Hitachi Europe, Hitachi (China), and outside experts.
Starting from fiscal 2017, Hitachi will incorporate input from various perspectives into a revision of its checklists, which will then be used to prevent supply chain risks. As well as strengthening and improving existing initiatives in this way, we will use the results obtained from the checklists to deepen our communication with suppliers. Additionally, in cooperation with outside experts, we will enhance suppliers' understanding of the expectations of Hitachi Group procurement departments and, at the same time, promote capacity building at suppliers and take other necessary measures.