Promoting Sustainable and Responsible Procurement

At Shiseido, we strive to grow our business as well as stimulate the growth of the societies we work in. But we want this growth to be sustainable. In all our activities, we seek ways to prevent human rights problems and preserve the environment.

We have issued the Shiseido Group Supplier Code of Conduct and conduct supplier assessments and monitoring on a regular basis to ensure an ethical supply chain. In addition, the Shiseido Group Sustainable Raw Materials Procurement Guidelines have been enforced across the Group to ensure the procurement of sustainable raw materials (e.g., palm oil and paper) on a global scale.

We strive to share and resolve issues with our stakeholders and liaise with international human rights experts and people working in raw material producing regions to make sure our actions always rely on expert knowledge.

Following our participation in the United Nations Global Compact, we have been working closely with our business partners to define and update principles and policies on ethical business conduct. These are reflected in the Shiseido Group Supplier Code of Conduct, which we issued in 2006. This code stipulates the standards that govern and direct our behavior on human rights, legal compliance, labor practices, intellectual property protection, confidentiality, environmental protection, and fair trade.

In addition, we have defined and issued the following policies to ensure better supplier management:

The business partners that are subject to the Shiseido Group Supplier Code of Conduct have agreed to the standards. In this code, suppliers are required to accept periodic monitoring through surveys and audits. In the event that any supplier is identified to have violated it, they are requested to implement corrective actions by following guidance.

We established this policy in 2018 based on positive collaboration with consumers, business partners, and society. Our procurement policy is based on a consumer-oriented perspective, including the following principles:

• ・we carry out procurement activities to create better products, through co-creation with business partners
• ・we comply with all relevant laws and regulations, prioritizing respect for human rights and protection of the global environment

we created guidelines for palm-derived materials and paper, which exacerbate environmental and human rights problems in the countries of origin.

Items to be purchased include packages for our products (cosmetics, toiletries, and pharmaceuticals), cosmetic tools, production materials such as raw materials, sales support tools, and OEM products.

1. 1. Packaging, Cosmetics: Raw materials and processed products such as resin, glass, paper, metal
2. 2. Sales support tools: POPs, premiums, etc.

We identify critical suppliers once a year by the following process

Below is the process to be followed when we start business with new suppliers.

In light of sustainability, we assess our suppliers regularly and continuously to build and maintain sustainable supply chains and ensure responsible procurement. Before entering into business with a new supplier, credibility, business policy and attitude, level of confidentiality, and other important factors are thoroughly reviewed. We then sign a purchase agreement only with those who consent to the Shiseido Group Supplier Code of Conduct. After starting business, we evaluate their efforts related to sustainability and risks once a year using one of the following methods: Shiseido SAQ^*1, Sedex^*2, or EcoVadis^*3. Based on this assessment result, we rank the suppliers according to their level of risk. To those ranked as high risk, we provide feedback and request that they implement corrective action plans We also audit some suppliers using a third party.

We expanded the scope of assessment since fiscal 2019 beyond the Global Headquarters purchasing department. In doing so, we have reexamined KPIs and updated targets. To perform global assessments, we will strengthen cooperation between regions and further expand scope.

In fiscal 2019, the Global Headquarters purchasing department conducted assessments of 271 suppliers that it had business with in the previous fiscal year and in fiscal 2019. Of these, 162 suppliers were assessed using SAQ, 86 using the Sedex platform, and 23 using the EcoVadis platform. All suppliers were successfully assessed. Additionally, the EMEA Regional Headquarters purchasing department assessed 85 suppliers using the EcoVadis platform.

We categorize suppliers based on assessment results from SAQ, Sedex or EcoVadis into four groups: low risk, medium risk, high risk, and non-assessable due to insufficient response; and request those categorized as high risk to implement corrective action plans. In fiscal 2019, 49 suppliers were categorized as high risk. The Global Headquarters purchasing department directly provided their high-risk suppliers with an explanation of the identified risks and why they were placed in the high-risk category, and requested them to take corrective actions. Specific risks that were identified and required to be addressed included working hours and continuous working days exceeding those legally defined, and non-compliant management of chemical substances. Of Tier 2 critical suppliers, a total of 15 were also assessed, with none categorized as high risk.

To keep pace with the changing times and respond to social requirements, Shiseido considers it important to communicate our concept of procurement with business partners in a timely and accurate manner. Therefore, with the aim of widespread dissemination of the procurement policy, the procurement departments in Japan and China hold an annual Supplier's Day to share purchasing activities and strategies with suppliers. Taking this opportunity, our procurement department in Japan promulgates Shiseido’s procurement policy, various tasks, and requests in the fields of raw materials, packaging, and indirect materials, and responds to questions and requests from business partners.
209 suppliers participated in the session held in Global Headquarters in fiscal 2019; and 89 suppliers in China Regional Headquarters. We respect all our suppliers who share our credo and join us on the journey for sustainable growth.

High-performing suppliers in conformity with our purchasing policy are invited to the annual Shiseido Suppliers’ Awards. In fiscal 2019, 43 suppliers participated in the event held at “S/PARK,” which was newly opened in the Minato-Mirai area, Yokohama in April. The top five suppliers were awarded in fiscal 2019 based on the QCDEST evaluation. We expressed our gratitude to our suppliers, shared our view for the future and reaffirmed our commitment to forge a strong partnership.

Every year, we host the Shiseido International Procurement Meeting (SIPM), which all purchasing leaders from each of our global facilities attend. We share not only immediate issues but also mid-to-long-term goals, and discuss global purchasing strategies. We are also promoting the global implementation of sustainability activities through this meeting.

To ensure responsible procurement for the company, we proactively provide education on relevant issues mainly to staff members of purchasing departments.