Nokia's Responsible Sourcing Strategy: A Closer Look at Its Risk Based Approach

April 16, 2024 - 6 min read

By Nishtha Verma, ESG Lead at Elm AI

It’s becoming increasingly important for companies to prioritize sustainability and responsible sourcing practices to remain competitive and meet stakeholder expectations. Nokia, a global leader in the electronics sector, stands out for its commitment to ethical and sustainable supply chain management, which includes a thorough risk-based strategy for evaluating and addressing supplier risks.

The company’s approach to managing the supply chain prioritizes labor rights, human rights, environmental sustainability, and business ethics. By focusing on these core values, Nokia ensures that its suppliers adhere to its high standards and continuously improve their practices.This article explores Nokia's supplier due diligence practices and dives deeper into their process, tracking, and measuring of responsible sourcing.

‍Nokia's Approach to Supplier Due-Diligence

Nokia's approach to supplier due diligence is comprehensive and holistic. The company emphasizes the importance of aligning suppliers with its ethical, environmental, and social standards. The key aspects of this approach include:

Supplier Code of Conduct: Nokia's code of conduct sets clear expectations for suppliers in terms of human rights, labor standards, environmental practices, and business ethics.
Risk-Based Approach: Nokia employs a risk matrix to assess the sustainability risks of its suppliers. This matrix considers factors such as the supplier's location, industry sector, and past performance.

‍Risk-Based Approach for Suppliers

Nokia's risk-based approach to supplier due diligence is a crucial aspect of its responsible sourcing practices. The company employs a structured process to evaluate and manage risks within its supply chain, using a risk matrix to categorize suppliers based on their level of risk. The strategy involves:

1. Risk Matrix Development

Nokia's risk matrix is a tool used to assess the sustainability risks associated with its suppliers. The matrix categorizes suppliers based on several criteria, including:

Location: Nokia considers the geographical location of suppliers as a key risk factor. Suppliers operating in regions known for human rights abuses, labor issues, or environmental concerns are deemed higher risk. For example, suppliers in countries with weak labor laws or political instability might require closer scrutiny.
Industry Sector: Different industry sectors come with unique challenges and risks. For example, suppliers in industries like electronics manufacturing may face higher risks related to resource extraction, hazardous materials handling, and e-waste disposal. Nokia evaluates suppliers based on the inherent risks associated with their industry sector.
Historical Performance: Nokia reviews the past performance of suppliers to identify any compliance issues, audit findings, or negative performance metrics. Suppliers with a history of non-compliance or ethical concerns are categorized as higher risk and may require additional monitoring.

2. Risk Assessment Process

Nokia's risk-based approach involves a comprehensive assessment process to evaluate suppliers and determine their risk levels. This includes:

Pre-Screening: Before engaging with new suppliers, the company conducts a pre-screening process to assess their potential risks. This involves evaluating the supplier's history, reputation, and compliance with industry standards.
Data Collection: Nokia collects data on suppliers' policies, practices, and performance in various areas such as labor rights, environmental impact, and ethical conduct. This data helps Nokia determine each supplier's risk profile.
Risk Categorization: After data collection, Nokia categorizes suppliers into risk levels (low, medium, high) based on the risk matrix criteria. This categorization informs Nokia's approach to supplier management and monitoring.

3. Due Diligence for High-Risk Suppliers

Suppliers categorized as high risk undergo more intensive due diligence processes, including:

Third-Party Audits: High-risk suppliers are subject to third-party audits to verify compliance with Nokia's standards. These audits assess suppliers' practices in areas such as labor rights, working conditions, environmental impact, and business ethics.
Enhanced Monitoring: High-risk suppliers are closely monitored through regular assessments and data analysis. Nokia tracks their performance metrics and compliance with sustainability standards.
Corrective Action Plans: When compliance issues are identified, Nokia works with high-risk suppliers to develop and implement corrective action plans. This may involve setting specific targets, timelines, and follow-up assessments to ensure improvement.

4. Continuous Improvement and Supplier Engagement

Nokia's risk-based approach goes beyond assessment and monitoring. The company actively engages with suppliers to drive continuous improvement and build capacity:

Training and Support: The company provides training and support to suppliers on sustainability topics such as responsible sourcing, ethical labor practices, and environmental management. This helps suppliers improve their practices and align with the company’s standards.
Collaboration and Development Programs: Nokia collaborates with suppliers on development programs aimed at reducing risks and enhancing sustainability performance. These programs may focus on areas such as energy efficiency, waste reduction, or ethical labor practices.

Nokia's risk-based approach to supplier due diligence is a key aspect of its responsible sourcing practices. By using a risk matrix to categorize suppliers and focus on high-risk areas, Nokia effectively manages risks within its supply chain. This approach not only ensures compliance with ethical and sustainability standards but also drives continuous improvement and collaboration with suppliers. Nokia's methods provide valuable insights for other companies seeking to enhance their supply chain risk management and sustainability efforts.

Learnings for other companies

Here are some key learning points based on Nokia's supply chain initiatives:

Establish a holistic risk framework: Use a risk matrix to categorize suppliers based on factors such as location, industry sector, and historical performance. This allows companies to focus on high-risk suppliers and tailor their due diligence efforts accordingly.

Monitor High-Risk Suppliers Closely: Closely monitor high-risk suppliers through ongoing data analysis and performance tracking. This enables companies to proactively address compliance issues and ensure continuous improvement.
Engage in Third-Party Audits: Utilize third-party audits for high-risk suppliers to verify compliance with company standards. These audits provide an unbiased evaluation of suppliers' practices and performance.
Collaborate on Corrective Action Plans: Work with high-risk suppliers to develop and implement corrective action plans when compliance issues arise. Set specific targets and timelines to drive progress.
Provide Training and Support: Offer training and support to suppliers on sustainability topics such as responsible sourcing and ethical labor practices. This helps suppliers improve their practices and align with company standards.
Establish Development Programs: Collaborate with suppliers on development programs aimed at reducing risks and enhancing sustainability performance. These programs can focus on areas such as energy efficiency, waste reduction, or ethical labor practices.
Promote Transparency: Be transparent about supply chain practices and performance. Regularly report on supplier sustainability efforts and progress to build trust with stakeholders.

Learn more at www.elm-ai.com or book a demo to find out how you can seamlessly establish your company’s supplier due diligence and sustainability practices.