Corporate Social and Environmental Responsibility

A Short Report on IKEA B.V

Written By: Syed Rehan Rizvi

February 16, 2010

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 IKEA’s Social and Environmental Initiatives
Introduction

IKEA is one of the largest European home furnishing retailers established in 1943. It has more
than 300 stores in 37 countries with a business turnover of approx. 22,7 billion Euros in 2009
and an approximate direct workforce of 127,800 employees all over the world. IKEA’s retail
concept is based on selling well designed products at low prices so that maximum people can
afford them and live a better life.

IKEA’s Corporate Social and Environmental Initiatives

Globalization has changed the world business environment. The cost competition forces many
manufacturing industries to move their industrial units from developed to developing or under-
developed countries because of cheap labour, poor implementation and weak monitoring by the
governments on the labour and environmental legislations in those countries. However, the
responsible organizations with good business ethics soon realize the fact that low cost does not
mean getting products produced through unethical and illegal employment practices along with
environmental degradation in these countries.

IKEA’s commitment to the social responsibility and global environmental issues took a major
turn in their corporate set-up with the establishment of social and environmental initiatives in
1998. This lead to the development of a comprehensive standard for achieving its environmental
and social initiatives called IKEA’s Way of Purchasing Products, Materials and Services -
“IWAY Standard”.

IWAY requirements were communicated to all suppliers and sub-suppliers of IKEA worldwide
mainly in developing countries engaged in the production with a strong emphasis on the
enforcement of these guidelines. By 2004, IKEA had reduced significant number (almost less
than half) of its suppliers and sub-suppliers worldwide in order to have a strategic partnership on
these initiatives with only those suppliers who showed commitment and practical
implementation of the major requirements of IWAY standard.

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Beside this, IKEA jointly started global efforts in developing various social responsibility
programs in collaboration with organizations including UNICEF, WWF, and other reputable
NGOs. As a step further, IKEA contributed millions of US Dollars to the cause of saving and
improving the lives of impoverished children and other charitable initiatives for their families.
Additional social initiatives programs include support in the education and health sector for the
under-privileged children of developing countries and major relief efforts in natural disasters in
these countries.

IWAY Requirements

The IKEA Way on Purchasing Products, Materials and Services (IWAY) is the IKEA’s Code of
Conduct for suppliers. The standard developed as a ‘living document’ is revised and improved
with passage of time and the existing standard is the 4th version that is issued in June 2008.

IWAY which recognizes Fundamental Principles of Human Rights is based on the eight core
conventions defined in the Fundamental Principles of Rights at Work, ILO declaration June
1998, the Rio Declaration on Sustainable Development 1992, The UN Johannesburg Summit on
Sustainable Development and the Ten Principles of the UN Global Compact 2000.

IWAY Standard is divided in 14 Main Clauses/ Requirements which all suppliers has to
implement in their facilities engaged in the production or services for IKEA products and they
are as follow:

1. Start-up Requirements, IWAY Musts

2. General Conditions
3. Environment – Air, Noise, Water and Ground
4. Chemicals
5. Hazardous and Non-Hazardous Waste
6. Fire Prevention
7. Worker Health & Safety
8. Housing Facilities
9. Wages, Benefits and Working Hours
10. Child Labour

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11. Forced & Bonded Labour
12. Discrimination
13. Freedom of Association
14. Harassment, Abuse and Disciplinary Actions

The first 2 clauses of the standard are mainly dealt with the core requirements of standard, which
are “IWAY Must” and tell how the companies shall implement the overall standard in their
organizations. These clauses explains the methodology to be adopted for the implementation and
monitoring of IWAY requirements which includes commitment for IWAY compliance,
assigning responsibilities or designating a core team within organization responsible for the
implementation, communication of IWAY requirements to all the employees i.e. staff and
workers of company as well as all sub-suppliers, conducting Internal IWAY audits and above all
the requirement for the company to update all laws and regulations applicable to their business/
industry.

IWAY Clauses 3 to 7 is related to the inside and outside working environments as well as health
and safety systems that companies must implement. All the remaining clauses of the standard are
basically for the efforts in developing an effective and transparent social accountability
management system within the organization, which directly give benefits to the workers and the
society as whole.

IWAY requirements related to Environmental Protection and Management

• Environmental classification, reporting and inspections ------- This requires all

organizations to comply the applicable environmental laws and regulations, reporting its
environmental performance and inspections by concern authorities.
• Outdoor Air pollution and Noise Pollution ---- This requires permits and monitoring of air
emissions from the plant and processes & same procedures to follow for the Noise Pollution.
• Ground and Water Contamination ---- is mainly to monitor the direct discharges to the
ground and water from the facilities and requires installation of effluents treatment facilities
if the discharges are contaminated.

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• Ground Contamination ---- requires and investigation and assessment of the possible risks
of ground contamination.
• Energy Reduction ----- this requires measuring energy consumptions at the plant, processes
and buildings with annually plans to reduce consumptions. All energy reduction plans must
be practical and energy efficiency data must be compiled and reported on monthly basis to
monitor the improvement trends.
• Reduction of other Environmental Impacts ---- is an assurance from the suppliers to
develop action plans and make targets for reducing the environmental impacts from their
operations and processes in the production. The environmental impacts includes the usage of
raw materials, utilities consumptions, wastes generated, chemicals consumption etc.

IWAY Implementation Methodology

Although most of the US and European companies importing goods from under-developed and
developing countries are following the similar practices like developing a code of conducts,
thereafter communicating it to their suppliers and get written commitments from them for
implementing it but in reality only few companies in the world are able to design, develop and
implement a practical system for addressing ethical, social and environmental concerns. Wal-
Mart, IKEA, and Sears are among the list of those companies which have practically done a lot
and because of their effective systems, a major improvement is seen in the production units in
those countries from where they are importing their products.
IKEA’s methodology in implementing its initiative is quiet different from the other big retailers
in the world business. IKEA’s focus on social and environmental concerns is so important that
their all business managers and merchandisers are trained on the IWAY requirements and all
business transactions with suppliers are based on their performance in implementing IWAY
standard and above all their commitment for continuous improvement. A major reduction in
number of suppliers with whom they are working is the biggest factor of their success as they
screened out and filtered all those suppliers which are unable to perform and had no commitment
to these initiatives. IKEA has trained its own internal teams who are monitoring and working
closely with the suppliers and sub-suppliers for implementation.
The first major step is the communication with the suppliers and giving them awareness and
training on the requirements, as well as sharing with them the benefits and importance of

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implementing. Practical experiences, best practices, benefits, cost reduction strategies and
guidance for implementation is shared with the suppliers in order to get a high commitment of
implementation. Once they got motivation for implementation they moved forward.
Next stage is the monitoring of implementation through scheduled and surprise audits by IKEA’s
trained auditors and merchandize team which will compile an audit report with results of audit
which is available online to all IKEA’s offices worldwide. Business consequences are linked to
each audit and all suppliers must submit action plans to resolve the concerns if highlighted in the
audit report.
IKEA has a corporate Compliance and Monitoring Group which is responsible to oversee the
performance of IKEA’s regional offices and teams working with the suppliers for
implementation. All IKEA’s regional office teams and their Suppliers who implemented the
major requirements who are closed to attain IWAY approval or are IWAY approved and are
subject to an unannounced audit by the Compliance and Monitoring Group who’ll validate the
previous audit findings and cross check the actual implementation.
Besides this, IKEA has also outsourced external third party auditing agencies like KPMG etc.
who are also responsible for the auditing and monitoring suppliers through surprise visits to the
facilities and mainly looking for the “IWAY Must” implementation.

IKEA’s Other Important Initiatives for Social and Environmental Issues

• IOS MAT 0010 is a specification for the suppliers to ensure that all dyes and chemicals used
in the production processes are in compliance to the IOS MAT 0010 list of Chemical
Compounds and Substances and the suppliers must get letter of conformation from the Dyes
and Chemical suppliers that their products doesn’t contain hazardous and/ or banned
chemical substances. All products are subject to detail testing as well at different intervals
through specialized and authorized testing laboratories in order to get the true picture
whether the actual product is meeting the specification for chemical substances.
• Climate Change is a critical issue globally, on which IKEA responded seriously by taking
initiatives like usage of Energy Saving light bulbs and planning to go for renewable energy
sources in their buildings, stores and warehouses all over the world. Installing extra
insulations will improve energy efficiency for heating and cooling and therefore they expect
a major reduction in their overall carbon emissions load. IKEA has made a corporate policy

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 to only use Green transports for the handling and transportation and increasing its fleet of
vehicles by purchasing Hybrid cars etc.
• Forestry and Wood used in the IKEA products is only sourced from responsible wood
suppliers and responsibly managed forests. IKEA’s forestry specialist are managing the
system that ensures that all wood used in the furniture can be traced back to the source from
where the wood is obtained it must be from a responsibly managed forests. There is a least
possibility of using a wood that is illegally logged or is from an intact forest source. The
Forest tracing system and audits help in getting real data on the source of wood used and
assessing supplier’s performance through a stair case model.
• Zero Discharges is an initiative that requires all textiles and leather processing units where
the suppliers has installed Effluents treatment plants and are discharging the treated effluent
in the municipals sewerage system or directly into the sea to go a step ahead and look for the
possibility of Zero Discharge by installing recycling of waste water and get it re-used in the
process.
• Better Cotton Initiative is another big step IKEA practically took in collaboration with
leading International companies and United Nations Environment program who are
participating in this program. The objective is to get measurable improvements on
environmental and social impacts by cultivating cotton through sustainable methods. IKEA
also started sustainable programs in India and Pakistan who are among the largest cotton
growing countries. These projects require farmers to grow cotton through conventional
methods depending less on water and chemicals.

Conclusion
Positive efforts if made in a right direction with a right approach at right time always work. The
success IKEA has made is a true example and their way of looking into the issues related to
environmental and social is different from others. The initiatives they took are practical and
beneficial not only their suppliers but also for the entire workforce and whole community linked
to the supply-chain. IKEA’s approach to involve their suppliers during the whole process of
implementation and developing partnerships based on mutual help and trust shows excellent
results in the developing countries. All IKEA suppliers in countries like China, India, Pakistan,
Bangladesh etc. who are involved in all above initiatives found a major improvement in their

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industries not only in business volume but also in other various terms like productivity, cost
savings, employee’s motivation, self-recognition, and above all thinking Green and Positive.
Most of the manufacturing companies in those regions initially opted for getting the
certifications based on international and regional standards like Oeko-Tex, WRAP, ISO 9000,
SA 8000, ISO 14000, Fair Trade, OHSAS 18001 etc. and did a lot of documentation based on
these standards. They were able to get certifications through accreditation agencies after 3 rd party
audits; however, the true implementation of those standards and their requirements was not there.
Since majority of the Buyers in US and Europe responded to the social and environmental
concerns only because of the pressure from media and/ or consumers, they simply opted for
developing code of conducts and thereafter only getting a written commitment from the suppliers
for it. Few of the buyers/ importers just outsourced all this activity by assigning auditing firms to
conduct audits and generate reports. Since they are actually not truly committed to the initiatives
of environmental and social issues, therefore, they got no significant results and failed in getting
any change either at suppliers place or at their end. Although they invested huge amount in
running those programs but their approach of handling these issues is wrong. The way IKEA
developed its program and took several initiatives at a time is just because of taking ownership of
resolving issues and putting its own efforts, resources and involving its suppliers to achieve a
common goal. They get positive results which is a win win situation for all stakeholders.

References
1. Website http://www.ikea.com/ms/en_IE/about_ikea/our_responsibility/index.html
2. IWAY Standard Edition 4, Issued on 2008-06-04
3. Website http://www.unicef.org/corporate_partners/index_25092.html
4. Website http://en.wikipedia.org/wiki/IKEA