Responsible Sourcing: The First Step Is the Hardest

Abstract

Responsible sourcing is a priority for companies and consumers concerned with corporate social responsibility (CSR) in global supply chains. Most brands' product lines contain just a few products certified by third parties- which suggests that brands limit their efforts at ensuring that suppliers behave responsibly. In this paper, we examine a previously under-appreciated role of certifications: that certifications enable brands to learn about how to source responsibly. By successfully certifying even a single product, the certifying brand may enjoy positive, knowledge-based spillovers encouraging responsible sourcing throughout its product line. Using data on the responsible sourcing decisions of coffee brands in the $48B US consumer market, we find that certifying brands' rates of CSR violations (adjusted for disparities in production volume and detection) are similarly low regardless of whether the brand's portfolio is 3% certified or 100% certified- consistent with learning-based spillover effects. Certifying brands' violation rates are an estimated 61-78% lower than for comparable brands that make no CSR claims. While we find that brands making their own uncertified, on-packaging CSR claims also exhibit low CSR violation rates, their low violation rates are nearly entirely explained by the countries from which they source. In contrast, certifying brands appear uniquely able to source responsibly even from within "high-risk" countries. Our work novelly suggests that prevalent dual-sourcing may surprisingly amplify, rather than limit, responsible sourcing in supply chains, and that certified sourcing valuably develops the pool of responsible suppliers in high-risk countries.