Moving forwardwith our suppliers

The Clarks group of companies attaches real importance to the welfare not only of our own employees but also those employed by our suppliers. While we undertake most of the design and development of our products ourselves, we outsource the manufacturing of all our products. We believe it is our responsibility to know and understand the welfare and working conditions of those who make Clarks shoes. We do this by auditing and assessing our supplier factories against the working condition standards set out in Clarks Code of Practice.

In 2016 the audit programme covered over 99% of our first tier footwear production, i.e. the factories that produce the finished product. We also undertake audits of second tier material and component suppliers. These audits currently cover tanneries and sole suppliers that supply at least 80% of the volume of these materials from Clarks nominated suppliers as well as some other component and material suppliers.

The information gathered through these audits informs our sourcing decisions and helps us work with our suppliers to ensure the high standards we expect in our products are reflected in the working environments in which they are made.

Suppliers

We believe in building long term relationships which offer the most benefit for the Clarks business and the people who make our shoes. Over 70% of our production comes from suppliers we have worked with for more than 5 years and some of them for much longer. In 2016 approximately 90% of our footwear products were ordered directly from our suppliers with the remainder sourced through specialist agents. While we do sell some handbags and accessories these are a very small part of our business representing around 3% of Clarks total net turnover. In most factories the facilities are shared with production for other brands and customers. The information below is for our footwear production in 2016.

Most of the production takes place in Asia with a small percentage of production from Europe and Central America.

2016 PROPORTION OF FOOTWEAR PRODUCTION BY COUNTRY

2016 PROPORTION OF FOOTWEAR SUPPLIERS BY COUNTRY

This chart shows the proportion of finished shoe factories by country. The number of factories used is not directly proportional to the number of pairs produced in each country as it is influenced by the size of the factories and the types of shoes produced in each location.

To meet the expectations for increased transparency a list of Clarks directly managed footwear suppliers used for 2017 production can be found here. The list includes both the finished shoe facilities and any additional production sites used by them. These suppliers produce approximately 90% of the total footwear sourced by the Clarks business. Details of suppliers used by specialist sourcing agents for Clarks branded footwear and non-footwear products will be published during 2018.

Standards

At Clarks we expect everyone engaged in the production of our products to be treated fairly, with dignity and respect and for their work to be undertaken in conditions which are safe and not detrimental to their health.

The working condition standards we expect our suppliers to follow are set out in our Code of Practice. These standards apply to all those engaged in the production of Clarks products. Our Code of Practice requires compliance with all local legal and regulatory requirements and the core labour principles of the United Nations International Labour Organization (ILO) conventions.

We support the right to freedom of association and for collective bargaining in the negotiation of wages and encourage governments and employers to set wages that are appropriate for the needs of workers and for the economic conditions in each country. Wages must be set at a level that meets both the immediate basic needs of workers and ensure the long term security of employment for those concerned. Clarks is committed to ensuring that our suppliers pay workers at least the legally required minimum wage.

We require suppliers to sign a copy of our Code of Practice to acknowledge they have read, understood and will comply with it. Compliance with our Code of Practice forms part of our template trading terms and conditions for the purchase of goods.

A copy of Clarks Code of Practice is available here

Managing Non-Compliance

In an instance of non-compliance, we aim to work with the supplier factory to develop a Corrective Action Plan (CAP). We believe that long term relationships offer the most benefit for the Clarks business and the people who make our shoes. We do not just walk away from a supplier without first assessing what and how improvements could be made. However, in instances of continuous non-compliance and no evidence or willingness to adhere to a Corrective Action Plan, termination of the relationship remains the final sanction.

We have consulted UNICEF with regards to our remediation plan for any cases of child labour, as defined in our Code of Practice that are identified in any of our suppliers. A copy of the plan can be found here

TAX STRATEGY STATEMENT

We manage our tax affairs in a balanced and effective manner, which ensures compliance with all fiscal obligations and consistency with international best practice guidelines. We seek to achieve this by pursuing the tax objectives described below which are aligned to the wider business strategy and underpinned by our core values of treating customers, partners, suppliers and each other with honesty, integrity and respect.

We operate effective business relationships, allowing the provision of real time commercial advice on tax for all relevant transactions and activities (Business partnering). In support of the group’s key focus on business relationships, the Clarks tax team works closely alongside finance and the wider business. Our key value of maintaining integrity and quality is supported by frequent contact between the teams, which ensures that the tax team maintains a deep understanding of the group’s activities. This also means the tax team can provide accurate and real-time advice on the tax implications of any business decisions. We provide training and development opportunities for our employees to ensure they are appropriately trained in their roles and able to provide the best advice to the wider business.

We ensure integrity and honesty is at the heart of our operations by implementing effective tax governance, with a view to continuous improvement in our approach to managing tax risk and opportunity (Our tax risk and how we manage it). Clarks has a low appetite for risk and as such, we conduct detailed tax risk assessments on any business proposals which are being considered. These are presented to the Chief Financial Officer for review. In support of our goal of operating with integrity and honesty, we operate an effective tax control framework that ensures we have the right control environment, as well as appropriate activities to identify and manage tax risks. We maintain appropriate and documented transfer pricing policies and ensure these are followed consistently, allowing us to meet our responsibility to pay tax where profits arise. We undertake to review our tax governance on a regular basis to ensure key controls are both designed and operating effectively and to assess whether improvements can be made. Having an effective tax governance framework which is under constant review and improvement is also key to supporting our annual Senior Accounting Officer (SAO) sign off in the UK.

We put the consumer at the heart of what we do, managing costs by being tax efficient and considering government sponsored tax incentives, but we will not engage in aggressive tax planning which goes against our social responsibilities (Attitude to tax planning). We will adhere to tax regulations and will not consider tax planning which is aggressive or which is based on non-commercial activity. Our directors have a fiduciary duty to avoid unnecessary tax costs but any mitigation of tax cost will always be within the letter and spirit of the law. By acting in this way, we are able to ensure that we are behaving responsibly towards the communities in which we and our suppliers operate and are living up to the expectations of our consumers. We will consider tax incentives which are available for tax payers to use and will adopt these only where they are relevant to the business and are operated within the spirit that they were intended. A detailed risk assessment will be undertaken if there are any doubts as to the correct application of tax law, and where appropriate expert advisors or the relevant tax authority will be consulted.

We work in a professional, honest and open way with tax authorities, promoting transparency to avoid unnecessary disputes (Working with HMRC). We are open and transparent with tax authorities about the group’s tax affairs and work collaboratively to achieve early agreement on disputed issues. This ensures we achieve certainty on a real-time basis and avoids costly disputes. By operating in an open and honest way with tax authorities, demonstrating our robust approach to managing tax, we strive to ensure that a low risk status is maintained in the eyes of the tax authorities. We operate with integrity in our compliance and reporting by understanding our business and ensuring a high standard of work from our people. To ensure compliance is handled correctly, we use professional advisors where there is insufficient local knowledge.

Our published UK tax strategy has been prepared to satisfy our commercial objectives and comply with UK legislation as set out in the Finance Act 2016

Understand

In common with other brands, audits are conducted either by our in house specialist vendor audit team or by a third party audit service provider. Clarks in house specialist focus on our primary sourcing countries which enables them team to develop a much stronger relationship with the factory. In countries where we do not have our own resources we utilise a third party audit service provider whilst maintaining our engagement with the supplier by the vendor audit team.

Audits are conducted at any potential new footwear supplier prior to the placement of an order for production. For existing suppliers, we use a tiered approach to the frequency of audits based on their compliance performance and management capability. Audits are undertaken as announced audits, i.e. we give the factory advance notice of the audit, normally about 2 weeks prior to it being undertaken. This supports our approach of seeking to establish and maintain a positive, constructive and supportive relationship with our suppliers.

The audit process includes a review of business licences & relevant documentation, interviews with management & workers and an inspection of all areas of the factory site.

Audit Activity during 2016

In total 181 social audits were conducted during 2016 across Clarks supply chain. Of these 160 were undertaken in China, India and Vietnam by our own internal audit team and an additional 21 audits were undertaken by our 3rd party audit service provider on our behalf.

The table below shows the number of social audits undertaken in each country by the facility type. In some cases more than one audit was undertaken at a facility during the year.

In addition to the social audits conducted, 54 security audits were undertaken at finished goods suppliers in support of customs requirements. A total of 18 environmental audits were undertaken by our service provider at key finished goods production facilities in Cambodia, India and Vietnam.

Improve

Undertaking audits does not in itself change or improve the working conditions in our suppliers. It is the starting point in an ongoing process of improvement. What makes the difference is how the information gained through the audit is used to address the issues identified and make a positive change for the benefit of those working in each factory. We do this in a number of ways.

For any issues that are identified through the audit we require the supplier to complete a corrective action plan which identifies the root cause of the issue, what action will be taken to address it, who is responsible and when it will be completed. We use this information in subsequent follow ups to verify that action has been taken to ensure sustainable improvement is made.

We provide training inputs to our suppliers, both formal and informal delivered either by ourselves or through working with other partners and providers including supporting attendance at publicly available events. These have covered topics such as children's rights, transparency, wages and benefits and health & safety including fire safety, chemical management and exposure control.

The working conditions within supplier facilities, as assessed through our audit process is included in the performance evaluation of our suppliers and represented within the Balanced Scorecard for direct managed footwear suppliers.

Collaborate

At Clarks we believe strongly in working collaboratively with others to effect change and bring about improvements within the footwear supply chain. For example;

We have worked with the teams from other brands to undertake joint auditing of shared suppliers which allows the factory to make better use of their resources towards corrective actions and improvements.

Following Clarks membership of the Global Social Compliance Programme (GSCP) operated by the Consumer Goods Forum (CGF), we have maintained our engagement with this work now that it has been incorporated into the Social Sustainability work stream of the CGF through becoming members of the CGF. As a global cross-industry network the CGF Social Sustainability Committee aims to drive harmonisation, convergence and best-practice sharing for a better and more sustainable supply chains. More information about the CGF can be found on their website.

In 2016 Clarks became a member of the Mekong Club which is a membership-based organisation that works with companies to help them take steps to eradicate slavery from their business through industry-specific working groups.

The Clarks business is a signatory to the Social & Labour Convergence Project which has the aim of improving working conditions in the global apparel and footwear manufacturing sector. This project seeks to develop a simple, unified and effective industry-wide assessment framework. This will result in a standard-agnostic tool and verification methodology to collect relevant and essential data, with the ultimate intent to replace current proprietary tools. The signatories to the project believe that through convergence of assessment tools, costs on duplicated auditing will be significantly reduced, and the money saved can instead be used to improve social welfare for people employed in the sector. This collaborative effort is being facilitated by the Sustainable Apparel Coalition (SAC) and supported by leading organizations and companies, both SAC members and non-members.

Community

Clarks has a long history of supporting the communities in which we work. Today that extends to the communities in which our suppliers are located.

Globally around 79% of the workers in our footwear supplier factories are women. The Clarks business, sometimes in collaboration with other brands has supported and sponsored the delivery of the HER project in some of our suppliers in Cambodia, India and Vietnam. This has included the development of programmes to encompass women employed in stitching units located in rural villages in the Vellore District of Tamil Nadu in India. The project provides in-factory women's health education through the use of peer educators on relevant topics identified by undertaking an initial health needs assessment. Further information on the HER project can be found on their website

Human trafficking is a growing challenge enslaving millions of people in forced labour. In Vietnam factories are among the main recruitment locations used by traffickers. Many workers are trafficked with the promise of better jobs or under other false pretences at great financial and human cost.

Clarks is supporting the Pacific Links Foundation in the delivery of their Factory Awareness to Counter Trafficking (FACT) program at some of our suppliers in Vietnam. The FACT program offers a series of workshops for factory managers and workers to raise awareness about trafficking prevention. It is a part of the Pacific Links Foundation wider efforts to counter trafficking in Vietnam by increasing access to education, providing shelter and reintegration services, and enabling economic opportunities.

Further information on the Pacific Links Foundation and the FACT programme can be found on their website

TRUSTS ASSOCIATED WITH C&J CLARK Ltd

The principal purpose of the Trusts is to benefit current and past employees, their families and the communities in which they live. They were established by the Company but are now funded independently.

The Clark Foundation makes capital grants for the benefit of communities in the areas of education, health, community resources and recreation. This has included support for projects undertaken through some of our suppliers for the benefit of the communities in which they are located and operate. These have included provision of educational facilities in China, and an ambulance and water purification system to serve communities in India and Vietnam.

For further information on any aspect of our Corporate Responsibility programme, please contact: csr@clarks.com