Symbolic or substantive? Can supplier codes of conduct impact ESG performance?

An undercover investigation found that Mango and Zara sourced from suppliers where employees were compelled to work for 12 hours a day in hazardous conditions ( Forbes, 2024 ). There are many such examples, exposing the dependence of major organizations on—often barely visible—suppliers. To deal with issues such as those illustrated in this example, major organizations may use supplier codes of conduct (SCCs)— legally binding documents through which organizations manage and monitor their suppliers' ethical and socially responsible practices. The first observation is that some organizations adopt SCCs when others do not, raising the very question of whether their adoption really fosters ethical and socially responsible practices—whether they are symbolic or substantive. Second, for organizations that adopt SCCs, there is significant variation in practices. We conduct an unsupervised machine learning approach whereby the text of each SCC is analyzed to assess variation in topics. We find three categories of topics that we label customary , cooperative , and compliance SCCs. The analysis shows that cooperative SCCs are best at fostering environmental and social ESG performance, whereas compliance SCCs are best at fostering social and governance ESG performance. We discuss the theoretical and managerial implications. • Organizations employ Supplier Code of Conduct (SCC) to manage suppliers' ethical and socially responsible practices. • Some organizations adopt SCCs, whereas others do not; there are significant variations in SCC adoption. • Using unsupervised learning methodology, we analyze text from each SCC within 100 Fortune 500 Companies. • We classify types of SCCs into: Customary, Cooperative, and Compliance . • Cooperative SCCs foster environmental and social ESG performance; compliance SCCs enhance social and governance performance.