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2017 Progress Report

Partial revision of the Guidelines for Supplier's Assessment

Kao has published the Kao Human Rights Policy*1 in 2015. As a company targeted by the UK Modern Slavery Act 2015*2 , we were also obligated to check for human rights violations at work in our supply chain. Therefore, in June 2017, we revised our Guidelines for Supplier's Assessment to request Kao Group suppliers to give as much consideration to human rights and environmental protection as we do. In the current revision, we have defined new standards for confirming Kao Group suppliers' compliance with the Guidelines for Supplier's Assessment. We will use Sedex to confirm compliance and assess the supply chain as required by the UK Modern Slavery Act 2015.

  • * 1 Kao Human Rights Policy
  • * 2 UK Modern Slavery Act Statement

Progress in Compliance with Sustainable Palm Oil Procurement Guidelines

Goal 1

Kao had been striving to purchase only sustainable palm oil that is traceable to the mill for use in Kao Group consumer products by the end of 2015.
Through these efforts, by 2015 we became able to trace palm kernel oil and its derivatives, which are used in Kao Group consumer products, to the palm kernel crushing mill based on tier 1 supplier information (Fig.1).

Fig.1 Palm kernel crushing mill

As for traceability to the palm oil mill, which supplies palm kernel and palm oil, by the end of 2017 we were able to confirm traceability of approximately 97% (quantity basis) (Fig.2).

Fig.2 Palm oil mill

However, as of the end of 2017, we have not been able to confirm the traceability of some of the derivatives that we had no choice but to purchase from other companies. We will continue to ask suppliers to prove traceability of these derivatives, and will also take measures to compensate for the lack of information, such as by purchasing RSPO certified products.

Goal 2

Kao aims to achieve zero deforestation at the source of raw materials as early as by the end of 2020 at the latest, through cooperation with plantations, suppliers and third-party organizations. Kao will not participate in developing high-conservation-value (HCV) forests, high-carbon-stock (HCS) forests, or peatlands.
Since 2016, we have using a third party to map risks for palm oil mills for which we have confirmed traceability. This risk mapping determines the possibility of deforestation by checking for the presence of a protected forest, traces of fire, peatland, etc. within a range of 50 km from a palm oil mill. Together with a team of experts, we are conducting a on-site investigation for each mill determined as carrying a high risk, request such a mill to improve, and monitor their progress (Fig.3).

Fig.3 Supply Chain Verification Status

Goal 3

Kao also aims to purchase only sustainable palm oil traceable to plantations for use in Kao Group consumer products as early as by the end of 2020 at the latest.
In addition to proving traceability to the palm-oil mill based on tier 1 supplier information (Goal 1), we verify tier 1 supplier information using a third-party organization as well as the palm kernel crushing mill supply chain (Fig.3).
Also, to better demonstrate traceability to smallholders, we have been participating in Bluenumber*3 . Bluenumber is an initiative that aims to prove the traceability of farm produce on a global basis, and we plan to use it to do this for palm oil (Fig.3).

  • * 3 Bluenumber
    An initiative launched on September 29, 2015 during the United Nations Sustainable Development Summit. It encourages workers, producers, and other people living in rural areas to participate in the digital economy. Bluenumber has offices in New York, Kuala Lumpur, Tokyo, and Dhaka.

Goal 4

Kao is working to build a traceable supply chain with a view to obtaining RSPO SCCS certification for our group factories and offices as early as by the end of 2020 at the latest.
Starting from the derivative factories upstream from our supply chain and gradually moving toward downstream factories that manufacture consumer products, we obtained SCCS certification for 28 sites by the end of 2017. We expect to complete the process by the end of 2018 by continuing to obtain certification for our remaining factories and offices.

Goals for 2018

  • Continue to confirm traceability to the palm oil mill and update supplier information
  • Conduct on-site investigation for high-risk palm oil mills revealed through risk mapping
  • Start a pilot program to establish the traceability to smallholders based on Bluenumber
  • Start a traceability investigation into large plantations from which tier 1 suppliers purchase

Progress in Compliance with Sustainable Paper and Pulp Procurement Guidelines

By 2020, Kao aims to purchase only recycled paper or sustainably sourced paper for use in its products, including paper, pulp, packaging materials and office paper. When using pulp that is not recycled (i.e., virgin pulp), we aim by 2020 to purchase only pulp traceable to the source of wood fiber for raw materials.
As of the end of 2017, 99.8% of paper and pulp used in our products (of which 86% are certified products) satisfy this standard.
In 2017, we replaced about 80% of cardboard used globally with that holding FSC certification, which we introduced in 2016. Also, in July 2017, we introduced FSC certification on boxes and box tops of the powder laundry detergents Attack and New Beads, which are used by a wide range of consumers.

Sedex

We are encouraging suppliers to be Sedex members, respond to questionnaires, and set access rights to data.
As of the end of 2017, access rights to 908 sites of global suppliers were set, which covers 45% of the amount purchased. In Japan, access rights to 408 sites were set, which covers 65% of the amount purchased.
We also started assessing supplier risk using Sedex. In a response rate over 90% to questionnaires by suppliers, 0.4% of which were judged as high-risk suppliers. After investigating these risks in detail, we will encourage these suppliers to make the necessary improvements.

CDP

CDP (Climate Change, Water and Forest)

Kao joined CDP programs for climate change, water and forest. We were evaluated by list A- for climate change, water and forest in 2017. The evaluation for forests covered our traceability initiative for palm oil, paper and pulp.

CDP Supply Chain Program

The response rate for suppliers from which Kao Japan purchased products in 2017 was 74% (164 companies out of the 221 asked to respond) for climate change, and 65% (20 companies out of the 31 asked to respond) for water.
In 2018, we will join a program for forest and expand the program to include suppliers related to our overseas affiliates.

Supplier Monitoring

In 2017, we conducted in Japan social monitoring of 34 supplier companies and environmental monitoring of 26 factories. We also visited 12 suppliers that were recognized during monitoring as having problems to discuss how to make improvements.
Previously, we used Kao's unique survey sheet (Kao SAQ) for supplier monitoring. From now on, however, we will use Sedex for this purpose.

Number of suppliers monitored for social issues and percentage meeting Guidelines for Supplier's Assessment

  Number of suppliers to Kao Corporation Number of suppliers to the Asian Kao Group
Up to FY 2013 883(99%) 726(98%)
Up to FY 2014 906(99%) 823(98%)
Up to FY 2015 1,168(96%) 994(98%)
Up to FY 2016 1,602(92%) 1,166(98%)
Up to FY 2017 1,705(92%) 1,198(98%)

Number of Suppliers Monitored for Environmental Issues and Percentage Meeting Guidelines for Supplier's Assessment

  Number of supplier plants to Kao Corporation Number of supplier plants to the Asian Kao Group
Up to FY 2013 818(99.5%) 541(98%)
Up to FY 2014 879(99%) 608(97%)
Up to FY 2015 1,254(97%) 750(97%)
Up to FY 2016 1,616(94%) 838(97%)
Up to FY 2017 1,689(94%) 842(96%)

Vendor Summits

During the 2017 domestic vendor summit attended by 245 suppliers, we reported on the business conditions affecting Kao Corporation and the results of the Supplier Satisfaction Survey conducted in 2016, encouraged active participation in the CDP Supply Chain Program, which is an initiative for sustainable and responsible procurement, and asked them to join Sedex. In addition, we started a supplier commendation system in 2016 and during the summit commended suppliers that excelled in quality, cost, delivery, information shearing and company management and sustainability.
We also held a vendor summit attended by 258 suppliers related to our overseas affiliates, and commended outstanding suppliers.

Changes in the number of companies that participated in the vendor summit

(Number of companies)

FY Held by Kao Japan Held by foreign affiliates Total
2013 184 151 335
2014 183 233 416
2015 214 285 499
2016 246 279 525
2017 245 258 503

Quality Improvement Meetings

In 2017, we hold quality improvement meetings with four packaging materials suppliers for the purpose of reduction of discrepant materials.
When a quality issue occurs, we take a corrective action and discuss a radical quality improvement with supplier in cooperation with our R&D division.

Supplier Satisfaction Surveys

These surveys are conducted every 3 years.
Applying the 2016 survey results, we improve the ordering process and conduct making "Compliance Hotlines" well-known to all suppliers.

(Number of companies)

Year conducted Raw materials Packaging and container materials Equipment Total
2004 53 45 46 144
2007 48 37 44 129
2010 55 68 44 167
2013 71 59 45 175
2016 78 69 52 199

Employee Training

Since 2012, Procurement Division employees have taken the Certification Test for Environmental Specialists ("Eco Test") as the education to understand the relationship among our business, society and environment, and change their actions. Since 2015, they have taken the Business Compliance Test, and of the Division employees in 2017, 71% passed the Eco Test and 64% passed the Business Compliance Test.

Green Purchasing

We place high priority on purchasing environmentally conscious products, and achieved 84% of the levels set in the standards in 2017. We will promote our program with the aim of reaching 100% as soon as possible.

Sustainable Procurement of Natural Plant Resources and Biomass Materials

Glycyrrhizinate derivatives used in cosmetics and quasi drugs are produced from glycyrrhiza (licorice root), a leguminous plant. In the past we have used glycyrrhizinate derivatives produced from wild glycyrrhiza. Since 2016, we have promoted using glycyrrhizinate derivatives produced from cultivated glycyrrhiza from specified plantations to achieve biodiversity preservation and sustainable use.

Region share of suppliers (Manufacturers)

Location of Manufacturers Raw Materials Packing Materials Finish Goods Total Share of Amount
Japan Region*4 807 292 341 1,440 55%
Asia Region*5 697 321 100 1,118 26%
EMEA Region*6 615 49 107 771 8%
Americas Region 379 26 128 533 6%
No record 16 3 1 20 5%
Total 2,514 691 677 3,882
  • * 4 Japan Region consists of only Japan.
  • * 5 Asia Region includes Oceania region.
  • * 6 EMEA Region consists of Europe, Middle East and Africa regions.
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