Supply Chain Code of Conduct

Overview

Draft and validate supply chain codes of conduct that define the ethical, labour, environmental, and governance standards suppliers must sign. The skill covers the full workflow — from scoping applicable regulations (Modern Slavery Act UK/AU, LkSG, ILO Core Conventions, EU CSDDD) through section-by-section drafting to automated validation. Two extension tools catch the most common compliance gaps: weak Right to Audit clauses that don’t permit physical on-site inspections, and codes that only apply to Tier 1 suppliers when regulations require sub-tier due diligence.

Getting Started

Activate the Supply Chain Code of Conduct skill and tell the agent your company name, industry, applicable jurisdictions, and whether you’re creating a new code or reviewing an existing one. If you have an existing supplier code, upload it to the workspace. The agent will guide you through regulatory scoping, drafting (or gap analysis), and validation.

Example Conversation

You: We need to create a supplier code of conduct for our company. We’re a UK-based retailer with about 200 direct suppliers globally — mostly in Southeast Asia and Eastern Europe. We need it to comply with the UK Modern Slavery Act and also be ready for LkSG since we have a subsidiary in Germany with 1,500 employees.

Agent: I’ll guide you through creating a comprehensive code. Given your UK presence and German subsidiary, we need to satisfy both the Modern Slavery Act 2015 (s54) and LkSG requirements. I’ve copied the template into the workspace. Let’s start with the Preamble — I’ll list both acts as the regulatory basis. What’s your company name and how would you describe your supply chain structure?

You: The company is Northfield Retail Ltd. Our supply chain has about 200 Tier 1 suppliers, but many of them subcontract to smaller factories. We don’t have great visibility past Tier 1.

Agent: That’s exactly the gap we need to address. LkSG §9(3) requires due diligence at indirect suppliers when you have substantiated knowledge of violations, so the code must apply beyond Tier 1. I’ve drafted the Preamble and Scope section to cover “all tiers of the supply chain — including Tier 1 suppliers and all sub-tier suppliers, sub-contractors, and labour providers.” Now let’s work through Labour and Human Rights. For LkSG, we need to address all 11 protected legal positions under §2. I’ll draft each subsection — starting with forced labour, child labour, and working conditions. Do you have any specific policies already in place?

You: We have a basic anti-slavery policy but it’s quite high-level. Let’s make the code comprehensive.

Agent: I’ve drafted sections 2–6 covering Labour and Human Rights, Health and Safety, Environment, Business Ethics, and Management Systems. Now the critical part — the Right to Audit clause. I’m including: on-site inspection rights (announced or unannounced), access to records and worker interviews, third-party auditors, corrective action timelines (30/60/90 days by severity), and sub-supplier flow-down. Let me also add the Flow-down section requiring suppliers to cascade equivalent obligations to all sub-tiers… Done. Let me run the validation tools.

Agent: Running esg_flowdown_enforcer on the draft:

— Required audit elements — [OK] Right to Audit clause present [OK] On-site / physical inspection permitted [OK] Access to records, documents and personnel [OK] Corrective action / remediation timeline [OK] Flow-down to sub-suppliers

— Recommended audit elements — [OK] Unannounced / without prior notice audits [OK] Third-party auditors permitted [OK] Termination right for material non-compliance

RESULT: All 5 required elements present. Right to Audit clause is comprehensive.

Agent: Now running tier_n_visibility_check:

— Detected supplier scope — [✓] Full supply chain / all tiers (strong)

— Flow-down obligations — [OK] Explicit flow-down / cascade clause [OK] LkSG §9(3) indirect-supplier language

— Jurisdiction requirements — [OK] LkSG (Germany) (§9 Abs. 3 LkSG) [OK] UK Modern Slavery Act 2015 (s54(5)(a)) [OK] AU Modern Slavery Act 2018 (s16(1)(b)–(c)) [OK] EU CSDDD (forthcoming) (Art. 7–8)

RESULT: STRONG — Code covers the full supply chain with explicit flow-down obligations.

Both tools pass. The code is ready for legal review and supplier sign-off. You still have a few placeholder fields to fill in — company-specific reporting channel details and the signature block.

Output Excerpt

After validation, the code includes all standard sections. Here is a representative excerpt from the Right to Audit and Flow-down sections:

## 7. Right to Audit and Monitoring

Northfield Retail Ltd reserves the right, at any time during the term of the
business relationship, to conduct announced or unannounced on-site audits of
Supplier's facilities, records, and operations — directly or through designated
third-party auditors — to verify compliance with this Code.

Supplier shall:

- Provide full access to all facilities, including production areas, warehouses,
  and dormitories.
- Make available all relevant documentation, including employment records, payroll
  data, working-time records, health and safety records, and subcontractor
  agreements.
- Permit private, confidential interviews with workers conducted by Northfield
  Retail Ltd or its designated auditors.
- Cooperate fully with all audit activities and provide timely responses to
  information requests.

## 10. Flow-down to Sub-suppliers

Supplier shall impose obligations at least as protective as this Code on all
sub-suppliers, sub-contractors, and labour providers engaged in the production
or delivery of goods and services to Northfield Retail Ltd.

Supplier shall:

- Ensure that Northfield Retail Ltd (or its designated auditors) has the right to
  audit sub-supplier facilities under the same terms as Section 7.
- Disclose the identity of sub-suppliers upon request.
- Notify Northfield Retail Ltd of any material changes to its sub-supplier base.
- In the event of substantiated knowledge of a human rights or environmental
  violation at any sub-tier, cooperate with Northfield Retail Ltd's ad hoc risk
  analysis and implement preventive measures in accordance with §9(3) LkSG.

All audit and flow-down elements are validated by the extension tools — the esg_flowdown_enforcer confirms the clause permits physical on-site inspections with full records access, and the tier_n_visibility_check confirms the code applies across the full supply chain, not just Tier 1.

Extension Tools

The skill includes two validation tools that check the draft code of conduct for the most common compliance gaps.

esg_flowdown_enforcer validates the Right to Audit clause against required and recommended elements:

• Explicit Right to Audit clause granting the buyer authority to audit suppliers
• On-site / physical inspection rights (not just document review)
• Access to employment records, payroll, working-time logs, and worker interviews
• Third-party auditor permissions (for specialised social-audit firms)
• Corrective action timelines with defined severity tiers (30/60/90 days)
• Sub-supplier flow-down obligation
• Termination right for material non-compliance

tier_n_visibility_check flags Tier 1-only supplier scope, which is a compliance gap under multiple frameworks:

• Detects whether the code’s applicability is narrow (Tier 1 only), adequate (Tier 2 / indirect), or strong (full chain)
• Checks for explicit flow-down / cascade clauses requiring suppliers to extend obligations downstream
• Verifies LkSG §9(3) indirect-supplier language for German compliance
• Cross-references jurisdiction requirements (LkSG, UK/AU Modern Slavery Act, EU CSDDD) and flags gaps