Businesses often use audits to confirm compliance with voluntary consensus standards, codes of conduct, and customer or vendor requirements. In many cases, businesses can use comprehensive third-party audit standards, such as the Sedex Members Ethical Trade Audit (SMETA) and Business Social Compliance Initiative (BSCI), and related tools to manage compliance and minimize reputational risks related to workplace conditions, environmental impact, and business practices. As these audits detail a company’s performance against key environmental and social metrics, audit results can impact a business’s compliance risks, contract liability, and brand reputation and be used in unintended ways, such as in litigation. Choosing the right audit standard and staying ahead of evolving tools are crucial for businesses to keep their programs effective and minimize auditing risks.
This article explores changes in ethics and social responsibility standards, highlights audit tool trends, and how businesses can navigate them to identify opportunities and avoid unnecessary risk.
Importance of Ethics, Social Responsibility, and Social Compliance Audits
Many businesses use third-party audits to ensure use of ethical practices, mitigate social risks, or show compliance with laws governing ethics, human rights, and responsible sourcing practices. Companies with complex or global supply chains also commonly use these audits to verify supplier compliance with labor standards, environmental regulations, and human rights principles. Audits are especially crucial in industries like manufacturing, textiles, garment production, food production, packaging, consumer goods, and retail. For example, retail, restaurant, and food companies use evidence of a functioning social compliance audit program to resolve shareholder proposals on human rights, ethics, and workplace conditions. Industry organizations, such as the Meat Institute, also issued guidance encouraging internal and third-party auditing to verify compliance with child labor laws following investigations of alleged child labor in meat packing facilities and supply chains.
Growing Number of Audit Standards and Tools
As more businesses use ethics and social responsibility audits, the number of standards and audit tools available increased. There are more than 400 voluntary standards businesses can use, covering various social compliance aspects like fair wages, working conditions, labor rights, and health and safety. Among these, SA8000, BSCI, and the Fair Labor Association (FLA) are the most recognized. Audit tools and platforms also increased dramatically, with a wide range of providers offering customizable options for industry-specific needs or selected standards. SMETA, for instance, is one of the most well-known auditing tools, with over 65,000 members across 170 countries using it in their operations and supply chains.
Trends in Audit Standards and Tools
Ethics and compliance audits evolved as auditing standards and tools have multiplied. Many standards and tools are periodically updated to stay competitive or provide a unique approach. Each tool also offers its own interpretation of standards, legislation, and regulation, which leads to varying compliance expectations. Likewise, audit results can vary greatly depending on the methodology used, as each tool typically employs a proprietary methodology and checklist.
Notably, standards like SMETA and BSCI, which are based on International Labor Organization (ILO) standards and guidance, set policy and procedural expectations that often exceed minimum legal requirements. Businesses that pass SMETA or BSCI audits are, therefore, generally seen as taking a "best practice" approach. However, businesses that incorporate SMETA or BSCI auditing but do not exceed federal or state compliance standards can still "fail" audits despite adhering to the law. For example, businesses that have continually adapted their diversity, equity, and inclusion (DEI) approach in response to dynamic DEI issues and the legal landscape in the United States may be unable to satisfy audit criteria because SMETA and BSCI continue to expect certain DEI initiatives. A business that uses lawful relocation repayment agreements may also “fail” an audit due to how this employment practice is assessed using SMETA and BSCI’s audit methodology.
SMETA 7.0: New Compliance Expectations
In 2024, Sedex launched SMETA 7.0, an updated methodology for evaluating performance and social compliance. This update introduced several key changes, including:
- New Management Systems Assessment (MSA): A detailed review of policies, procedures, and practices at a site.
- “Collaborative Action Required” category: A new finding categorization that helps address audit findings involving complex issues, such as those requiring third-party participation to resolve.
- Enhanced environmental and business ethics assessments: A broader evaluation of a site’s sustainability practices, environmental impact, and responsible sourcing.
- Digital platform integration: Use of a new digital platform for real-time reporting, improving transparency and communication.
Following SMETA 7.0’s release in 2025, businesses undergoing SMETA audits need to prepare for the updated methodology, including understanding of the new digital platform and how Sedex will share audit results with third parties.
Considerations for Audit-Sharing Platforms
As most audit tools are now integrated into digital platforms, audit information and results are often automatically shared with third parties, such as primary customers and key stakeholders, and in that process, may become public information. While meant to enhance collaboration and streamline the audit process; an automatic transfer of audit information can result in unintended consequences. For example, the automatic transfer of audit information can result in unintended sharing or loss of personal, privileged, proprietary, or trade secret information. Additionally, audit documentation becomes more accessible in other proceedings, such as litigation or agency investigations.
Adapting to the Dynamic Social Responsibility Landscape
Given the rapid evolution of ethics and social responsibility auditing trends, businesses—particularly those with global operations—must stay informed about the latest developments in audit standards and tools. Before adopting an audit standard or tool, especially one a customer requires, businesses should carefully evaluate whether they can fully comply with the auditing methodology and requirements.
Regularly reviewing audit programs, tools, and overall effectiveness can help businesses stay compliant without increasing program-related risks. Companies can also protect their reputations and prevent the misuse of audit findings and documentation by proactively selecting audit standards and tools to incorporate into their program.
Nixon Peabody’s ESG Team is dedicated to helping you stay ahead of evolving social responsibility considerations. We provide guidance on current issues and trends, ensuring your business remains compliant and competitive.