The IHI group’s procurement activities are based upon the IHI Group Procurement Policy, which consists of three pillars: “Fair and Impartial Procurement,” “Mutually Beneficial Partnership with our Business Partners,” and “Approach to Compliance and Social Responsibility.”
In fiscal 2022, the IHI Group formulated the IHI Group Code of Conduct for Business Partners, which sets out specific requests and expectations for its business partners. The IHI Group asks its business partners and their supply chains for considering human rights and labor, health and safety, environment, fair business and ethics, information security, and procurement responsibilities over mineral resources, on top of basic requirements such as compliance, quality, price, and delivery.
Each procurement department in the IHI Group conducts its procurement activities in accordance with the Basic Rules of Procurement for the IHI Group which reflects the procurement policy described in the IHI Group Procurement Policy, and takes its social responsibility by building sustainable supply chains.
Policies
IHI Group Procurement Policy
The IHI Group conducts procurement activities in accordance with the “Basic Code of Conduct for the IHI Group” as set forth below.
Article 1. Fair and Impartial Procurement
We provide business opportunities in an open manner to business partners from around the world, and welcome working with creative and competitive business partners. We also evaluate and select business partners in a comprehensive and fair manner based on factors such as quality, price, delivery schedule, technology development capabilities, and financial conditions.
Article 2. Mutually Beneficial Partnership with Our Business Partners
We regard our business partners as value creators, and through seeking to realize optimal levels for quality, price and delivery, together with procurement reliability, we aim to establish relationships of trust with our business partners and bring about the mutual enhancement of competitiveness and prosperity with them.
Article 3. Approach to Compliance and Social Responsibility
We comply with the related laws that govern our local and global businesses. To fulfill our social responsibility, we shall conduct CSR procurement with due consideration not only of basic requirements such as quality, price and delivery, but also of human rights, labor conditions, health and safety, the environment, and information management.
IHI Group Code of Conduct for Business Partners
Compliance with Laws and Regulations and Respect for International Norms
1.1. Compliance with Laws and Regulations and Respect for International Norms
Human Rights and Labor
2.1. Prohibition of Forced Labor
2.2. Prohibition of Child Labor
2.3. Prohibition of Inhumane Treatment
2.4. Prohibition of Discriminatory Practices
2.5. Appropriate Management of Working Hours
2.6. Appropriate Wages and Allowances
2.7. Freedom of Association and Right to Collective Bargaining
Health and Safety
3.1. Safe Workplaces
3.2. Emergency Preparedness
3.3. Occupational Injury and Illnesses
3.4. Industrial Hygiene
3.5. Consideration for Physically Demanding Work
3.6. Safety Measures for Plant Equipment
3.7. Health and Safety at Facilities
3.8. Health and Safety Communication
3.9. Worker Health Management
Environment
4.1. Climate Change Countermeasures
4.2. Proper Management of Water Resources
4.3. Proper Management of Chemical Substances
4.4. Proper Management of Waste
4.5. Biodiversity Conservation
Fair Business and Ethics
5.1. Prevention of Corruption and Prohibition of Improper Exchange of Benefits
5.2. Information Disclosure
5.3. Respecting Intellectual Property
5.4. Conducting of Fair Business
5.5. Whistleblower Protection
Quality, Safety, and Stable Supply of Products
6.1. Product Safety
6.2. Quality Control
6.3. Stable Supply
6.4. Liability over Product Accidents and Nonconformities
Information Security
7.1. Defense against Cyber Attacks
7.2. Protection of Personal Information
7.3. Protection of Confidential Information
Competitive Edge
8.1. Enhancement of Competitiveness
Proactive Approach for Social Issues
9.1. Contributing to Local Communities
9.2. Reasonable Effort for Global Social Issues
Establishment of Management System
10.1. Establishment of Management System
10.2. Communication with Your Supply Chain
10.3. Procurement Responsibility over Mineral Resources
10.4. Proper Import and Export Controls
10.5. Grievance Mechanism
10.6. Progress Report
The IHI Group takes a broad approach to risk management, including considering country risks and natural disaster risks in the supply chain. After the corporate division formulates measures and business areas implement them, the results are shared and discussed at the Risk Management Conference, chaired by the Chief Executive Officer (CEO).
Activity policies and measures related to human rights issues in the supply chain, as well as their results, are shared and deliberated at the Human Rights and DE&I Committee, chaired by the Officer in charge of Group Human Resources.
In fiscal 2024, all reports were submitted on a quarterly basis.
While the IHI Group manufactures key components within the Group, it also procures raw materials, parts, and services from suppliers outside the Group. Cost increase and/or delivery delay may be brought about by dramatic fluctuations in material and equipment prices, imbalance between supply and demand for special steel, sudden changes in the international situation, and supply chain disruption due to severe disasters or large-scale spread of infectious diseases.
Additionally, in the process of promoting CSR procurement, procurement costs may rise, consequently causing negative impact on the Group’s business performance and financial condition.
Opportunities
The IHI Group’s firm conviction is that risk mitigation efforts in the supply chain brings edge over strengthening production capabilities, establishing a business structure that is less susceptible to external factors, and ultimately stabilizing business performance and financial conditions, as well as increasing corporate value.
Risk Management
Strengthen Supply Chains
The IHI Group is globally promoting activities to strengthen its supply chain to prevent stagnation of corporate activities possibly caused by natural disasters, infectious diseases, conflicts, and emerged risks from the CSR procurement perspective, and so on.
The IHI Group strives for stable procurement by collecting market trends about raw materials and parts, thoroughly manages quality and delivery of its suppliers to avoid excessive concentration and dependence, and proceeds with multiple source selection. To build a supply chain that is less vulnerable to different risks, the IHI Group identifies important suppliers essential to business continuity and uses a variety of assessment tools to select business partners as targets for strengthening its supply chain.
These assessment tools include ESG risk assessments conducted by third-party organizations, management risk assessments of business partners, and interviews regarding information security and business continuity plans in the event of a disaster.
Selecting Important Business Partners
The IHI Group identifies suppliers that are important to its business from the following criteria and conducts focused risk management.
Importance of ordered materials and processes
Amount of annual orders
Difficulty of substitution
Lengthy delivery time, etc.
In fiscal 2024, 514 companies were identified as important business partners from among first-tier business partners. Of the approximately 9,000 first-tier business partners with which the IHI Group does business, the procurement amount of the 514 important first-tier business partners accounted for 24% of the total.
Number and Ratio of Important Business Partners
(Unit: Company, Scope: IHI and 26 affiliated companies in Japan)
Item
Number of Business Partners
Procurement Amount Ratio*
Number of first-tier business partners
Approx. 9,000
100%
Number of important first-tier business partners
514
24%
FY2024 orders
Supplier Sustainability Evaluation
Utilization of Sustainability Assessment Service “EcoVadis”
The IHI Group entered into an agreement with EcoVadis, a third-party ESG assessment firm, in June 2024, to establish a system to evaluate supply chain risk properly and fairly.
The IHI Group establishes a risk management system where it encourages its business partners to undergo sustainability assessments conducted by EcoVadis: if there are no issues found, the Group manages them as excellent suppliers, and if there are concerns picked up, it makes special interviews for clarification and improvement purpose. EcoVadis system also enables it to promptly pick up publicly opened news such as compliance violations, and to respond to the relevant supplier(s) in little time.
Additionally, 432 business partners have provided the IHI Group with the results of their EcoVadis assessments as part of the Group’s supply chain risk monitoring, and 80% of these partners received an overall score of 45 points or higher.
Supplier Management Using Self-Check Sheets
The IHI Group has developed the IHI Group Code of Conduct for Business Partners with reference to the Responsible Business Conduct Guidelines (established by JEITA) and the Responsible Business Alliance (RBA) Code of Conduct, and is distributing it to the Group’s business partners. In addition, some business partners were asked to complete a self-check sheet based on the Code of Conduct, in order to recognize issues and further engage in CSR activities.
To date, 372 self-check sheets have been collected as part of pre-interviews for on-site dialogues and pre-screenings of important business partners for some construction projects. Of which, 163 were collected from important business partners.
CSR Activity Promotion Process
Strengthening Engagement with Business Partners
Permeation of the IHI Group Code of Conduct for Business Partners
The IHI Group not only publishes the IHI Group Code of Conduct for Business Partners on its website, but also distributes it to existing business partners through notification letter and information session for its business partners. For newcomers, each IHI Group procurement department asks them to respect the IHI Group Code of Conduct for Business Partners on the contract. Additionally, to support the CSR activities of the Group’s business partners, joint seminars on human rights, fair business, and ethics were held in Japan and other two locations in Asia. The table below displays the outcomes of the seminars that were held in fiscal 2024.
Number of Participants in the Joint Seminar
Topic
Host Country
Target
FY2024
Human rights
Japan
Important business partners in Japan
316 people*
Vietnam
Important business partners in Vietnam
28 companies
Malaysia
Important business partners in Malaysia
25 people
Fair business and ethics
Japan
Important business partners in Japan
144 people*
Including IHI representatives and speakers
Dialogue using EcoVadis
Starting in fiscal 2024, the IHI Group began visiting business partners and holding dialogues to hear about issues based on the EcoVadis sustainability assessment. The purpose of these dialogues is to ask about the status of business partners’ daily CSR procurement efforts and to have a constructive discussion about cooperation for further improvement.
In fiscal 2024, ten companies were chosen from among the Group’s important first-tier business partners in Japan after screening utilizing risk assessments based on their business type and country, as well as their actual CSR initiatives. After using self-check sheets and other tools to perform advance interviews, visits to speak with them in person were held.
The discussion included an explanation of IHI Group’s strategy, namely with relation to harassment prevention, internal reporting, and carbon neutrality, and opinions were exchanged regarding the initiatives being undertaken by the business partner.
Human Rights Risk Reduction Activities
Active Dialogue with Foreign Technical Intern Trainees
Starting in fiscal 2023, the IHI Group, in cooperation with the Global Alliance for Sustainable Supply Chains (ASSC), engages in proactive dialogue (in-person interviews) for risk mitigation purpose regarding non-Japanese technical intern trainees employed by partner companies located on the premises of IHI and its Group companies in Japan. The IHI Group gets a handle on the interviewees’ grievance and/or complaints about work conditions and/or environment when they are small.
The IHI Group engaged in proactive dialogue (in-person interviews) with 54 foreign non-regular workers at eight different locations in Japan between November 2023 and October 2024.
Responding to Anti-social Forces and Anticorruption
The IHI Group contractually requires its business partners to prohibit all relationships with anti-social forces, and commits no acts of bribery toward foreign government officials as prohibited by the “Penal Code and the Unfair Competition Prevention Act” or against the laws enacted in the particular country. If any acts as said above are found, the IHI Group requests the relevant company(s) investigate and report it to the IHI Group.
Education/Awareness Building for Employees
The IHI Group enhances compliance consciousness by focusing on education on procurement-related laws and business regulations, as well as by inspecting and improving compliance within its operations.
In addition to traditional in-person training, the IHI Group procurement professional development training uses on-demand video distribution to enhance participant convenience and increase learning and relearning opportunities, which helps participants gain a deeper understanding of laws and regulations.
In addition to procurement-related divisions, e-learning training that includes CSR procurement content is provided to employees of IHI and its 36 affiliated companies in Japan, to educate and instill understanding of laws, regulations, and social demands. In fiscal 2024, 85% of eligible employees participated in the e-learning course.
In fiscal 2024, training aimed at improving price assessment capabilities was conducted in response to rising procurement costs, as well as supply chain management training for mid-level Group employees in order to build a sustainable supply chain. By improving the skills required for future procurement operations, the IHI Group is also working to improve employee engagement and satisfaction.
Procurement Responsibility over Mineral Resources including Conflict Minerals
The IHI Group endorses the aims of the Responsible Minerals Initiative (RMI), an international organization leading procurement responsibility regarding mineral resources. The IHI Group, for the time being, conducts activities regarding tin, tantalum, tungsten, and cobalt which have a considerable number of RMI-approved suppliers. The final target is to confirm that all purchases are manufactured through RMI-certified refiners and smelters.
The IHI Group specifies product groups such as jet engine parts that surely contain the targeted mineral resources, and continues to conduct surveys by sending questionnaires designated by RMI to manufacturers which produce the targeted parts. The IHI Group plans to expand the scope of the product group surveyed as needed. Respecting the “5-step Frame Work guidance” set out by the Organization for Economic Co-operation and Development (OECD), the Procurement Planning Strategy in the IHI Group takes a lead over activities by designated procurement departments.
In addition, the IHI Group notifies its business partners of the policy and recommendation about “Procurement Responsibility over Mineral Resources” in Section 10.3 in the IHI Group Code of Conduct for Business Partners.
Metrics and Targets
Participants in Procurement Training
(Unit: People, Scope: IHI and affiliated companies in Japan)
Item
FY2021
FY2022
FY2023
FY2024
Lecture on Subcontract Act*1
143
379
431
379
Lecture on Construction Business Act*1
98
354
313
165
Lecture on Overseas Procurement*1
82
112
152
115
Professional Procurement Training*2
642
1,367
1,534
1,184
These three lectures are part of “Professional Procurement Training” and each participant number adds up to the numbers of “Professional Procurement Training.”
Lectures on security trade control has been added since FY2022.
Dialogue with Non-regular Foreign Workers
Item
Scope
FY2021
FY2022
FY2023
FY2024
Number of locations
IHI and affiliated companies in Japan
─
─
4
4
Number of people spoken with
Workers at the location (including workers from partner companies)
─
─
22
32
Number of Reports Received Through the Grievance Mechanism
Mutually Beneficial Partnership with Our Business Partners
In September 2020, the IHI Group publicized the registration of “Declaration for Building Partnerships.” Based on this declaration, the IHI Group aims for a mutually beneficial partnership with its business partners.
In response to the “Guidelines on Price Negotiation for Appropriate Pass-through of Labor Costs,” which were jointly developed by the Cabinet Secretariat and the Japan Fair Trade Council in November 2023, the IHI Group modified the Declaration for Building Partnerships incorporating price pass-through initiatives approved by its top management. The IHI Group, taking a careful look at circumstances its business partners are placed in, regularly reports to its top management about price pass-through status.
The IHI Group considers its suppliers as valued partners to proceed with business in collaboration, and hones its competitive edge aiming for mutual prosperity through open dialogue and cooperation.
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