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We assess ethical risk using three criteria:

• the risk inherent in the country where the supplier is located, using a country risk matrix provided by an independent ethical consultancy;
• the risk inherent in the industry and employment types, e.g. use of seasonal workers, homeworkers and subcontractors;
• our own knowledge of the risks posed by the site and supplier, e.g. the types of raw materials, the role of secondary sites, and any previous record.

Using these criteria, we place suppliers into high, medium and low ethical risk categories:

• we carry out annual reviews of the Sedex self assessment forms of our high-risk suppliers, and require them to have a 2-3 day ethical assessment by a third party every year. This year we reached our target of assessing 100% of our high-risk suppliers;
• we carry out annual reviews of the Sedex self assessment forms of our medium-risk suppliers, and require them to have a 1-2 day ethical assessment by a third party assessor at least every two years;
• we carry out annual reviews of the Sedex self assessment forms of our low-risk suppliers.

We write to suppliers to inform them of their risk rating. Third party assessors conduct the ethical assessments, highlight non-compliance and manage the verification of corrective actions to ensure implementation. If a non-compliance has not been verified as resolved by the third-party company six months after the assessment date, a Tesco technical manager will assess the suitability of the site to continue supply. When problems with compliance emerge, our aim where possible is to work with the supplier to resolve the issue. We believe this approach helps achieve long-term improvements in ethical performance. However, if there is no commitment from the supplier to improve, we would cease to trade with them.

To date, almost all our primary suppliers have registered on Sedex and we aim to have independent audits from all high and medium-risk suppliers uploaded on to Sedex by the end of the year. We also aim to have all self assessment for all primary suppliers complete by September 2005.

We received five external complaints during 2004, concerning the labour standards at two salad suppliers, a flower supplier, a fruit supplier and a hosiery supplier. All complaints were followed up by unannounced visits from Tesco technical managers and Product Integrity Unit auditors. Third-party ethical assessments were carried out, which were then verified by a second set of unannounced visits by Tesco. We are also working with ethical consultants to strengthen the confidential complaint mechanisms for workers throughout our supply chain.