Influencing our supply chain.

Supply Chain Facts

	2008	2009	2010
Spend with Suppliers	£358m	£316.2m	£369.7
Number of Suppliers	2443	2284	2102
Number of Key Suppliers	35	50	40
Percentage of suppliers operating in High risk Countries (As defined by FTSE4Good)	0%	2%	15%

Without our suppliers and their infrastructure, we could not deliver the services we provide to our customers. The vast majority of our suppliers are based in the UK in line with our focus upon UK customers.

The increase in the percentage of our key suppliers delivering products and services to us from what ‘FTSE4Good’ considers ‘higher risk countries’ reflects the strategic outsourcing of our IT and telephony services. Our approach is to continue to apply a constantly improving set of standards, which we expect our suppliers, particularly those in higher risk countries, to work towards.

We recognise that working in a collaborative way with our suppliers is the most effective way of operating.

We have 40 Key Suppliers who we deem to have a high Environmental, Social and Governance (ESG) impact. This has reduced from 50 in 2009 because of our strategic outsourcing of IT which has consolidated the number of suppliers in this area.

Governance and Policy

We require all our suppliers to be compliant with our Sustainable Procurement Policy and are committed to actively supporting them to help them to achieve these CSR standards.

In 2010, our Sustainable Procurement Policy was extended to include our full supplier base. This reflects the integration of our ‘CSR standards for suppliers’ into our procurement processes, including our ‘CSR compliance questionnaire’ in tenders and declaring our expectations in tender documentation.

Benchmarked performance

Our procurement environmental management system is externally certified to ISO 14001 with twice yearly audits. Since its inception, the scope of the EMS has been extended to include all the formal purchasing centres within Legal & General and includes the development of environmental specifications for paper, furniture, IT hardware and cleaning products. It has also been adapted to meet increasing legislative requirements such as the requirement for Site Waste Management Plans and management of waste electrical equipment.

Under our environmental management, system suppliers are requested to produce a risk assessment to reflect the environmental impacts of their activities and then work with their relationship manager to agree targets. The aim is to agree ‘quick wins’ as well as longer term goals, which emphasise the potential economic and environmental benefits of taking action.

In 2010, we published our intention to ensure that a minimum of 80% of our key suppliers will be compliant with our CSR standards by 2012. During 2010, we have worked actively with our suppliers to establish any areas of non-compliance and provide support.

For example one of our key suppliers had no method of understanding or controlling the CSR impacts of the overseas manufacture of equipment. Our advice was to introduce external audits of these factories and we worked with the supplier to devise an example audit for consideration. The supplier subsequently introduced regular audits and a pre-assessment before any new manufacturer is appointed.

We continue to validate and benchmark our supplier management approach with external organisations such as:

• Financial Services Purchasing Forum
• BITC CR Index
• Dow Jones Sustainability Index
• Our suppliers including Bureau Veritas, PaperCo and KPMG.

Business Driven Campaigns

We have continued to campaign for relevant issues within different procurement teams across the business in 2010. It’s important that common standards are applied to all of our suppliers but also that our Business Procurement professionals drive changes and work with suppliers specific to their business.

Some examples of progress in 2010 include:

Waste reduction for our General Insurance (GI) Customers

We recognise that waste management arising from our general insurance building and repair services is a significant environmental issue and is a visible environmental impact to our policyholders. We are currently managing a major initiative to reduce this impact.

The project was launched in 2009 with a supplier workshop dedicated to raising the profile of waste management and identifying any opportunities for improvement. During 2010, we continued to engage with all suppliers involved in building repair/restoration activities. We concentrated our engagement on the suppliers that have the highest level of impact i.e. supply of glazing, drainage, restoration and building repair services.

The aims of this engagement have been to:

• Reduce the level of waste we produce that goes to landfill.
• Work with the GI supply chain to increase the level of recycling that is undertaken.
• Explore opportunities to develop value from salvage by directing waste upstream/downstream in supply distribution chain for reuse.
• Explore opportunities to work with charities to support waste recycling.
• Introduce a waste management policy.

We continue to gather information from our suppliers. Next year we plan to determine a baseline for data upon which targeted improvements will be set. This will include reducing the amount of waste sent to landfill and incineration. The positive impact and progress of this can be seen in our total waste reduction targets, which have been achieved in 2010.

We have also benefited from this being a key area of collaboration as a result of our Climatewise membership across the industry.

Creating a level playing field for Small to Medium (SME) enterprises

In 2009, we surveyed a sample of our suppliers with whom we spent above £250K per annum and determined that exactly half were SMEs. We realised that current economic pressures would most likely be more significant for SMEs and that our buyers could potentially, and unintentionally, be influenced to prioritise security of supply with the financial security of larger companies. We therefore undertook a number of initiatives in 2010 with the intention of creating an enabling environment for SMEs, including companies owned by women and minority groups:

• We held workshops for procurement personnel in January and challenged them to consider the value of SMEs and to balance the need for security with the innovation most commonly held within these types of business.
• We made it easier for SME’s to register their interest in doing business with us.
• We began our publicity of the new process of ‘how to become a supplier to Legal & General’ with a presentation to 100 companies at the Brighton Chamber of Commerce in November to deliberately target towns and cities across the UK where SME’s tend to be more concentrated.
• We developed our ‘Sustainable Office Guide’ to provide support on how our suppliers can run their offices more sustainably.

Rewarding the right behaviour with suppliers

In 2010, we held our annual 'Making a Difference awards', where we seek to recognise any suppliers who have made a significant improvement in their environmental, economic or social impacts. We believe that we play a key role in providing public recognition for best practice.

In 2010 we attracted more entries than ever for the awards, which are open to any supplier of Legal & General.

• The winner of our 2010 Making a Difference awards was Tata Consultancy Services for their outstanding work with the youth community in Tower Hamlets.
• We also introduced a new ‘Shining Star’ award, which is aimed at recognising individuals within our suppliers’ organisations who have been leaders of their CSR activities or been the force behind making things happen. The winner of our inaugural 2010 ‘Shining Star’ award was Karen Warrington of Enterprise Rent-a car for her work with SOS Puffin, which has assisted with an increase of the puffin population on the island of Craigleith.

Both awards were decided by an external panel and included representatives from Business in the Community and the Chartered Institute of Purchasing and Supply.

Looking forward

We will continue with our approach of collaboration and engagement with suppliers.

• We are looking to extend elements of our Sustainable Procurement Policy to overseas subsidiaries.
• We will be returning to our suppliers to understand how their carbon emissions have reduced since our initial activity and target setting in 2009.
• We are looking to extend our definition of Key Suppliers to increase the scope so that we can influence more of our suppliers’ standards.

We are investigating the opportunities that the Big Society agenda brings in the UK to see how procurement professionals can purchase more core services from the Third Sector.