Our commitment to being a responsible and sustainable business extends to how we manage our supply chains in over 40 economies around the world. Our global vendor compliance team regularly monitor compliance and work with our suppliers to meet our Code of Conduct, as well as industry- and customer-specific audit standards, protocols and methodologies.

Li & Fung's most significant opportunities and risks are in the supply chains where we engage suppliers to manufacture products for our customers. In 2012 we began the year by launching our updated Code of Conduct for Suppliers and Supplier Compliance Manual and then by following up with over 375 training sessions for over 5,000 of our suppliers and close to 4,000 of our colleagues. This marked a significant milestone in our sustainability journey in that both our updated Standards, which are in line with industry requirements, and the practices that our suppliers are expected to implement to meet these Standards, are clearly outlined. We continue to be a strong advocate for responsible sourcing within our business and with our customers, suppliers and industry partners. Through collaboration we can more effectively address the risks in the supply chain, effect change and grow business opportunities in areas that contribute to better working and environmental conditions and stronger and healthier communities.

To support the rollout of our updated Code of Conduct, we developed standard operating procedures and a variety of resources for our global Vendor Compliance (VC) team of 159 people and our business divisions around the world to screen, monitor, audit and assess the performance of our suppliers. We also developed guidance materials and practical tools for our suppliers to comply with our requirements and to improve their operational performance. These resources, which are outlined below and are translated in local languages, cover issues and risks associated with business operations and labor, health and safety, environmental and security practices.

• The Sustainability Resource Center  website for our suppliers to access training schedules and a suite of resources to assist them to improve performance.
• Supplier Compliance Manual that outlines how to meet our Code of Conduct for Suppliers.
• Major Issues Tutorial and Zero Tolerance Issues Tutorial that provide detailed guidance on how to address issues and what is required to demonstrate compliance with LF Standards.
• Comprehensive Occupational Safety & Health Toolkit to help suppliers to adopt safe and healthy systems and practices in their workplaces.
• Sustainable Suggestions for our Partners, which are "how to get started" modules on energy and water efficiency, GHG reduction, sustainable buildings, waste management, lean manufacturing, human resource management and occupational health and safety.
• Digital Learning Units for Managers and Workers, which are a series of short, user-friendly and practical videos developed with the support of the Fung Academy¹. The first in the series, on fire safety, was launched in late 2012 with more to come on topics ranging from working hours to chemical management and lean manufacturing.

As highlighted below, in 2012 we expanded our involvement with several key industry initiatives that bring our customers, peers and industry associations together to work collectively to set standards and effect change, and we collaborated with our customers and non-governmental organizations (NGOs) to implement focused programs that address the particular challenges of our industry and the specific countries where we operate.

• As a signatory to As You Sow we engage with our suppliers to not knowingly source cotton from Uzbekistan where forced and child labor is a significant concern.
• We partner with our customers to raise awareness and train our colleagues and suppliers on the requirements of new legislation, such as the California Transparency in Supply Chains Act to combat human trafficking.
• We support factories in Cambodia, Haiti, Indonesia Jordan and Vietnam to improve labor conditions as part of the International Labor Organization's Better Work program;
• We partnered with Business for Social Responsibility (BSR) and the Fung Academy to organize a Water Summit to raise awareness of water scarcity in China and to share best practices for improving water efficiency.
• Recognizing that healthy employees contribute to the health of a business, we work with BSR, the Fung (1906) Foundation Limited and our customers to implement the HER Project in 12 factories in Bangladesh, China, India, Indonesia and Pakistan. The project empowers women with the knowledge and skills to improve their health, living conditions and livelihoods.
• We are a founding and active member of the Sustainable Apparel Coalition (SAC), supporting the development and pilot testing of its Apparel Sustainability Index Tool for measuring the environmental impact of products in our supply chain.
• We participate in the Global Social Compliance Programme (GSCP), supporting its efforts to improve working and environmental conditions in the global supply chain.

We also implemented several focused programs in collaboration with some of our key customers that we will continue to expand and replicate in our supply chain. Examples include:

• Starting in early 2012, an electrical and fire safety training program in Bangladesh that includes supplier workshops, onsite risk assessments and focussed training on electrical and fire safety in factories. This ongoing program is being expanded in 2013.
• Working with community-based organizations on the threeyear Hemaya Project to empower Jordanian women to work in the Jordanian garment sector, improve workplace relations, reduce poverty and improve livelihood options for local women and families.
• Supported by the Fung Academy¹, implementing a bespoke energy management program for up to 20 logistics warehouses/distribution centers and apparel and footwear manufacturers to optimize their energy use without affecting production and to lower overall costs and impacts on the environment. Each participating operation receives an energy consumption assessment, an onsite audit, and training and support to develop and implement initiatives to reduce energy consumption and improve efficiency.
• Conducting comprehensive environmental, chemical safety, health and safety and fire preparedness assessments and carbon footprint measurements for 29 apparel factories in China, Taiwan, Korea, Bangladesh, India, Indonesia, Cambodia, Vietnam, Malaysia and Nicaragua. Resources are also provided to improve performance, implement actions and regularly report on environmental and carbon metrics for a key customer.
• Supporting toy manufacturers to implement "lean and green manufacturing" in China, including how to identify technical and financial resources to improve efficiencies and use sustainable materials.
• Sourcing environmentally-responsible products, including garments made from organic cotton and recycled yarn, picture frames and furniture made from FSC certified wood and beauty products that are biodegradable, not tested on animals and free of silicones, sulphates, parabens and colorants.

We also recognize that significant efforts, in collaboration and in partnership with our stakeholders, continue to be required to improve labor practices, working conditions and to reduce environmental impacts in the supply chain. This need was sadly reinforced by the tragic death of workers in a fire at the Tazreen garment factory in Bangladesh. We participated in aid efforts for immediate relief and matched the Bangladesh Garment Manufacturers and Exporters Association (BGMEA)'s financial assistance to each family of every victim.

The safety of workers in our supply chain is a priority for Li & Fung. Safety, including fire safety, is embedded in our approach to sourcing and, with our Code of Conduct for Suppliers, is integral to our compliance and sustainability program. In Bangladesh, specifically, we have worked with suppliers to upgrade fire safety since early 2012. Initiatives include in-depth training for factories on how to enhance their management systems to build sustainable solutions for safety at factories. We also piloted and launched in Bangladesh a series of videos on fire safety. These innovative videos explain clearly and practically why it is essential for the survival of workers and the business to adopt proper fire safety practices. They are core to our continuing efforts across our network to increase education and training in this area. To find out more about the steps we have taken to address fire safety of suppliers in Bangladesh, please click here.

Improving factory procedures and systems, and enhancing awareness of good sustainability practices, is an integral part of a long-term process to raise industry standards, and one which requires sustained commitment by multiple parties. We will continue to evolve our programs to meet market needs and local conditions, and work with the industry to share best practices and accelerate this change.

Our aim is that through improved visibility, tracking and performance, impacts and risks will be better managed in the supply chain. Sustainability and business resilience also drive innovation, which is critical for creating products with sustainability attributes that are made in better-managed factories. We will continue to work with our customers, suppliers and industry partners to improve our collective knowledge and capabilities around responsible and sustainable sourcing, products and packaging.

1. The Fung Academy, an organizational unit of Fung 1937, provides Leadership Development and Sustainability programs aimed at building organizational readiness and capacity for all units of the Fung Group including outreach programs to the firm's supplier base. The supplier programs are aimed at facilitating our supplier's commitment to environmental and social best practices, leading to manufacturing excellence.