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Purchasing & Supply Chain

As one of the five strategic areas of our Sustainable Development Strategy, we aspire to drive improvement within our supply chain in terms of overall sustainability performance through developing partnerships with our suppliers. We give strong preference to those who integrate social and environmental policies into their business processes.

Our aim is to address the sustainability of our supply chain through the ongoing implementation of our Supplier Code of Conduct and with continued engagement and collaboration with our suppliers. Internally, the Code was made available to general staff on the intranet, and was presented to outport General Managers. Supply chain risks were also discussed.

We are working to establish sustainable sourcing practices across all our operations. The process began by understanding resource utilisation at different business units. Part of this work included identifying items commonly procured and assessing areas where a reduction in our sustainability impact could be achieved. As examples of the successful application of this approach, during 2010, we progressively switched to sustainably sourced paper, including marketing collaterals, and agreement has been reached with our suppliers to offer sustainably sourced fish on flights departing from Europe to Hong Kong starting from early 2011. Some of our stakeholders acknowledge that we have made a good start in this area while others expect us to keep improving by communicating achievements and results.

When evaluating the current and future needs of our business and proposals from suppliers, we use a tried and tested evaluation tool as part of our purchasing decision process. This approach employs the criteria of Cost, Innovation, Satisfaction, Quality, Assurance of Supply and Safety, which are ranked on a case-by-case basis according to the needs of the business and the importance of each criteria in each specific case. We measure sustainability when we consider the "Safety" criteria, as safety in its broadest sense includes risk - and in the case of sourcing, the risk is of "un-sustainability".

Key issues raised by stakeholders on our Supply Chain
Support for and promotion of sustainable sourcing. Understand the carbon footprint of our supply chain. Transparency of the supply chain. Engaging suppliers and influencing passengers by selecting and offering responsibly sourced options. Report on monitoring and compliance results.
Applying the Supplier Code of Conduct

Since 2007, we have been asking our suppliers, managed through our centralised purchasing departments in Hong Kong, to confirm their degree of compliance with the 10 key objectives in our Supplier Code of Conduct. In 2010, we expanded the coverage of the Code to include suppliers managed at our outports. The Code is part of our supply tenders and contracts, and all suppliers, new and existing, are required to comply with the standards described in the Code. Since its development, other Swire companies have also adopted the Cathay Pacific Code in principle. We continue to work closely with the Swire Supply Chain Sustainability Working Group on developing and providing guidance.

We endeavour to create an effective dialogue with suppliers and be responsive to their concerns, rather than be purely prescriptive. From the results of the 2009 questionnaire, we recognised that not all of our current suppliers were in full compliance with our Supplier Code of Conduct, but through working in partnership with them, we aimed to help and encourage those suppliers committed to improvements by, for example, phasing in the application of the Code. Through this process, we remain aware of the potential impacts on our business reputation resulting from supplier non-compliance with our standards.

The second questionnaire was sent out in December 2010 to our direct suppliers totalling 1,478. The response rate from these suppliers improved from 89.5% to 90.8% compared to 2009. This marked the first time that outport-based suppliers were invited to respond and we acknowledged that they would need more time to assess and respond to the questions.

We will be engaging with our outport suppliers more in future.

Following the 2010 survey and results, we will continue to work with our suppliers toward full compliance with our Code of Conduct. We are currently developing a robust system of compliance checking which we believe will be of benefit to the entire Cathay Pacific supply chain. We acknowledge the importance of ongoing dialogue with our suppliers especially where there is the possibility of a high risk to our business in terms of reputation, availability, or negative sustainability impacts.