Koala Inc

Transparency in Supply Chains Act

Compliance Statement (December 2024)

Introduction

Koala's mission is to build better furniture experiences, designed with the World in mind. Combining customer-centric products, incredible customer service and social good; we are changing the way people buy and enjoy furniture to create happier, healthier habitats.

We recognize the importance of addressing the issues of forced labor, child labor, and modern slavery within global supply chains. This statement outlines our commitment to transparency and accountability in line with the California Transparency in Supply Chains Act (SB 657).

Verification of product supply chains to evaluate and address risks of human trafficking and slavery

Koala uses third party risk assessment tools and audits as well as internal processes and key performance indicators to verify its product supply chains as part of our due diligence process.

Assessment of Product Supply Chain Risk

We use Sedex (Supplier Ethical Data Exchange) as our primary tool for identifying labor, human rights, governance and environmental risks across product supply chains. 

The Sedex application, Radar, allocates an inherent risk score to a particular country and industry sector based on information from a range of sources, along with data collected from sites within the Sedex platform. The sources of this information include data collected from third parties, such as the International labor organization (ILO), the United Nations, Yale University and Sedex’s ESG partner Anthesis. 

The inherent risk score for modern slavery risks (referred to as the “labor standards & rights” pillar by Sedex) is determined by considering the following factors:

• risk of forced labor;

• ease of freedom of association;

• risk of child and young workers;

• risk of irregular employment;

• ability to earn a living wage;

• risk of excessive working hours;

• risk of discrimination; and

• risk of exploitation based on gender.

In assessing the inherent risk of modern slavery associated with a country and/or industry in which a vendor operates, Koala also considers factors relating to health, safety and hygiene, environment and business ethics.

Identifying risks for specific Tier 1 product supply chain sites

In addition to utilising Sedex to understand the inherent risks in a country or industry sector, Koala can (where a vendor is also a Sedex member) use additional analytics on the Sedex platform to measure the site specific risk for a particular vendor’s site based on:

• inherent risks for the relevant country and sector(s);

• management controls to identify and mitigate risk;

• site characteristics (such as workforce size, type of work and labor intensity);

• answers from the Self Assessment Questionnaire (SAQ); and

• SMETA Audit results conducted by third party audit firms

For Tier 1 sites of vendors that are not Sedex members, we will utilise other third party audits and a supplier questionnaire to supplement the inherent risk information provided by the Sedex risk tools.

Other sources for understanding modern slavery risks

Koala also utilises a variety of other sources to further understand modern slavery risks in our supply chains and operations, including:

• Transparency International, for data on corruption levels in various countries;

• Walk Free Foundation and other NGOs for thematic and specific risks in countries and industry sectors;

• ILAB for information on products produced by child, forced or indentured labor;

• ILO for data, news and initiatives to improve labor protection and rights;

• ASEAN Australia Counter-Trafficking Partnership Hub for specific information on labor risks in South East Asia;

• publicly available modern slavery statements of other retailers to understand what risks and mitigations similar organizations are reporting; and

• third party ESG firms for up-to-date information on modern slavery laws and information on pertinent risks in supply chains.

Managing Supply Chain Complexity through Certification

We recognise that, in a number of circumstances, inherent risks in a supply chain can increase further down the chain, closer to where the raw materials are sourced and processed. This can be as a result of production becoming more complex and involving more jurisdictions. To assist with mitigating the risks associated with this , Koala requires vendors that source a number of raw materials such as timber to have third party certifications like Forest Stewardship Council (FSC) that incorporate labor standards and chain of custody requirements to verify the supply chain.

Audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains.

Tier 1 product supply chain vendors outside Australia are regularly audited to recognized standards including:

• BSCI (Business Social Compliance Initiative);

• ICS (Initiative for Compliance and Sustainability);

• SMETA (Sedex Members Ethical Trade Audit); or

• QIMA (Quality Inspection Management) Ethical Audit standard.

These audits are conducted by independent third party audit firms. The audits carried out are unannounced, semi-announced or announced. Broadly, these social audits independently assess a vendor’s site against the following criteria:

• freely chosen employment;

• freedom of association and the right to collectively bargain are respected;

• working conditions are safe and hygienic;

• forced and child labor are not used;

• living wages are paid;

• working hours are not excessive;

• no discrimination is practised;

• regular employment is provided;

• subcontracting and home working;

• no harsh or inhumane treatment is allowed;

• environmental standards; and

• systems and policies to identify and manage risk.

During audits, a sub-set of workers will be interviewed by the auditor to verify the extent to which the site’s policies and procedures are implemented and deliver good working conditions for the workers. The number of workers interviewed will vary depending on the audit standard and the number of workers employed at the site.

Corrective Actions and Continuous Improvement

Koala worked with vendors, and will continue to work with vendors, on improving and closing out identified non-conformances found during these audits. For selected vendors, we worked with them to enhance their understanding on modern slavery and its risks. We used Sedex risk tools to highlight the strengths and weaknesses of their management controls and specific characteristics to identify and work on improvements.

Requiring direct suppliers to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the country or countries in which they are doing business

Tier 1  and some key Tier 2 product supply chain vendors have signed Koala’s Supply Chain Partner Code of Conduct (the Code). The Code outlines our expectations of these vendors to ensure they:

• not engage in any form of Modern Slavery including human trafficking directly or through a third party supplier;

• have protections in place for young workers;

• have effective procedures such as verifying suspected young worker documents to confirm the correct age of the worker at the time of recruitment; and

• have a written policy regarding child / young workers, bonded, forced and any other form of modern slavery.

In addition, the Code outlines requirements regarding:

• discrimination, harassment, freedom of association, and abuse;

• bribery and corruption;

• grievance management & resolution;

• wages & working rights;

• health & safety; and

• traceability & supply chain management.

The Code details how Koala will monitor and enforce and gives examples of consequences where breaches / violations have been identified. The Code includes a description of the remediation process.

Maintaining internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking

Koala maintains internal policies for our internal governance documents including:

• Respectful Workplace Behaviours & Conduct policies;

• Anti-Corruption Policy;

• Whistleblower Policy; 

• Grievance Policy; and

• Work, Health and Safety Policy.

Training company employees and management with direct responsibility for supply chain management on human trafficking and slavery

Koala provides modern slavery awareness training to new employees during their induction including information of global statistics on the prevalence of modern slavery, risks for specific products and materials and Koala’s due diligence processes. Broader awareness of modern slavery risks across Koala was supported by reporting key risks and actions in an internal FY24 Impact Report and presentations to Koala’s Sustainability Guild.

In addition, key team members of Koala’s Product team (which includes those in buying, design and quality assurance roles) receive specific and bespoke training as required that covers topics such as:

• a refresher on modern slavery risks;

• inherent risks for products Koala sells and countries they are sourced from;

• understanding key input risks that go into a finished product; 

• risks for specific raw materials, such as cotton; and

• an update on our review of active vendor risks, and how we are managing and mitigating those risks.