By Elvin Madamba and Maria Shamim

Welcome to the third edition of Actionable Insights! Here, we take you behind the scenes of our Competent Boards education sessions to bring you exclusive corporate tips and tricks. We share with you some of the valuable knowledge from our faculty speakers, a global pool of board directors, and industry experts. 

In our April sessions, we delved into the trials businesses encounter when addressing potential human rights risks in their supply chains. Our faculty speakers highlighted the imperative of anticipating and mitigating issues such as modern slavery, child labour, and wage disparities. They underscored the necessity for businesses to foster supplier collaborations, uphold stakeholder trust through transparent communication, and respond to the increasing demands of investors and regulators to tackle human rights concerns across all operational levels.

Here are four key takeaways and talking points:

Hidden human rights violations in global supply chains

Many businesses might be oblivious to human rights abuses, including modern slavery and forced labour, within their supply chains. Unfortunately, these abuses are not only prevalent but escalating. Recent data from the International Labour Organization suggests that 50 million people were victims of modern slavery in 2021, a significant increase from 2016. Among these, 28 million suffered forced labour, disproportionately affecting women and children. A staggering 86% of forced labour incidents occurred in the private sector, with over half traced back to upper-middle or high-income countries.

Andrew Wallis OBE, CEO of Unseen, an anti-slavery organization, estimates the modern slavery industry to be a half-trillion-dollar enterprise, reflecting the vast, intricate, and deep-rooted nature of the problem. Wallis also points to a disturbing trend of traffickers infiltrating legitimate businesses, calling for an amplified and updated response from corporations and authorities alike.

“It’s a massive illicit industry where the commodity happens to be human beings. What we’ve noticed in the past ten years or so, is that traffickers have started to find ways to insert individuals into legitimate businesses for profit.… That’s why this issue is so pertinent to every single business. There isn’t a country, sector, or business that isn’t touched by this issue.”

Consider the fishing industry, for instance. Forced labour and human trafficking are common here. An investigative report titled “Seafood from Slaves,” published in 2016, exposed the gruelling conditions and brutal treatment of fishermen. These workers were forced to endure extended periods at sea without pay in remote locations in Southeast Asia. The report traced the seafood caught under these conditions back to supermarkets and restaurants in the US.

Another example is the 2022 FIFA World Cup held in Qatar. Reports of exploitative and dangerous conditions for migrant workers marred preparations for this high-profile event. Investigations revealed that construction companies subjected these workers to mistreatment and threats. Many workers had not been paid for months, others were forcibly deported without receiving their wages, and some even had their passports confiscated by employers.

These instances underscore the pervasiveness of human trafficking across various sectors and regions. It emphasizes businesses’ responsibility to ensure their supply chains are free from these exploitative practices. Companies must take decisive action against human trafficking and forced labour.

Dilemmas and the board’s role

Addressing human rights risks in supply chains is a daunting task for businesses. The ethical implications present complex dilemmas: Should a company cease operations upon discovering human rights abuses in a region? Could this cessation exacerbate conditions for the victims? How can businesses improve victims’ lives without inadvertently harming the most vulnerable?

Wallis suggests, “These ethical questions need to be broached at the boardroom level. We should consider the long-term outlook—eight to 10 years down the line—not just concerning the CEO, board, shares, bonuses, and such, but the overarching plan for all businesses in the supply chain.”

Businesses must transition from a profit-driven, extractive procurement model to a sustainable one that fosters enduring relationships with all vendors in their value chains. Abruptly ceasing operations and disregarding the problem should only be a measure of last resort.

Wallis categorizes businesses into two distinct groups: those that foresee potential human rights violations in their supply chains and are ready to address the challenges and those that remain unprepared, reacting with alarm when exploitation within their operations comes to light.

Anticipating and confronting human rights risks

As awareness of labour exploitation and other human rights risks in intricate supply chains expands among investors and the public, businesses risk severe reputational damage if they fail to act decisively. A company’s inability to address human rights abuses can rapidly lead to financial losses and erode stakeholder trust, including customers, with enduring detrimental impacts on the business.

So, how can businesses anticipate and confront forced labour and other exploitative practices within their supply chains? Experts in labour, employment, and international human and labour rights propose that businesses should start by addressing some fundamental questions: 

  1. What is the nature of our business? 
  2. Where are the potential risks in our business and supply chain? 
  3. What are the country-specific risks associated with conducting business in any particular geographical region?

An industry perspective from the session suggests that businesses could consult artificial intelligence, like ChatGPT, about the ethical status of their supply chains. Even though AI’s response might not be entirely accurate, it provides a valuable starting point for identifying potential risks.

Irrespective of how efficient a supply chain system might be, there will always be moments when issues come to light, either detected by the system itself or pointed out by external sources. These instances are viewed not as setbacks but as opportunities to improve due diligence practices related to environmental and social risks. These risks are significant and can materially impact businesses, thereby making them a central business concern, not a peripheral issue.

This emphasis on environmental and social risks reinforces the need for meaningful, long-term collaborations with suppliers as a key strategy to identify and manage human rights risks in supply chains. Leading global corporations employ comprehensive frameworks that serve as a supplier code of conduct to ensure responsible sourcing of products, services, and materials for a more sustainable value chain. This proactive approach allows companies to monitor their supply chains effectively, ensuring any social and environmental risks are promptly and efficiently addressed.

Regulatory tightening

Scrutiny on environmental and social due diligence is set to intensify as governments implement stricter regulations to combat human exploitation in supply chains.

Recently, the Canadian government introduced modern slavery legislation. This new transparency framework mandates many Canada-based businesses to submit yearly modern slavery reports starting from May 2024, detailing actions to address forced and child labour risks.

In the US, authorities confiscated nearly $1 billion worth of goods suspected of ties to forced labour between June 2022 and April 2023. This resulted in substantial financial implications for numerous multinational companies.

In Europe, industry insiders predict that all companies will soon be required to demonstrate the existence of due diligence systems to monitor social risks across their operations.

The key to thriving in this environment is continuous evolution. As regulations become more stringent, business leaders must be ready to confront new challenges. This might involve raising the bar for what’s expected, turning “the old ceiling into the new floor,” and demanding more from companies in their efforts to combat human rights abuses.

These insights come from Session 6 (Human Rights, Environmental Issues and Resiliency in the Supply Chain) of our most recent sold-out ESG Designation Program, which started in February. We have more cohorts rolling out this year and in 2024, so book your place today to be a part of a fascinating community of knowledge-sharing!

Elvin Madamba is Program Manager, and Maria Shamim is Research Analyst at Competent Boards. Follow Competent Boards on LinkedIn.

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