Forced labor and human trafficking is a salient risk for companies and investors alike with more than 21 out of 24 million modern day slaves linked to labor trafficking according to the ILO – many of them found in the global food industry’s supply chains. NGO consumer boycotts and lawsuits have become more frequent with Wendy’s being the latest to be hit with a derivative action against the directors of Wendy’s for turning “a blind eye to human rights abuses by suppliers of tomatoes used in its products.”
Last fall I had the unique opportunity to visit with the Fair Food Program to learn and see first-hand what conditions have been like for some trafficked tomato pickers and the incredible improvement in their lives catalyzed by the Fair Food Program which ensures higher wages, better working conditions, worker rights training, and monitoring on farms under the program. This unique program has expanded beyond tomatoes to include other produce and even dairy farms in Vermont. Its model is also being duplicated by other industries such as construction.
While we have seen industry commitments to improve labor conditions from the Consumer Goods Forum resolution on forced labor, to the Shrimp Sustainable Supply Chain Task Force – it is not enough. Commitment must translate into action, and the findings of KnowTheChain’s food & beverage benchmark show that more action is needed particularly in areas such as responsible recruitment and purchasing practices, and on commodities which tend to be overlooked such as rice or beans.
In the last five years we have seen a greater focus by regulators on trafficking and modern day slavery with the UK Modern Day Slavery Act (2015) following the California Transparency in Supply Chain Act (2010). In fact it is estimated that 63% of the MSCI ACWI Index will be subject to these and other proposed disclosure requirements. This puts the responsibility for oversight of these risks not only on the shoulders of company management but right through to the boardroom. At the same time, an analysis of the first 700 statements under the UK Modern Slavery Act showed that only just over a quarter had board approval. The UK Human Rights and Equality Commission recently issued guidance for board directors on their role in managing human rights risk such as forced labor, which can help companies to both achieve compliance and also to ensure they move beyond and effectively address risks
What are investors doing? Since child labor was discovered in the cocoa fields of Africa in the late 1990s and in cotton fields of Uzbekistan starting in 2007, investors have engaged companies on supply chain traceability and transparency related to these human rights risks. Investor expectations have evolved to include increasing visibility in supply chains down to the fields, moving beyond a compliance approach to capacity building with their suppliers, and collaborating with other industry players and key partners such as governments to reduce forced labor around the globe.
Through a public investor statement, a global coalition of over 80 investors with close to $5 trillion in assets under management is supporting a framework for corporate disclosure on human rights based on the UN Guiding Principles for Business and Human Rights (UNGPs). One of the primary drivers for this investor action is the growing risk of reputational damage to investors themselves if their risk management and due diligence procedures for assessing human rights risk, such as forced labor, are perceived to be weak.
There has also been concerted effort to specifically engage on forced labor in the agricultural sector. From 2013-2015 the Principles for Responsible Investment (PRI) have coordinated a collaborative investor-company engagement on labor conditions in the agricultural supply chain. This resulted in improved practices at 23 out of the 34 companies engaged over that period, including a number of large US food & beverage companies. Under the leadership of an advisory committee of global investors (Bâtirente, Boston Common, Hermes, PGGM, and Robeco) the second phase of this project will focus on improving traceability in sourcing and enhancing supplier relationships, and is supported by an investor statement which outlines expectations on company policy, practices, and disclosure as well as A Guide For Investor Engagement On Labour Practices In Agricultural Supply Chains From Poor Working Conditions to Forced Labour – What’s Hidden in your Portfolio? The Interfaith Center on Corporate Responsibility (ICCR) has also achieved success through their “No Fees” Campaign engaging 12 companies sourcing palm oil or seafood to create robust management systems which will ensure that workers in their immediate and extended supply chains are not forced to pay for employment. Their plan is to expand this engagement to over 50 companies. This is particularly encouraging as KnowTheChain’s findings point to a lack of company action in the area of recruitment - the benchmark looked at recruitment fees, as well as the companies’ recruitment approach and recruitment audits and found this to be the weakest areas of all thematic areas assessed.
As we celebrate the five-year anniversary of the UN Guiding Principles for Business and Human Rights (UNGPs), which define a global standard for preventing and addressing the risk of negative human rights impacts by business activity, we need to move beyond principles to practice. To ensure this happens, benchmarks such as KnowTheChain can help put a spotlight on forced labor, make a clear comparison to peer companies, and help identify gaps as well as recognize and put a light on leading practices.
"The information in this document should not be considered a recommendation to buy or sell any security.”