10 human rights risks to supply chains in 2016
Brands will need to be aware of an increase in the scrutiny of supply chains in 2016, the report notes
Modern slavery, a lack of information on labour practices deep within the supply chain, and inadequate oversight of suppliers are among the biggest threats to brand reputation in 2016, a new report has revealed.
The Human Rights Outlook 2016, published by risk advisory firm Verisk Maplecroft, identifies the main emerging risk areas for companies with global supply chains. In particular it highlights the unethical recruitment of migrants as one of the most pressing reputational challenges facing companies in the year ahead.
According to the report, the issue is rising in prominence thanks to new mandatory reporting requirements from legislation such as the UK's Modern Slavery Act, alongside ever greater public scrutiny of supply chains. The report also recognises Europe's migration crisis as the key emerging driver of incidents of forced labour within the region.
Verisk Maplecroft's human rights report identifies labour brokers as playing a central role in perpetuating modern slavery through the exploitation of migrants. Ethical recruitment, it says, is one of the key challenges business will have to address this year.
"By charging excessive fees for recruitment and placement, which migrants are unable to repay, unethical brokers are channelling adults into conditions of forced labour," authors note.
Brands will also need to be aware of an increase in the scrutiny of supply chains and benchmarking of human rights in 2016 as part of a wider shift from voluntary to mandatory reporting of human rights due diligence, which has begun with conflict minerals and modern slavery.
"The risks for business are amplified by increasing public scrutiny of unmapped tiers of the supply chain and benchmarking of company human rights performance," says Dr Alexandra Channer, principal human rights analyst at Verisk Maplecroft. "Damage to hard earned brand equity, consumer backlash, and divestment by ethically focused investors pose real threats to companies who are found to be knowingly or unknowingly complicit in abuses."
The 10 human rights risks to watch in 2016:
1: Labour brokers – building trust in ethical recruitment
The impact of unethical brokers is critical across recruitment corridors in the Middle East and Asia, where labour-receiving countries rely on migrant workers. Those recruited across multiple borders are especially vulnerable to exploitation and trafficking into forced labour conditions.
Changing the behaviour of brokers and rewarding ethical recruitment requires coordinated multilateral action – by governments, intergovernmental organisations, civil society and businesses. Although such action is emerging at the international and regional levels, these initiatives are in their infancy and require coordination and the investment of time and money by all parties.
2: Supply chains – achieving traceability
Supply chains with multiple parties and numerous tiers present significant difficulties in mapping accurately, particularly where upstream stages may include smallholders and informal networks.
Mapping priority suppliers, who are influential because they source from multiple sub-suppliers, can be an effective first step toward improving traceability and protecting smallholder suppliers. Influential tier 1 suppliers can support businesses in achieving traceability in lower supply chain tiers, as well as share responsibility for creating a market for ethical suppliers. Certifying critical suppliers in the supply chain also helps to share responsibility for ensuring that products are produced by ethical methods.
3: Moving beyond the audit – increasing supply chain responsibility
Despite recognition that the current audit process is flawed, audits remain the cornerstone of responsible sourcing systems.
Moving beyond the 24-hour audit can make supply chains more robust against labour rights risks. In the short term, however, businesses will likely need to invest in new technologies, open dialogue and strong relationships. Mobile phone surveys of workers, encouraging social dialogue between suppliers and unions, rights training and preferred-supplier relationships require long-term commitments between business and suppliers.
4: Mandatory reporting – enhancing supply chain transparency
Maintaining a strong reputation for responsible sourcing will become increasingly competitive in 2016 as businesses are measured against their peers.
The fact that brands must now report on human rights due diligence throughout their supply chains reflects the public assumption that they bear substantial responsibility for violations committed by all their suppliers. Businesses that implement due diligence programmes that apply to only a small percentage of their total suppliers may face pressure to fully map their supply chains. Mandatory reporting therefore ensures the traceability of business supply chains remains firmly top of the agenda.
5: Migration – preventing forced labour in European supply chains
At the start of 2016, Turkey was hosting 2.5m refugees, the majority from Syria. Until January, they were not permitted to work legally and so have been extremely vulnerable to exploitation. Refugees are reported to be working informally in garment factories where they receive wages up to 40% lower than Turkish nationals.
This trend is unlikely to alter in 2016 as refugees are unlikely to apply for work permits as they have to apply for and use these permits in the province where they first registered. Therefore brands can can expect to see more displaced persons attempting to work informally in European supply chains this year. Monitoring and managing the risks of association with forced labour and child labour – while also respecting the rights of vulnerable refugees – poses a considerable reputational challenge to businesses.
6: Living wage – meeting worker and public expectations
The shift towards a living wage reflects awareness among stakeholders that compliance with the minimum wage – which may not be sufficient to provide a decent standard of living – is not always sufficient to combat in-work poverty. Paying a wage that covers living costs is also acknowledged as a tool that can protect workers from modern slavery. Therefore, public scrutiny of whether businesses are paying a living wage will continue in 2016. Initially voiced largely by unions, the living wage is becoming a mainstream demand.
A coordinated multi-stakeholder approach to wage calculation – involving governments, workers and business – is essential to assuage supplier concerns that higher labour costs may harm competitiveness. Close collaboration with suppliers will be required to ensure that prices paid are sufficient to support an increase in their labour costs.
7: Working conditions – rising labour rights scrutiny in the Trans-Pacific Partnership (TPP)
The growing recognition that labour rights are an important issue in global trade was highlighted by the inclusion of a labour rights chapter in the TPP, which was finalised last year. Although the chapter's provisions are not binding, they may increase scrutiny of labour rights in business supply chains in member countries. In the case of Vietnam, Malaysia and Brunei, separate bilateral agreements stipulating labour rights reforms as a condition for full TPP benefits mean that reforms are likely.
NGOs and the media are likely to monitor countries' efforts to respect the TPP provisions because enforcement is anticipated to be weak, and because critics of the deal have argued that free trade may undermine workers' rights. Regardless of the actions taken by the country of operation, businesses may experience bad publicity if conditions in their supply chains violate the TPP provisions.
8: Social licence to operate – managing the impact of the commodity downturn
Although the downturn in commodity prices leaves companies little option but to cut costs, positive relations with local communities are acknowledged as fundamental to long-term project sustainability. In recognition of the key role played by the 'social licence to operate', international investor and industry standards set clear guidelines on social impact assessments, stakeholder consultation and the remedying of grievances. Companies can expect to be continually benchmarked against these standards.
9: Gender parity – paid parental leave and mitigating discrimination
Public scrutiny of companies' gender parity policies will increase as the lack of federally funded maternity leave gets unprecedented attention in the run-up to the US presidential election. Training, recruiting and retaining qualified women will therefore be essential.
10: COP 21 – integrating human rights into adaptation & mitigation of climate change impacts
The outcomes of the COP 21 Paris Climate Change Agreement will increase public scrutiny of business actions to support adaptation to, and mitigation of, the impacts of climate change. Environmental and social impact assessments can therefore provide a vital tool for reviewing the implications of climate plans, policies and programmes.
One of the key messages flagged in the report is that companies are now held ultimately responsible for all workers who contribute to the commodities they use in their end-products. Brand reputation is therefore tied to a broadening perception of responsibility that exposes businesses to increased risks, especially if like many, they have not yet managed to trace products to their point of origin and to map supply chains transparently.
"Solutions to challenges, such as unethical recruitment, will require shared responsibility and collective action from international organisations, governments, business and NGOs," authors note. "By adopting innovative approaches, such as empowering workers through real-time mobile phone surveys, human rights training and long-term partnerships to reward ethical suppliers, businesses can also establish leadership on the issue and reap dividends in relation to brand equity and ultimate business performance."
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