The future of human rights due diligence in supply chains

In this long read, Ben Rutledge our Senior Business and Human Rights Advisor outlines current supply chain issues, challenges and opportunities, based on a briefing he gave to Innovation Forum. He analyses where we are now and what's in the offing.

New advanced training course: Human rights due diligence

ETI is often asked to assess the current progress being made by big business in tackling serious human rights abuses in their supply chains and we can genuinely say that significant headway is being made.

Companies are developing sophisticated systems and processes to detect and prioritise risk, and within that are beginning to think about risks to workers and local communities, rather than just to business reputation.

International instruments

It’s now been almost six years since the UN Guiding Principles on Business and Human Rights (UNGPs) were endorsed, which outline the specific steps companies should take to conduct human rights due diligence.

The SDGs too, explicitly emphasise the role of business in mobilising action to end poverty around the world alongside governments, trade unions and civil society organisations.

Consequently, we’ve seen that an increasing number of companies recognise the importance and also the benefits of conducting human rights due diligence.

Furthermore, the proliferation of human rights and sustainability policies, detailed Modern Slavery Act statements and other non-financial reporting (NFR) demonstrate a growing commitment to addressing human rights abuses.

As do the increasing resources dedicated to these requirements, and the move towards improved transparency in business operations and across supply chains.

So, while reports and statements may vary in quality, the general trend is most definitely one of increasing transparency and accountability.  

NFR and the development of corporate policies and systems around human rights also help increase internal buy-in within a business.

The ‘mainstreaming’ of human rights issues can become a virtuous circle. It stimulates thinking and often results in even more resources being dedicated to preventing and addressing human rights violations by businesses.

Barriers to change

Addressing human rights issues and 'doing' ethical trade is much harder than it sounds. Modern supply chains are vast, complex and span the globe.

Labour issues are themselves challenging.

For example, what exactly is a ‘living wage'? And what should a company do if it finds children working in a supplier's worksite? Answers to these and other questions are not simple as the following three barriers show.

1.  Accessing justice

Less progress is being made in addressing violations that have already occurred or in providing access to remedy.

Weak rule of law and corrupt judicial systems can mean that many workers in supply chains who are adversely impacted by business operations have no place to go to seek remedy:

• Local judicial systems are sometimes unable or unwilling to hear cases brought against wealthy business people.
• Limitations on transnational litigation restrict worker’s ability to claim remedy from companies higher up the supply chain.

As a result, violations can, and often do go unaddressed.

Genuinely effective operational-level grievance mechanisms are rare, and businesses often will only accept limited responsibility for addressing violations occurring in their supply chains, particularly when these are long and complex.

2.  Joining a union

Freedom of association — the right of workers to join and form trade unions so that they can bargain collectively for their rights – is a fundamental principle of ETI’s Base Code of labour standards.

Yet, freedom of association is particularly challenging.

Independent trade unions are banned in several countries from which international brands source.

And in many countries, there is a culture of fear and mutual mistrust between unions and employers, with the latter seeing unions as being out to destroy their business – and vice versa.

That’s why ETI is working with our members and others to address this.

We highlight evidence which shows that suppliers who engage with unions find that they have fewer worker grievances to deal with, a more motivated workforce, lower turnover and less absenteeism - as well as fewer strikes.

3.  Earning a decent wage

Trade can help stimulate international development and deliver affordable goods and services.

However, some 370 million workers live with their families on less than $1.25 a day and too often workers do not share the benefits of international trade or even enjoy their basic rights.

The drive for increasing market share and profits often drives short-term thinking in terms of corporate strategies.

How many company directors can say with confidence that all the workers who produce the goods, services and products that they generate, earn a wage that’s sufficient for a mother or father to provide for their family?

In many countries, government-set minimum wages fall far short of what many estimate to be a living wage.

The reality is that the clear majority of people in emerging economies who make the products we consume, struggle to survive on wages that are barely enough to cover their daily subsistence needs.

Avoiding generalities when determining risk

It is important to avoid generalities when determining risk. Rather, there must be a context-specific assessment

What we can say is that human rights risk is not just a ‘developing countries’ issue.

The bottom line is that risk may exist anywhere and everywhere. For instance, we’ve been warning for several years of problems in garment factories in Leicester, in the UK’s East Midlands.

The key is identifying, recognising and then prioritising both actual but also potential risks so that resources can be deployed efficiently.

This must be done collaboratively with local experts and stakeholders feeding into the analysis.

Certain risks are more severe and require urgent action.

Millions of people endure inadequate, sometimes shocking, conditions at work with at least 20 million people in forced labour worldwide.

Other risks are more systematic and embedded within economic systems.

For example, avoiding cost increases to consumers, or keeping costs unnaturally low, is a key driver of retailer purchasing practices that increase the risk of labour rights abuses.

Meanwhile, commercial pressure generated by big brands – including a ‘race to the bottom’ on prices – is often transferred onto suppliers.

It is the creation of business models that encourage short-term thinking and prioritise profits over worker welfare, that lead to unsustainable supply chains being developed that arguably pose the biggest ‘risk’ to businesses, to workers and to other stakeholders.

These challenges require collaborative, collective responses over time and across multiple jurisdictions. 

And here I should mention that leverage, influence and purchasing power are key elements in human rights due diligence.

Recognising what specific impacts – both positive or negative – a company’s purchasing practices have is crucial in determining corporate strategy in addressing human rights risk and providing remedy. 

The new Corporate Human Rights Benchmark (CHRB)

Driving a race to the top is urgent and as stated it requires a long-term approach. The newly launched CHRB has great potential to help do this in the years ahead.

Its vision is to harness the competitive nature of markets to drive up companies’ human rights performance. It does this by ranking companies and making data freely available. 

Significantly, the CHRB is a collaborative effort involving leading investment firms and initiatives and human rights organisations.

Firms such as Aviva are keen to get investors thinking far more about the human rights impacts of their investments, and in rewarding companies that are more transparent about their policies and practices.

They recognise that the success of investments is not to be judged on today’s market share index, but on the moral as well as commercial impacts of corporate operations in the long term.

It is ambitious and welcome. And it has the potential to be catalytic if it drives change through greater transparency. But it must get company buy-in, and needs to build on the collaboration it has established with key stakeholders. 

Collaboration and change

Let me reiterate, global supply chains are highly complex and challenging for companies committed to trading ethically, while workers’ rights issues are often deep-rooted and widespread and are best tackled through collaborative action.

But we are seeing increasing efforts to collaborate to tackle sector-wide issues.

ETI encourages our corporate members and others to harness the expertise, skills and resources of our wider membership to identify these issues and develop innovative, long-lasting solutions.

Our measure of success is that workers can negotiate effectively for a better working life where their rights are respected.

That’s why we bring corporate, trade union and voluntary sector members together to collectively tackle the many thorny issues that cannot be addressed by individual companies working alone.

Many ETI members have been working to improve wages in their supply chains or to lobby for the improvement of wages in sourcing countries for example.

We have demonstrated that collaboration drives positive change and as a result, have seen increasing levels of collective action across various industries.

For information on Human Rights Due Diligence, see ETI’s Human Rights Due Diligence Framework which serves as a guide for companies to help manage and mitigate labour rights risks, and understand why engagement, negotiation and collaboration are the best way to succeed. Our guide on the SDG’s and ethical trade can be found here.