How Investors Can Address Labor Risks in Corporate Supply Chains

By Felicitas Weber, KnowTheChain Project Lead, Business & Human Rights Resource Centre

Large global companies in sectors such as apparel, food, and electronics indirectly employ thousands or even millions of workers in their extended supply chains. Through responsible purchasing practices, strategic collaborations, and extending standards on issues such as ethical recruitment to lower-tier suppliers, companies can positively impact working conditions across their supply chains. Investors in turn should ensure their investee companies are working toward eliminating egregious practices such as forced labor, a situation in which 24.9 million people are trapped in.

By providing transparency and comparability, the KnowTheChain benchmarks support investors in their investment decision-making and active ownership practices. The 2018 benchmarks not only evaluate companies’ disclosure, but also consider if and how companies respond to forced labor allegations, and provide some credit for participation in third party initiatives which undertake due diligence on their members.

The benchmarks provide guidance on actions investors can ask investee companies to take, evaluate sector performance, and explain common gaps as well as what good practices look like. Crucially, the benchmarks allow investors to compare companies against their peers, and use this information in shareholder resolutions or engagement dialogue. The company scorecards provide a quick overview of a company’s performance, while recognizing leading as well as other practices a company has in place, and pointing out three company-specific areas for improvement. A number of investors have used the scorecards to understand a company’s performance, in particular on themes such as recruitment. In 2018, the company scorecards will also include information on compliance with regulations such as the UK Modern Slavery Act, comparisons to the industry average for each benchmark theme, and forward-looking commitments to demonstrate the direction a company is heading towards.

The KnowTheChain Investor Statement, which is co-sponsored by the Investor Alliance on Human Rights, provides an additional tool for engagement. It demonstrates the importance of addressing forced labor for investors in jurisdictions such as Europe, North America, and Australia, and lays out expectations for how companies should address forced labor risks in line with international standards and existing human rights due diligence tools.