Supply chain transparency has to be accompanied by robust auditing
Supply chain auditing is an area which is rapidly evolving. Companies would ideally disclose the number of audits integrating sustainability factors conducted per annum, and what steps are taken if areas for improvement are identified. For example, via our engagement we learned that an external service provider conducted on-site sustainability audits of 947 Volkswagen suppliers in 2018, and in 551 cases, the audit results led to an action plan. Some companies, like ASOS, have gone one step further, and report confirmed instances of modern slavery: “Discovered one case of child labour in our Chinese supply chain in this reporting period [April 2019 – January 2020]. Working with our local partner CCR CSR, we implemented our established child labour and remediation policy”9. In our view, this level of transparency is exemplary, and signals that the company’s modern slavery due diligence is robust and effective.
Transparency is key if companies face heightened modern slavery risks
- Business model shifts may necessitate enhanced due diligence
Our dialogue with auto manufacturers demonstrated the extent to which increased demand for electric vehicles, which depend on cobalt in their batteries, poses heightened reputational, operational and regulatory risks. More
than half of the world’s cobalt supply comes from the Democratic Republic of Congo, which has an extremely high Vulnerability of Modern Slavery score in the 2018 Global Slavery Index10. Serious, systemic human rights violations are commonplace in cobalt mining, including child labour, exposure to health hazards from high levels of toxic metals, and lack of the most basic safety equipment inside and around the mines11.
Against this backdrop, companies with products containing cobalt need to be as transparent as possible about the steps they are taking to address and mitigate the risks associated with cobalt sourcing. It is encouraging that many large auto manufacturers – including Ford and General Motors – are members of the Responsible Minerals Initiative (RMI), which provides companies with tools and resources to make sourcing decisions that improve regulatory compliance and support responsible sourcing from conflict affected and high-risk areas. An example of a company producing rechargeable battery materials which provides exemplary reporting on cobalt sourcing is Umicore, a global materials technology and recycling group. Umicore was the first company in the world to introduce a Sustainable Procurement Framework for Cobalt and to obtain external validation for its approach to ethical cobalt sourcing12.
More generally, it is important for companies in all sectors to conduct a risk assessment – factoring in product type and location of production – to identify supply chain areas which are high risk from a modern slavery perspective. Action to address modern slavery risks should then be prioritised in these areas.
Many companies still disclose very limited information about how they are identifying and managing modern slavery risks
Although we identified many examples of companies improving their policies to identify and manage modern slavery risks, and reporting on key developments, we are acutely aware of the growing gap between leaders and laggards. Unfortunately, a significant number of companies provide no or very little information about how their modern slavery policies are translating into tangible impacts.
It is particularly concerning when companies with direct operations and/or supply chains in countries/regions where modern slavery is comparatively prevalent disclose limited information about the steps they are taking to combat modern slavery. For example, Asia-Pacific is a global manufacturing hub and the region with the second highest prevalence of modern slavery in the world13; therefore, corporate human rights and modern slavery due diligence is called for. Unfortunately, because there is comparatively less emphasis on transparency, it is often challenging for stakeholders to evaluate the labour practices of companies headquartered in this region.
Our engagement with Anta Sports, a sportswear company headquartered in China, illustrates this issue: we encouraged the company to publish its child and forced labour policies because we could find very little publicly available information about them. We will continue to engage companies headquartered in Asia-Pacific on responsible labour practices because we believe that they continue to face elevated modern slavery risks.
Collaborating with other investors to accelerate efforts to tackle modern slavery
Modern slavery is a complex crime that can only be tackled by multi-stakeholder collaboration. As investors, we believe that collaborative initiatives can play an important role in bringing about positive change. In 2020, we joined two investor groups focused on human rights: