Evidencing upstream change
This article was written by Hannah Harper and Camila Gomez Wills, for Corporate Citizenship - part of SLR. Corporate Citizenship provides ESG strategy, reporting, social and environmental impact and other sustainability consulting services to multi-national companies.
Centring workers in upstream shifts to transparency and traceability
Workers form the foundation of every product’s value chain, from innovation and design, raw material sourcing and processing, assembly and distribution, to the fabled last mile to the consumer. In 2022 there is growing emphasis on workers’ rights in the value chain evident in 1) increased regulatory pressures to demonstrate effective human rights due diligence, 2) risk mitigation programmes that include supplier mapping and engagement, and 3) more widespread use of technology to capture real-time worker feedback and to ensure credible traceability and reporting. These changes catalyse the move towards increased transparency and traceability, that effectively communicate progress and challenges in ensuring workers’ rights are protected.
Evolving regulatory and stakeholder expectations
Regulatory pressure on organisations
Human rights due diligence (HRDD) is an ongoing risk management process, that allows companies to address their adverse human rights impacts. HRDD is an integral part of the United Nations Guiding Principles on Business and Human Rights (UNGPs), which formalise the corporate responsibility to respect human rights. HRDD is also a growing regulatory requirement in various jurisdictions. In February 2022, the European Commission adopted a proposal for a directive on corporate sustainability due diligence that would require large companies to integrate human rights and environmental due diligence into their core processes.
ESG ratings expectations
The S&P Global Corporate Sustainability Assessment (CSA), EcoVadis, ISS, Sustainalytics and others, include human rights in the supply chain as part of their assessment. The Corporate Human Rights Benchmark (CHRB) and the Better Buying Index are two frameworks that recognise that buyer terms can impact working conditions in the value chain, and incorporate how the buyer/retailer has aligned their purchasing practices with the human rights of workers. For example, a change in an order colour with a short lead time may lead to excessive and mandatory overtime for workers. Additionally, contract costs and payment terms may impede suppliers in meeting the minimum wages in their country, and may incentivise unauthorised subcontracting. The Better Buying Institute has advocated for visibility for suppliers on planned orders, stability in the business relationship, time to complete processes in a way that is compliant with legal requirements, fair financial decisions that don’t unilaterally affect suppliers, and shared responsibility to incentivise better working conditions.
Leveraging technology in your value chain
Businesses will have to evaluate their supply chain, to understand and prioritise risks. A first step is to fully map out tier 1 suppliers. When mapping out tier 1 suppliers, there are several questions to consider: What countries are they located in? What is their workforce demographic? Are there workers from under-represented minorities? What is the proportion of migrant workers? What processes or systems are in place to ensure traceability to these tier 1 suppliers? How are suppliers engaged? Is there involvement in high-risk industries? This can then be extended to tier 2 suppliers in the mid-term. The Open Apparel Registry (OAR) is a novel approach to ensuring credible supply chain mapping via open-licensed data that is cleansed with AI to ensure trustworthiness.
Although social audits have long been part of compliance programmes, there is rising recognition that they are only a snapshot of site operations. One new way to have a holistic understanding of what is happening at a supplier level, is through worker voice technology, which provides real-time perceptions from workers in a safe, culturally sensitive and confidential manner. Technology is used to deploy surveys or questionnaires in local languages via text message or other low-complexity options, and gather data through tier 1 and 2 suppliers. With the rise of AI and more sophisticated analysis, data can be anonymised and aggregated to identify trends, predict potential high-risk commodities or sectors, and provide actionable insights. As technological ability meets stakeholder demand, transparent data will quickly become part of the expected due diligence process, to make procurement decisions and identify problems in the workforce.
Another significant way in which technology is changing our upstream landscape, is in improved traceability. The ability to know where a product comes from at a granular level, has long been established practice in the pharmaceutical sector, and to a lesser degree, in food, particularly as it relates to food safety and recalls. Beyond safety and product quality issues, consumers have a new-found interest in understanding where their products come from, and some initiatives have sprung up to meet this demand in tuna and other responsibly managed fisheries. Ledger technologies (blockchain) are also being piloted for product traceability, particularly high-value commodities such as jewellery, among other industries,
Staying ahead of the curve
Mandatory value chain transparency and traceability are inevitable, and companies now have an opportunity to establish their leadership position, by truly engaging their suppliers and ensuring their workers’ human rights are respected. Regardless of sector, businesses need to be prepared to transparently report on key risks, and demonstrate how they are proactively handling them. At Corporate Citizenship, we are ready to work with you, no matter what step of the journey you are on.