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Are Supply Chains Undermining Sustainability Performance? Part 2

This is the second of a two part series looking at how supply chains can hinder (or help) sustainability performance. Part 1 looked at GHG Emissions. This Part 2 focuses on Child Labor.

Part 2: Child labor in supply chains

As noted in the first installment of this series, sustainability commitments often require the participation of a company’s supply chain.  All companies are connected in the large, complex network that comprises the modern supply chain. Performance failures by one participant can pose significant risks to others in the chain. As an example of this, we noted that setting significant greenhouse gas emissions reduction goals is a company action that can often only be achieved with the participation of the supply chain. The ability to meet these targets is at risk for a company that fails to engage its suppliers.

But when a supply chain fails in its human rights performance, the consequences can be devastating and profound. The damage inflicted can range from harm to a brand’s reputation, to potential liability for violations of laws, to a potential loss of confidence by investors, customers, and even employees. A company has a lot on the line when it comes to its human rights impacts. Failing to see, address, and eliminate child labor and forced labor from a supply chain can have devastating consequences for the unwary company. Just ask NestlePatagoniaApple or any of the many others who have become embroiled in scandals for human rights abuses in their supply chains. Many are, years later, still trying to clean up the mess and repair the damage.

And none of that, of course, even comes anywhere close to the human cost to those who are the victims of child or forced labor or human trafficking. Let’s take a closer look at the child labor that permeates numerous supply chains and consider the risk that it poses to global supply chains.

Child labor in supply chains: a global tragedy

The International Labor Organization estimates that nearly 170 million children globally are involved in illegal labor. That’s a shocking 11% of all children. While prohibited by most countries, it is rampant in many poor countries, where families, by necessity, routinely send their young children to work rather than school. Despite the efforts of countless organizations, governments and dedicated individuals, forcing children to work, often in dangerous conditions, and always for inadequate pay, stubbornly continues.

Why? Too often, companies simply do not know that they are there. Children are often easily manipulated by adults, and in the face of authority, they tend to be compliant. They operate- and work – largely under the radar. When child labor is buried deep within a supply chain, the children are usually unseen and unheard. And many purchasing companies are doing an inadequate job of asking the right questions, conducting basic investigations, and engaging their supply chain partners to uncover the issue and act on it.

Two sectors are particularly susceptible to child labor: electronics and apparel.

Electronics: Child-mined cobalt

In the past several years, reports highlighting the child labor in the mining of “conflict minerals” for electronics products focused the world’s attention on the issue. And countries took action. Companies in the U.S. are now required to review their gold, tin, tungsten, and titanium supply chains for evidence of conflict minerals, and to report on their investigation and results.

But a new report by Amnesty International finds that child labor is rife in the unregulated cobalt trade. Cobalt is an essential element in the production of the lithium ion batteries found in smart phones and automobiles. Brands embroiled include Apple, Samsung, Microsoft, and Sony, all of whom are called out in the report for failing to perform adequate due diligence investigation to uncover the abuses. That failure taints these companies’ products, makes investors nervous, and damages the brand.

Apparel: Child-produced fashion

The apparel industry is similarly permeated by illegal child labor. Children work at all stages of apparel production, from picking cotton, to spinning the fibers into threads, to sewing the finished garments. All of this occurs in countries in Europe, Asia, and Africa (and some claim also in the US). Much of the apparel supply chain requires low-skilled labor, and some tasks are better suited to children’s small fingers than to adults.

And the trend toward cheap fashion has ignited a “race to the bottom” mentality in the apparel industry. Companies are engaged in increasingly fierce competition to produce the fashions the developed world demands at the cheapest price. Child labor is a vital part of the equation.

New legal requirements mean new legal risks – and new motivations

Fortunately, newly enacted or expanded legal requirements are forcing deeper examination of a supply chain’s performance on human rights and child labor issues.  These include:

  • California’s Transparency in Supply Chains Act, in effect since 2012, requires retailers and manufacturers doing business in the state of California with revenue of over $100 million to report on their efforts to investigate and eliminate slavery and human trafficking from their supply chains.
  • Trade Facilitation and Trade Enforcement Act of 2015, which was just amended in February 2016, now prohibits US companies from importing goods and products made by child or forced labor.
  • The U.K.’s 2015 Modern Slavery Act aims to prevent child and forced labor by making larger businesses accountable for the practices of their suppliers. It requires all businesses with revenue of over $50 million to report annually what they have done to remove slave and child labor from their supply chains.
  • Before you conclude these requirements don’t affect your company (“We don’t do business in the U.K.” or “We have nowhere near that revenue”), pause and consider what these laws might mean to your supply chain. If your customer does business in a covered location, and meets the revenue requirement, you will almost certainly be hearing from that customer as its works to fulfill its own responsibilities. Regulating human rights by controlling supply chains is an approach that acknowledges what a cascading impact looks like. Just as materials are shared throughout supply chains, so too are the risks. And now, so too are the solutions.

What should companies do?

What can your company do to protect itself from the risks posed by the child labor failures of its supply chain partners?  Think about how you might approach developing an effective supply chain strategy. Start by creating a solid foundation for the strategy, grounded in actionable information and open and clear communication. Follow these tips:

  1. Understand your supply chain. One valuable resource: the US Department of Labor has produced a helpful report listing all the countries and products where child labor and/or forced labor are known to exist.
  2. Assess your suppliers by actively engaging them. Just asking a few questions can create a cascading effect of awareness and action that travels the supply chain.
  3. Communicate. Open and regular communication about expectations, goals, challenges, and performance is fundamental to a successful and sustainable supply chain.
  4. Recognize that this is a collaborative process, where all participants are working together in partnership to achieve a goal that none of them could ever achieve alone (no company is an island).

Forward-looking companies understand that successful, resilient suppliers are good for business. Suppliers that are equipped to respond to and manage risks and challenges, such as human rights abuses, make much better business partners. And addressing such difficult issues as child labor as a partnership responsibility makes sense. After all, at the end of the day, your company and its supply chain partners are all in it together.

These are the fundamental underpinnings that support an effective supply chain management program. Maybe you’d like some help assessing the human rights impacts embedded on the products and materials you purchase, and building an effective strategy to minimize the risks that arise from those impacts? We’re here to help!  Sign up for a webinar to look how the resources, education, and guidance built into the Sustrana platform can help. Or contact me for a personalized tour!