In its third sector ranking, KnowTheChain assessed the efforts of 37 of the largest apparel and footwear companies on their efforts to address forced labor supply chain risks. KnowTheChain’s investor brief summarizes the benchmark findings, the significant risks companies and their investors are facing, and outlines recommendations for investors.
👉 Investors wishing to engage portfolio companies on supply chain forced labor risks may wish to use the below questions for engagement.
Questions for Company Engagement
Why are These Questions Important?
Examples of Corporate Practices
🔍 What examples can the company give of remedy provided to supply chain workers in different sourcing countries (such as repayment of recruitment fees or wages)?
🔍 How has the company engaged with impacted workers (e.g., to identify the full extent of the rights violations as well as root causes, to determine approriate remedy, and to ensure thatremedy provided is to the satisfaction of the victims)?
54% of companies faced forced labor allegations, in some cases up to four. During the Covid-19 pandemic, supply chain workers face severe hardships: Migrant workers in the apparel sector struggle to access food in Brazil, face wage theft in Jordan, Thailand and the USA, and debt bondage in Japan.
Despite workers being in great distress, only four out of the 37 companies (11%) were able to disclose several remedy outcomes for workers.
👉 See remedy chapter in KnowTheChain’s 2021 Apparel & Footwear Benchmark Report (pp. 70-75)
Sportswear company Brooks was highlighted by the investigative organization Transparentem for agreeing to share the cost of recruitment fee reimbursement with a factory, despite the fact that the factory was not an authorized part of its supply chains.
🔍 How do the company’s purchasing practices enable living wages and decent work in its supply chains?
🔍 Going beyond policies and processes, can the company provide several several year-on-year data points relating to all first-tier suppliers that demonstrate such practices (including on costing, payment terms, and planning and forecasting)?
🔍 Has the company engaged its suppliers on its purchasing practices? If no, why not? If yes, can it demonstrate through disclosure of supplier ratings received from independent parties, such as Better Buying Company Reports, that its purchasing practices enable rather than hinder supplier compliance with the company’s policies?
Purchasing practices may cause exploitative working conditions in supply chains, such as excessive overhours, abusive working and living conditions, and withholding of wages, all of which are indicators of forced labor (according to the ILO).
Pricing that does not take into account labor costs can result in working conditions taking the hit when buyers seek high-quality delivery within a short timeframe. In
2016, an ILO global survey of 1,454 suppliers found that 52% of apparel suppliers said prices paid by brands paid were “lower than production costs.” Some suppliers
reported that buyers “do not even cost for increases in legal minimum wages.”
When payment is not prompt, it can cause problems for supplier factories, which may result in their needing to take bank loans to cover operating costs. Research
conducted with workers found that as the length of time between the delivery of an order and payment by a buyer increases, weekly pay decreases significantly.
The Covid-19 pandemic has shown, once again, that payment times have a direct impact on workers’ wages: Delays in payment, or a refusal to pay for orders at all, resulted in unpaid wages for apparel workers.
Worker-driven Due Diligence
🔍 How does the company support freedom of association and collective bargaining in its supply chains and address increased suppression of this right during the pandemic?
🔍 How does the company involve workers in the design, implementation, and monitoring of its supply chain labor rights programs?
🔍 How does the company ensure measurable positive outcomes for workers, for example by entering enforceable labor rights agreements?
Almost all companies (97%) disclose a supplier code of conduct that prohibits forced labor and a monitoring process of suppliers. Yet these policies and monitoring processes do not work for workers: they are neither effective in preventing forced labor nor in ensuring remedy outcomes for workers (see above).
Failure to prevent forced labor: Traditional social audits all too often fail to detect exploitative working conditions. Researchers collected evidence of more than 200 audits failing to detect health and safety and labor related non-compliances. The rubber glove manufacturer Top Glove for example had undergone 28 audits in the two years before an independent investigation identified forced labor.
Failure to adopt worker-centric approaches: Adressing inequality between companies and workers is needed for a just recovery. Yet alongside Recruitment, Worker Voice is the lowest-scoring theme in the benchmark, and more than half of the companies score zero on the most worker-centric indicators, showing they are ill-prepared.