Supply chain transparency: Who has skin in this game?

Supply chain transparency: Who has skin in this game?

The rise of international legislations governing transparency regulations has created a public visibility to supply chain abuses that has made consumers more concerned and feel more responsibility for the sustainability of the products they are purchasing.

September 4, 2015

Corporate responsibility and, in turn, accountability depend on transparency—from supply chain operations to end products.

As awareness of supply chain labor practices and human trafficking has grown, the public’s demand for action has been answered with legislation. In 2000, Congress passed the Trafficking Victims Protection Act [TVPA], and in July of 2010 a landmark piece of legislation, the Dodd-Frank Wall Street Reform and Consumer Protection Act, took another step towards protecting human rights in business. Section 1502 of this act (while not directly related to the TVPA or trafficking per se), drives at the same fundamental objective: bringing accountability through legislated transparency disclosures for the human rights dimension of supply chains and end products.

Aggregating the intentions of Dodd-Frank, California’s Supply Chain Transparency Act (SB-657 passed in September of 2010), UK Modern Slavery Act, and legislation in Congress intended to bring SB-657 to the federal level, it is clear that legislation is being used to compel companies to take accountability for their supply chains.

Throughout all of these advances in public awareness, a growing body of legislation, and the most recent Guardian exposé on Thai fishing, investors have been watching. How these human rights issues are handled matters to investors looking to avoid companies with messy reputation issues and operational inefficiencies. That is in part why responsible investors were such strong supporters of the California Supply Chain Transparency Act, as well as supporters of the legislation recently introduced in Congress.

Responsible asset managers and owners should not want to knowingly invest in companies which fail to undertake necessary due diligence efforts to identify and curtail human rights abuses in their supply chains, operations or end products. The conflict mineral due diligence requirements of Dodd-Frank have now equipped investors—as well as concerned consumers, human rights activists and governments—with the information necessary to gain confidence in the willingness and ability of companies to address conflict minerals and, in turn, other human rights risks.

Embracing—and indeed legislating where necessary—transparency is the first step to demystifying endemic forced labor in supply chains and spurring the action and accountability necessary to tackle this hydra-headed scourge.

By the end of 2016, nearly every multinational company will be required to comply with at least one transparency regulation, either in the United States or Europe. The benefits for investors are clear, even if many are only beginning to realize it in connection with human rights in general or human trafficking in particular. The companies they own—and may consider owning—are coming under a brighter, and at times, harsher spotlight than ever. And investors need to understand, share, and address those risks to be successful.

If the 21st century is marked by the imperatives of sustainability and accountability on the part of governments, individual companies, and entire industries, then it must also extend to the investors who own and allocate the capital that drives and shapes our economies. That’s skin in the game that we all share.

This piece appears as part of KnowTheChain’s blog series on a growing trend towards supply chain transparency. Follow the discussion at:

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