Labor & Employee Welfare

How Are Tech Companies Addressing Forced Labor in Supply Chains?

While forced labor in supply chains remains a major issue for investors concerned with social and governance risks, a new report indicates that multinational information and communications corporations are making some progress in their efforts to end abusive worker practices.

The 2018 Information and Communications Technology Benchmark Findings Report comes from KnowTheChain, a coalition of nonprofit organizations that monitors a variety of labor standards across the world and scores individual multinationals on their labor policies. Assessing 40 large global information and communication technology companies representing $4.7 trillion in market capitalization, KnowTheChain’s 2018 report considered company policies and processes across seven distinct themes: commitment and governance, traceability and assessment, purchasing practices, recruitment, worker voice, monitoring, and remedy.

The report highlights ways companies can take accountability for how their products are sourced, produced, and transported. As the report’s authors write, “The size of these companies brings with it a responsibility to use the significant resources at their disposal to mitigate these risks and drive changes in practice in the sector to improve the lives of millions of workers.”

Supply Chain Successes

Comparing its 2018 results to those of its 2016 report, which examined only 20 companies’ labor practices, KnowTheChain found considerable improvement in several of the above themes.

  • Commitment and governance had a score of 55 out of 100, the highest among the categories. According to the report, nearly all of the 40 companies prohibited forced labor in their supply chains, and 28 of the corporations had a person or team on staff dedicated to enforcing antitrafficking and forced labor policies.
  • The traceability and risk assessment category highlighted that Apple, Hewlett Packard Enterprise, and HP all disclosed the names and addresses of their first-tier suppliers. The report also revealed that 27 of the companies assessed disclosed their sourcing of raw materials that are generally at a higher risk of being obtained through forced labor.
  • The report’s discussion of purchasing practices featured several companies making progress in this area, including Microsoft, which works with organizations to field issues related to human rights and working conditions in its supply chains. KnowTheChain also said that half of the 40 companies looked into suppliers’ labor practices before entering into an agreement with them.
  • The companies had an average score of 33 out of 100 in the monitoring category, with the majority having made an effort to implement an auditing process that monitors forced labor in their supply chains. For about half of the companies, these audits include worker interviews and visits to facilities.

The companies included in the report are making progress when considered altogether, with the average score having increased from 39 to 40 out of 100 between the 2016 and 2018 studies. While stakeholders had hoped for faster improvement, that single-point increase is a bigger cause for celebration than it might appear—since 2016, KnowTheChain has altered its scoring methods to make earning a high score more difficult. These strict standards haven’t deterred some companies, like Apple and Hitachi, whose scores jumped by nine and five points, respectively.

Intel, Hewlett-Packard, Apple, and Hewlett Packard Enterprise had the highest scores overall and topped the list, showing that some major players are putting their money where their mouths are—the survey’s best-performing companies each had market capitalization of $200 billion or more.

Room for Further Improvement

While some corporations made real headway in the fight to end forced labor, the report revealed that the worker voice, remedy, and recruitment categories earned the lowest three scores among the corporations.

Although many categories showed improvement from 2016, the companies’ average score in the worker voice category actually decreased from 16 to 15 out of 100 between the two reports, making it the lowest-scoring overall. KnowTheChain revealed that 16 of the 40 companies studied have implemented a grievance mechanism for suppliers’ workers; however, just three have published data on how those mechanisms function.

In order to have the greatest impact on workers’ lives, KnowTheChain emphasized taking its findings into account as investors discuss companies’ supply chain practices.

At 26 out of 100—a 13-point drop from 2016—remedy was the second lowest-scoring category. While some companies are working on their corrective and remedial action processes, KnowTheChain found that only seven companies disclose a process for responding to complaints or report policy violations, and none offers sufficient detail on response times or approval procedures. Less than half of companies state what consequences suppliers who fail to implement corrective actions will face.

In recruitment, the report described how Nepalese migrants working in Malaysia were charged individual recruitment fees of $1,300, along with fees totaling up to four months’ salary that would take effect if the employees were to leave their jobs before their contracts ended. This story was accompanied by data showing that more than half of the corporations have adopted policies that prohibit suppliers from charging workers recruitment fees, but only five have given evidence showing that they reimbursed workers when violations were encountered.

“This is the first time we’ve been able to measure companies’ progress against where they were two years ago,” Kilian Moote, KnowTheChain’s project director, said in a statement. “It’s encouraging that companies are starting to address forced labor. But this benchmark shows that the sector needs to advance their efforts further down the supply chain in order to truly protect vulnerable workers.”

Where Investors Can Go from Here

The report laid out several ways in which investors can improve their portfolios’ records on forced labor in supply chains. In order to have the greatest impact on workers’ lives, KnowTheChain emphasized taking its findings into account as investors discuss companies’ supply chain practices. The report’s recommendations for engaged shareholders included analyzing organizations’ scores, comparing them to competitors’, and leveraging that information to communicate their expectations for companies’ efforts to reduce forced labor.

The report described several questions for investors to put to companies, including:

  • How is the company creating value by reducing business exposure of forced labor?
  • How is the company working to ensure migrant workers are not exploited?
  • Does the company engage with workers in its supply chains to empower them to exercise their labor rights?
  • Is there an early warning system is in place for when abuses occur?

KnowTheChain said that it is trying to foster a “race to the top” that encourages companies to adopt labor standards and practices that protect the well-being of workers who suffer under forced labor.

FacebookTwitterGoogle+LinkedIn
FacebookTwitterGoogle+LinkedIn