By: Charisse Dean, Managing Director, KPMG US ESG Social Strategy Leader; Jessica Libby, co-leader of human rights at KPMG, director of Tax – Trade and Customs; Laura Clawson, Human Rights Director at KPMG
Traditionally, business has viewed supply chains through the lens of opportunity and efficiency. Today, however, it is no longer enough to focus solely on these factors. As awareness grows of human rights abuses hidden deep within complex global supply chains, governments around the world are stepping in to draw greater attention to and monitor supply chain activities that disrespect human rights and egregious abuses such as alleviate forced labor.
The latest research paints a sobering picture: An estimated 28 million people worldwide are victims of forced labor, two-thirds of whom are exploited in the private sector.[i] The G20 alone is collectively responsible for importing an estimated $468 billion worth of goods that are at risk of being produced using forced labor.[ii]
According to Blueprint, forced labor in supply chains can be the result of practices that promote that environment, such as below-market wages, imposing heavy financial penalties for production delays, and unpredictable ordering.[iii].
But while most companies realize they need to address these negative impacts in the supply chain, the majority have been slow to act: KPMG’s recent anti-forced labor survey of global companies found that only seven percent of companies believe their anti-forced labor programs have a positive effect. achieved ‘high maturity’, while a third characterized their programs as ‘low maturity’.
Meanwhile, the regulatory landscape is rapidly evolving. Global regulations against forced labor now include the U.S. Uyghur Forced Labor Prevention Act (UFLPA),[iv] the German Supply Chain Due Diligence Act, the Canadian Bill S-211 and a number of EU regulations at country level. Since the UFLPA was implemented in June 2022, U.S. Customs has stopped 6,315 shipments worth nearly $2.205 billion.[v] under suspicion of forced labor.
Forced labor affects virtually all parts of the private economy. In the fight to ensure human rights in the supply chain, companies have a unique opportunity to lead.
Where do companies start?
Respecting human rights starts with clear agreements on – and business processes that enable – identifying, mitigating, remediating and preventing negative consequences for human rights, such as forced labor. This includes comparing wages with wage calculations in orders and contracts and drafting enforceable employment contracts. Also setting up pricing structures that enable suppliers to pay a living wage and provide a safe workplace[vi].
Companies should also establish clear accountability through an anti-forced labor team or task force. Such teams should be cross-functional and include individuals from legal, compliance, regulatory and even individual business units. Teams must oversee human rights compliance programs: a set of policies, procedures, and training that help companies meet their ethical and legal obligations. Policies should be clear, concise, easy to understand and, perhaps most importantly, aligned with a company’s overall business strategy.
Companies can create a culture of respect for human rights by creating codes of conduct and performance measures that reference international norms and standards and outline expectations around human rights. While establishing these standards is essential, companies must provide ongoing training to both employees and suppliers, monitor performance, and provide employees throughout the supply chain with accessible avenues to report concerns.
Tracking and analyzing forced labor risks across multiple layers of the supply chain requires a variety of technology tools, including a broad spectrum of available automation platforms that use artificial intelligence and machine learning to map supply chains and create deep processes for suppliers with the highest risk, manage supplier risk surveys, create supplier scorecards and more. Companies that proactively monitor the risk of forced labor can then gain a clear overview of their risk exposure at product, entity and/or country level, including the chain of control across the entire supply chain (from raw materials to finished products).
While there is a lot that companies can do on an individual basis, partnership and collaboration are key to creating momentum. Companies can exponentially increase their impact by leveraging the resources and guidance of industry associations, partnering with multi-stakeholder groups, and connecting with unions, worker representatives, and community organizations to gain valuable insight from those most affected by forced labor .
The consequences of doing nothing
Failure to establish a robust program to monitor human rights violations in the supply chain can have serious consequences.
- Legal: The U.S. State Department has codified a list of consequences for violators, including sanctions and visa restrictions.
- Administrative: If a company’s products are held at the border, the company may be required to provide production records, commercial invoices, and financial records to demonstrate that the products were not purchased or manufactured using forced labor, causing unplanned delays in the supply chain and potentially lengthy delays. term disruption.
- Financial: Because a shipment is being assessed, the importer may have to pay additional storage costs. Should the shipment be deemed excluded from the US, the importer may be required to re-export or destroy, which will again incur additional costs.
- Reputation: Public attention to forced labor, child labor and other human rights violations is growing. Failure to identify and monitor high-risk products, supply chain routes and sourcing regions can result in negative publicity and serious damage to a company’s brand and reputation.
- Validation of the deal: Investors are increasingly conducting buy-side due diligence as it relates to ESG exposure and requiring companies to address potential supply chain violations. Investments in anti-forced labor compliance programs demonstrate a commitment to fundamental human rights principles, which are critical to attracting investment.
Over the past twelve months there has been a significant push towards the elevation of human rights principles within cross-border supply chains. In addition to the UFLPA, the Inflation Reduction Act helped require American companies to provide visibility to their supply chains.[vii] Both in the US and other regions around the world, trade authorities are raising the bar to ensure that companies truly understand and track all elements of their manufacturing processes and supply chain. With significant resources and influence, multinational corporations are uniquely positioned to play a leading role in the ongoing efforts to ensure that basic human rights are truly extended to all individuals and communities around the world.
[i] “Global Estimates of Modern Slavery: Forced Labor and Forced Marriage”, International Labor Organization, Walk Free, IOM UN Migration, September 2022.
[ii] “The Global Slavery Index 2023”, Walk Free, June 2023.
[iii] “For a more equitable supply chain: ending human trafficking and forced labor”, DiversityPlus Magazine, 2023.
[v] Richard Vanderford, “Lawmakers Seek Strong Implementation of Forced Labor Law Targeting China,” Wall Street Journal, April 18, 2023.
[vi] “For a more equitable supply chain: ending human trafficking and forced labor”, DiversityPlus Magazine, 2023.
[vii] Charles Wessner and Srishti Khemka, “Getting Real on the Inflation Reduction Act,” Center for Strategic and International Studies, March 7, 2023.