The 2013 Rana Plaza collapse in Bangladesh, a tragedy that killed roughly 1,000 garment workers, was a wakeup call for companies. Retailers and manufacturers across the globe realized they had little control over their supply chains and took immediate action to ensure worker safety. Roughly 220 garment factories were shut down and an additional 2,000 were thoroughly investigated as a result of a retailer-led safety overhaul.
These efforts to improve working conditions sparked a global conversation around human rights violations and shone light on the fact that companies could be doing more to protect workers’ safety and monitor risk in their supply chains.
Unfortunately, the conversations didn’t go far enough and failed to enact real change.
The global supply chain is still plagued with unjust working conditions and employment practices. The United Nation’s International Labour Organization (ILO) estimates 21 million people globally are trapped in forced labor today, generating $150 billion in illegal profits each year, and the U.S. State Department estimates there are about 9,000 yearly worldwide prosecutions for human trafficking-related offenses.
Governments fight back
In response to this epidemic, governments are now mandating—and no longer asking—that organizations be proactive in their fight against unjust labor practices, spurring a dramatic increase in due diligence regulations. The recently enacted U.K. Modern Slavery Act, for example, mandates companies operating in Britain and with more than 36 million pounds (about $53.6 million) in revenue publish their efforts to validate and enforce that suppliers are complying with their own policies as well as local laws against unjust employment practices, and new, in-consideration U.S. regulation, the Business Supply Chain Transparency on Trafficking and Slavery Act of 2015 (H.R. 3226), proposes public companies with global receipts of more than $100 million disclose their efforts to prevent the same kind of behavior.
But the stakes could get even higher. Arguably the most monumental regulation currently under consideration is “Devoir de Vigilance,” a bill pending in France that will not just mandate corporations to disclose information about unjust labor in their supply chains, but actually hold them liable for their—and their suppliers’—actions.
Game changer for the world
The Devoir de Vigilance bill is currently under discussion in the French Parliament and designed to mandate due diligence on between 100 and 200 of France’s largest businesses. The bill will hold corporations liable for not only unjust labor practices, but personal injury, environmental damage, health risks and corruption. In the event of non-compliance, corporations could be fined up to 10 million euros ($10.8 million).
Aside from the financial implications, the real impact of Devoir de Vigilance for businesses is that with similar regulations under consideration in Spain, the Netherlands and Sweden, the bill could create a domino effect and eventually become the global standard if the proposed “Directive 2014/95/EU on disclosure of non-financial and diversity information” bill and subsequent laws are adopted by the E.U. This would essentially set a framework for how companies should operate, evaluate risk and CSR initiatives, turning human rights violations into a compliance issue, not just a consideration under corporate social responsibility programs.
And with this new bill proposing parent company liability for subcontractors, suppliers and subsidiaries, the risk environment will change significantly. Companies will no longer be able to hide behind the corporate veil and will likely face the risk of more lawsuits, reputational issues and may even be forced to change their organizational structure in order to comply with the new operating framework.
We are all part of the solution
Rather than focusing on avoiding fines, procurement professionals and compliance officers should adopt a more holistic, strategic approach to sustainability that fundamentally changes the way they’re thinking about their corporate, social and environmental responsibilities.
With forced labor lurking across all tiers of the supply chain and throughout many different countries involved in manufacturing, packaging and distributing products, companies will need to start investing significant resources into supply chain management, employee training, supplier assessments, auditing and remedy mechanisms in both their own operations and throughout their supply chains.
The positive global impact this could have if implemented by the world’s largest, multinational companies would be incredible. On average, a large company spends about 55 percent of its revenue on purchased materials and 80 percent on supply chain activities. This type of leverage in a supply base can drive significant supplier engagement. If these companies made sustainable procurement practices their priority and encouraged their tier 1-3 suppliers to do the same, it would start a trickle-down effect of sustainable behavior across the entire supply chain.
Pierre-Francois Thaler is co-founder and co-CEO of EcoVadis, a supplier rating company that helps organizations institute corporate social responsibility (CSR) and various sustainability programs. Pierre brings 15 years of experience in procurement and developing innovative sourcing solutions. Prior to starting EcoVadis, Pierre was CEO of B2Build SA,the first B2B marketplace for the European construction industry, and also served as a director of Ariba’s Procurement BPO business.