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Stopping Modern Slavery: The New Supply Chain Imperative

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Hidden deep within the lower tiers of the supply chain, many companies are simply unaware of the extent that modern slavery takes place on the global stage.

One recent example saw 11 adults and nine children rescued in October last year from an apparel factory in Sao Paulo, Brazil’s main garment production hub. The workers, who had been trafficked from neighboring Bolivia, were forced to work excessive hours and live in slave-like conditions. While this incident highlights the plight of individuals, widening the panorama to a global scale reveals some shocking figures, including from the International Labour Organization (ILO), which puts the number of people living in similar circumstances at 21 million.

Incidents of slavery are not uncommon in the supply chains of global apparel companies and new legislation in the U.S. and U.K. will require them to demonstrate what they are doing to combat the issue within their global supplier networks. The legislation reflects a growing move by governments to regulate business practices in the area of supply chain transparency and represents a notable shift in the onus of responsibility onto business.

By tackling modern slavery head-on, companies have an opportunity to demonstrate leadership in responsible business practices, which can translate into more resilient and transparent supply chains and increased brand equity.

Apparel companies highly exposed to modern slavery in global supply chains

The road ahead for apparel firms is challenging, due to the type of production and the complexity of their supply chains. Slavery in the modern era takes a number of different forms – including human trafficking, forced labor, bonded labor and child forced labor – and is found in key manufacturing hubs throughout the world.

In Verisk Maplecroft’s Forced Labour Index, Thailand (ranked eleventh-most at risk out of 198 countries), India (12th), China (14th), Indonesia (20th), Mexico (29th), Vietnam (45th) and Brazil (53rd) are categorized as ‘extreme risk’ locations. However, the problem is not confined to Latin America and Southeast Asia. Apparel companies must also monitor risks in developed economies, like the U.S. (150th) and U.K. (172nd), where incidents of slavery can still occur.

New legislation demands businesses strengthen supply chain due diligence

Governments in the U.S. and U.K. are developing new laws to address the prevalence of modern slavery in business supply chains. The U.S. Congress is currently considering a Business in Supply Chain Transparency on Trafficking and Slavery Act, which would require companies to publicly disclose information relating to efforts to identify and address forced labor, human trafficking and the worst forms of child labor from the supply chain. The consideration of this Act represents a roll-out of the California Transparency in Supply Chains Act (2010), which was designed to target the supply chain practices of major retail and manufacturing companies located in the state.

The move toward increased disclosure can also be seen in the U.K., where the Modern Slavery Act (2015) became law in March 2015. The Act includes a specific transparency in supply chains clause—which is largely modeled on the California Act—legally requiring companies to publicly disclose the steps they have taken to ensure their operations are free of slavery. U.S. companies will have a legal obligation to adhere to the Act, as it requires all businesses operating or sourcing from the U.K., regardless of where they are incorporated or formed, to publish an annual report.

While non-compliance to the U.S. and U.K. laws present only limited direct legal or financial risks, the laws have been designed to encourage business to voluntarily strengthen due diligence practices. By legally requiring organizations to disclose their activities, business practices will be more open to scrutiny and public pressure. It is expected that business will react to this pressure by disclosing additional information to clearly communicate the steps taken to operate ethically.

Businesses can use data to identify and manage risks of modern slavery

While many apparel companies already have human rights due diligence processes in place for Tier 1 suppliers, the evolving legal framework is pushing companies to tighten their management systems throughout their extended supply chains. This presents a major challenge for large apparel companies with manufacturing interests extending into countries that present a ‘high’ or ‘extreme’ risk.

One option for businesses is to look to data to help identify and manage the risk of modern slavery. By assessing the inherent risk exposure of their supply chain—based on the country of operation and sector of activity—they can prioritize and target interventions. Business can also sharpen the focus of self-assessment and audit questions to ensure they are capturing specific data on migrant workers—a group highly vulnerable to modern slavery. By evaluating existing management systems, organizations can look to strengthen their supplier relationships and find new ways to define and share responsibility throughout the supply chain.

Extensive media interest and increasing levels of scrutiny by consumers, NGOs and other stakeholders have seen the reputational and financial implications for business grow, with risks including consumer backlash and potential shareholder divestment. As a result, responding promptly and effectively to the new legislation should now be an imperative.

To detect and eliminate modern slavery from the global supply chain is no small task. Apparel companies will need to first evaluate the effectiveness of existing supply chain management systems, invest in enhanced due diligence, and work with peers and supply chain partners. Such action will be challenging for companies given the downward pressure on costs and the complex nature of apparel supply chains. However, apparel companies should see this as an opportunity to get ahead of the issue, taking the time to invest in the supplier relationships, increase transparency and build more resilient supply chains.

By Sarah Kerrigan, senior human rights analyst at global risk advisory company Verisk Maplecroft – www.maplecroft.com

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