Making Rights Material

This article was originally published in the Business and Human Rights Journal (Cambridge University Press). In evangelising businesses to… Read More

SASB’s Rise in 2020

As ESG thought leader Robert Eccles noted in an article for Forbes at the start of the new year, 2020 was a standout year… Read More

Evidence of Corporate Risk from Harms to Workers in their Value Chains

Note: This post originally appeared in September 2020 and has since been revised.  Background SASB’s Human Capital Management Research Project seeks to “incorporate emerging issues, evidence of financial materiality, and evolving market views” with respect to human capital in updating its 77 industry standards. In support of these efforts, Rights CoLab has convened leading labor rights experts and, with the Data for Good program of the Data Science Institute of Columbia University, created a data science project, which uses natural language processing and machine learning to surface new relationships between labor-related human rights risks and financial materiality. The results of this project will inform a set of recommendations for SASB standards that better reflect human rights risks. A key objective of our work is to ensure that labor supply chain risks are better represented as human capital management issues in the standards. An obstacle that we’ve encountered in our work is SASB’s “Five Sustainability Dimensions” typology, which places "Supply Chain Management'' within the “Business Models & Innovation” dimension and outside of the "Human Capital Management" dimension.  According to SASB’s Conceptual Framework, the purpose of the typology is to clarify sustainability; however, we find that the typology creates roadblocks in three related ways. First, it reinforces a problem that labor rights advocates have long worked to combat: that companies treat their responsibility for workers in supply chains as a secondary concern to their direct workforce. For investors in particular, a company’s failure to adequately understand and disclose its supply chain risks means that the company and its investors have only partial visibility into that company. Second, locating the issue of “supply chain management” in a separate dimension from human capital reflects an outdated notion that producing through integrated supply chains is a business model choice, rather than a commercial necessity as it has been for the past 20-30 years. As such, virtually every company depends upon a supply chain, without which the business collapses. Third, by locating due diligence procedures in a separate “leadership and governance dimension,” SASB misses the opportunity to tie supply chain management to oversight of risk. Notably, sustainability frameworks of ESG data providers already include supply chains within human capital management—for example, MSCI ESG Ratings—suggesting that mistreatment of workers in supply chains is a financially material risk. Others offer specific resources to help companies identify labor risks in supply chains, including the FTSE4Good Index Series (p. 2). A recent report by Refinitiv exposed a severe lack of due diligence on business supply chains, and highlighted the hidden dangers in supplier, distributor, and partner relationships. The compilation, below, of evidence across a range of industries of negative impacts on operations and profits connected to labor abuses within a company’s supply chain lends further support to our recommendation that the typology be jettisoned. About this repository Alongside our data science effort, we have created the repository by manually tracking evidence of financially material risks within supply chains across news sources, expert commentaries and guidelines, client alerts of leading law firms advising corporate clients on emerging risk, and lawsuits. To align with SASB’s industry-specific approach to standard setting, it is organized by risks that surfaced for companies according to SASB’s industry classification system. We’ve also included an industry-agnostic section for evidence of financially material risk that is not industry-specific. Each entry points to financial impact and/or investor interest, the two aspects of SASB’s concept of financial materiality, linked to one or more of the following supply chain business risks: 1) regulatory risk; 2) reputational risk; and 3) operational costs. Strengthened regulation is manifested in new or revised sanctions, penalties, and criminal liability for companies accused of human rights abuses in supply chains. Example: In 2015, the United States Trade Facilitation and Trade Enforcement Act closed a loophole from a consumptive demand exemption which has led Customs and Border Protection (CBP) to issue a greater number of Withhold Release Orders (WRO), preventing products made by companies associated with modern slavery from entering the U.S market. For some companies, the impact of these detainments has had a significant financial impact: Stevia-maker PureCircle shares plummeted in 2017, and in 2020, Malaysian glove maker WRP Asia suspended its operations. Reputational damage contributes to financial loss, loss of consumer demand, and public support, and potential divestment. Example: In July 2020, Standard Life Aberdeen, the United Kingdom’s largest asset manager, dumped almost all of its stock in the fashion company Boohoo, following allegations of poor working conditions in the company’s supply chain. Similarly, at the end of 2019, Japanese beverage giant Kirin’s acquisition of New Belgium Brewing and entry to the U.S craft beer market was threatened, following public pressure and human rights activism regarding the company’s association with a military-run company in Myanmar. Higher operational costs stem from short- and long-term risks to the labor force and supply of materials, as well as potential costs associated with litigation and remediation. From February-August 2020, there was an increase in companies agreeing to compensation for labor rights violations. Example: Malaysian glove maker Hartalega Holdings, clothing factory Sheico Thailand, and electronics firm Cal-Comp Electronics all agreed to reimburse employees who were victim to illegal recruitment fees. In some cases, the cost of the repayments could total in the millions. While we began actively tracking evidence in December 2019, this compilation also includes earlier articles. Entries appear in chronological order starting with the most recent news account for each section - through to January 2021. Since an issue is typically covered by more than one information source, we selected the report that emphasizes financial impact or investor interest, and prioritized client alerts from law firms over media reports. Where there are multiple reports for a business risk that each highlight a different aspect of business risk, they are presented as a grouping within the relevant SASB industry or sector. The lawsuits are primarily drawn from the Business & Human Rights Resource Centre’s Corporate Legal Accountability portal. Besides the industry-specific reports, we include an “industry agnostic” section. This section highlights regulatory trends that have an effect on financial risk across industries, as well as academic studies that point to new understandings of the link between corporate practice and financial risk in supply chains. Quick Industry Search Industry Agnostic Sector: Consumer Goods Industry: Apparel, Accessories & Footwear Industry: E-commerce Industry: Household & Personal Products Industry: Multiline and Specialty Retailers & Distributors Sector: Extractives and Minerals Processing Industry: Metals & Mining Sector: Food and Beverage Industry: Agricultural Products Industry: Alcoholic Beverages Industry: Processed Foods Industry: Tobacco Sector: Health Care Industry: Medical Equipment & Supplies Sector: Infrastructure Industry: Engineering & Construction Services Industry: Real Estate Sector: Renewable Resources & Alternative Energy Industry: Biofuels Industry: Solar Technology & Project Developers Industry: Wind Technology & Project Developers Sector: Services Sector: Technology and Communications Industry: Electronic Manufacturing Services & Original Design Manufacturing Industry: Software & IT Services Sector: Resource Transformation Industry: Auto Parts Industry: Industrial Machinery & Goods Sector: Transportation Read More

CSO-Investor Dialogue Table

Investors and civil society professionals need to talk. Investors have become better attuned to the risks of human rights harms in their portfolios and are… Read More