Bennett Freeman: Investors should pay attention to how ICT firms manage forced labour in supply chains

Launch of the first sector-specific KnowTheChain benchmark

Technology has brought great advances to humanity, and drawn the world closer together. Not least it allows you to read this article on a laptop at work, on a mobile phone on the road, or on a tablet at home. Yet many of the same products that enable you to access just about any information within seconds have—unknown to many users, companies and especially investors—been produced by forced labour. For example, a 2014 Verité study found that nearly a third of workers employed in the production of electronic goods in Malaysia can be considered to be working as forced labour.
The first sector-specific KnowTheChain benchmark provides an unprecedented view of how companies in the ICT sector are addressing the scourge of forced labour. It assesses the publically disclosed efforts of 20 global ICT companies to address those risks in their supply chains. The findings send an important and urgent message: with an average score of 39 out of 100, these companies must do more to address forced labour.
Recruitment practices used by companies’ suppliers can be reformed to eliminate recruitment fees charged to workers, which often lead to debt bondage and labour exploitation. The voice of workers can be amplified through unions and other means, and grievance mechanisms can be improved to remedy abuses. Further, companies need to sharpen ways to trace the use of forced labour from their supply chains through to their end products—and in turn reform their purchasing practices to avoid suppliers that tolerate abusive practices.
Why does this problem matter to investors? Looking at software/computer services, and technology hardware/equipment services combined, they comprise the third largest sector by market value globally, and the largest sector by market value in the US. Three of the top five global public companies, with the largest market capitalisation, are ICT companies: Apple, Google and Microsoft.

Additionally, the number of human rights allegations relating to the ICT sector is on the rise.

An analysis of requests from the Business & Human Rights Resource Centre asking companies to respond publicly to concerns raised by civil society shows that the largest relative increase in allegations was in the ICT sector: the percentage of overall allegations that relate to this sector tripled between 2008-2014.The response of companies appears inadequate. KnowTheChain found that only 11 out of the 20 benchmarked companies were able to describe potential actions they would take in cases of non-compliance of their suppliers with applicable regulations and/or companies’ standards. Just two companies were able to provide concrete examples of remedy provided to supply chain workers.
Forced labour is prohibited in most countries in the world and included in a number of trade regulations. Lawsuits against consumer-facing companies for misleading consumers into unknowingly buying products of forced labour are becoming more common. And a number of countries are introducing specific legislation to address forced labour. In fact, as many as 62% of companies in the MSCI ACWI Index will be subject to the UK Modern Slavery Act, the California Transparency in Supply Chains Act or the proposed Business Supply Chain Transparency on Trafficking and Slavery Act in the US.
It is encouraging to see that awareness of the forced labour risks in the sector is high, and some ICT companies have taken important steps to start managing forced labour in their supply chains. For example, companies that are members of the Electronic Industry Citizenship Coalition (EICC) voted last year to include a provision on no recruitment fees for workers in their Code of Conduct. EICC member companies must now as a minimum require first tier suppliers to implement this new provision. And the KnowTheChain benchmark found that leading companies are beginning to act, with companies like HP aiming to limit the use of recruitment agencies and promoting direct hiring in their supply chain.
Given the high risk of forced labour the ICT sector faces, now is the time for companies to use the KnowTheChain benchmark as a tool to help strengthen their commitments and improve their practices together with their peers. The gaps that the KnowTheChain benchmark identifies are opportunities for companies to act in order to protect workers’ rights and reassure investors at the same time.

Bennett Freeman is Former Senior VP, Sustainability Research and Policy at Calvert Investments and former U.S. Deputy Assistant Secretary of State for Democracy, Human Rights and Labor.

To sign up for a free trial to Responsible Investor: click this link