Results by areas assessed

This section provides the findings for each area assessed in the engagement, based on the classification of indicators as basic, standard and leading (see Appendix 1). This categorisation aims to help investors initiate conversations with companies and rank their performance, in order to encourage good practice.

Supplier code of conduct

WHAT SHOULD INVESTORS LOOK OUT FOR?
BASIC
  • The company has a supplier code of conduct
  • The supplier code of conduct covers expectations regarding all eight fundamental ILO conventions and additional workers’ rights
STANDARD
  • Expectations of the supplier code of conduct are included in contracts with all direct suppliers
LEADING
  • Expectations of the supplier code of conduct apply and are included in supplier contracts beyond tier 1
  • The supplier code of conduct specifically applies to labour brokers and agents, rather than only to product contractors, and is included in their contracts

Research by the ILO finds that comprehensive contracts, which clearly state the conditions of the relationship and the company’s expectations of the supplier, are necessary to provide a stable context within which a supplier can operate.8 Such a context helps ensure better working conditions, and reduce last-minute changes to orders and lead times that could put financial pressure on suppliers. Such pressure can increase the risk of forced and child labour. Including expectations set out in the supplier code of conduct (relating to the eight fundamental ILO conventions) into contracts is a first step to providing suppliers with a concrete framework for managing labour practices.

From the interim to the final evaluation, there was a slight increase in average scores for the code of conduct indicator, from 61% to 64% for indicators linked to policy and process and from 27% to 34% for those linked to implementation and performance. These increases are mainly due to a growing number of companies making a public commitment to addressing human rights in supply chains and introducing standalone supplier codes of conduct, covering all aspects of the core ILO labour standards.

A supplier code of conduct is the first step in communicating labour practices expectations to suppliers. However, companies need to better communicate and implement expectations down supply chains. For the final evaluation, even though 95% of companies mention all areas of the ILO core labour standards within their supplier codes of conduct, only 18% describe how they are working with suppliers to improve practices in these areas, and even fewer (just 3% of companies) analyse trends in progress made.

Clear, signed contracts are critical in influencing supplier behaviour, and they are in place at 97% of participating companies, while 73% include expectations regarding their codes of conduct in contracts with direct suppliers. However, when implementation of supplier codes of conduct is examined in more detail, the picture is less positive. Only 64% of companies say the expectations in codes of conduct apply to indirect suppliers and only 52% say they include these expectations into contracts with suppliers beyond the first tier.

The lowest scores were seen regarding the application of supplier codes of conduct to labour brokers or agents, with only 36% of companies explicitly stating that their code of conduct applies to these actors as well. According to research by ILO and JETI, when suppliers are under pressure, the risk increases that workers contracted by third-parties will be subject to abuse.9 In these instances, it is crucial that codes of conduct apply to labour brokers, and guarantees are sought regarding ethical recruitment of casual workers as well as of permanent staff.

Good practice examples

Groupe Danone – Application of supplier code of conduct to labour brokers and agents
Country HQ: France | Sector: Food Producer

In 2018, Danone adopted its Global External Workforce Policy, which requires temporary work agencies and labour service providers employing workers on behalf of Danone to respect those workers’ fundamental freedoms and rights. 

The company also performed a risk mapping exercise, cross-checking human rights issues and the number of agency workers in regions where it operates. From this mapping, three regions were prioritised to start deploying the policy. 

Source: Foster Inclusive Growth, Danone website, under the Human Rights section

Governance and accountability

WHAT SHOULD INVESTORS LOOK OUT FOR?
BASIC
  • The board has oversight of sustainability goals
  • The board is informed of or regularly discusses issues including human rights/supply chains
STANDARD
  • The responsibilities of the board or a board member specifically include oversight of human rights (preferably labour performance in the supply chain specifically)
  • The company provides human rights/supplier code of conduct training to at least the most relevant staff
  • The goals and targets for the ethical trading/ sustainability team are aligned to procurement/ buying teams
LEADING
  • The board receives training on human rights, ideally including supply chain labour rights
  • Remuneration/incentives for senior executives are linked to human rights/labour practices in the supply chain

Appropriate governance and accountability systems are key to ensure that a company builds capacity and processes where needed to properly address and mitigate labourrelated risks in their supply chains. To this end, companies should assign responsibility for human rights in general, and labour rights and supply chains specifically, at board level and provide the necessary training and development to relevant staff at all levels. This will ensure that company management is able to identify risks in a timely manner, knows what actions it needs to follow and understands accountability for remediating the negative impacts of different business activities.

We found that a small but growing number of companies (from 24% to 42%) report that the board or a particular board member have individual responsibility over human or labour rights and/or supply chain issues. This indicates that companies are increasingly considering human and labour rights in supply chains as a strategic issue for the business. However, this is much lower than the number of companies reporting that the board has responsibility for sustainability issues (88%) and suggests that, even though companies are talking about sustainability at board level, responsibilities over more specific labour rights issues might not be clearly assigned. In addition, and despite the increase in boards taking responsibility for human rights or supply chain issues, only 9% of companies evaluated said that board members receive training on human rights issues, including labour rights in supply chains.

Equally, only 9% of companies assessed link labour rights in supply chains to senior executives’ remuneration. The companies who report on this area state that compensation is linked to corporate social responsibility or non-financial targets, but they do not offer more detail on which specific issues or targets are linked to performance and what proportion of executive compensation is dependent on such performance. Even though there is an increase in the number of companies reporting on performance around sustainability issues (from 20% to 28%), companies do not specify which executives are accountable for the business’s performance against objectives and targets reported.

Another important aspect of accountability is to provide the appropriate training to those responsible for meeting those targets. However, while 97% of companies evaluated have a supplier code of conduct in place, only half (48%) report that they offer dedicated training to relevant staff on human or labour rights issues. Training should be available to staff with responsibility over, or relationships with, the business’s supply chain, so staff can proactively identify practices that raise the risk of human rights abuses and make decisions with greater knowledge of the commitments and targets the business has set for its relationships down its supply chain.

Companies also need to make sure that sustainability teams’ objectives and targets are aligned to those of their procurement teams. For this reason, providing training and monitoring its effectiveness are crucial in implementing companies’ commitments around human rights and ethical sourcing. In addition, ethical sourcing targets should be linked to procurement teams’ remuneration to ensure staff are not given conflicting messages or incentives that can undermine companies’ ambitions and activities around labour practices in supply chains.

Good practice examples

PepsiCo – Board training on human rights
Country HQ: United States | Sector: Beverages

For PepsiCo’s Board of Directors human rights is an integral part of the business and its Public Policy and Sustainability Committee has oversight over the business’ human rights issues and strategy. In 2018, the Committee carried out a deep-dive session to discuss the business’ human rights strategy, progress against it and emerging human rights trends and risks. The deep dive is considered as part of the Board of Directors training programme and is developed and delivered by experts in the area.

Source: 2018 PepsiCo’s Modern Slavery and Human Trafficking Statement, PepsiCo website

Wesfarmers – Training for relevant staff on ethical sourcing and human rights
Country HQ: Australia | Sector: General Retailers

At Wesfarmers, buying and sourcing teams are kept up to date on ethical sourcing and human rights commitments through a mix of training, collaboration and information sharing. For example, findings from the business audit programme are fed back into the training of relevant staff to improve their understanding of human rights and ethical sourcing as well as the impact their business decisions can have on human rights.

Source: 2019 Modern Slavery Statement for Wesfarmers, Wesfarmers website

Traceability and risk assessment

WHAT SHOULD INVESTORS LOOK OUT FOR?
BASIC
  • The company has a process to map the supply chain, and publicly discloses some information on its supply chain by supplier and geographical location
STANDARD
  • The company has conducted at least one impact assessment during the past three years that examines social issues in the supply chain focused on a specific commodity or region
  • The company evaluates salient risk by both product/ sector and country, at least for all high-risk countries and/or most sourced products 
LEADING
  • The company provides full disclosure of its supply chain by supplier, product and geography, including potential risks associated with supplier origin
  • The supply chain map includes suppliers beyond tier 1

Evidence that a company is completing geographical mapping of different suppliers allows investors to assess whether the company understands the length and complexity of its supply chains, and gives an indication of the possible labour-related risks to which a company might be exposed (and how companies can prioritise their actions on human and labour rights), based on the countries where it sources different products.

Over the course of the engagement, there was an improvement in traceability and supply chain transparency by the end of the engagement: 70% of companies were disclosing on geographic location of suppliers and volumes of product sourced in each location, up from 58% at the interim evaluation. However, only 12% of the companies evaluated provided a full map of direct and indirect suppliers. Companies often argue that they are not able to disclose the full map or list of suppliers for commercial reasons, such as competitive advantage, or to maintain confidentiality. However, given that there are companies among those evaluated who have disclosed their full list of suppliers, as well as volumes sourced, it is clear that a much wider number of companies can undertake this practice than are currently doing so. Furthermore, the engagement identified that, because companies tend to have overlapping supply chain maps, it might be efficient to carry out the effort of mapping long and complex supply chains collaboratively to share costs and resources.

Good practice examples

Wilmar – Supply chain mapping
Country HQ: Singapore | Sector: Food Producers

Wilmar has made available an interactive map that displays the full extent of its palm oil supply, going beyond its tier 1 suppliers. The map offers a geographical display with information of the level of traceability form refinery to mill, whether the refineries are Roundtable on Sustainable Palm Oil-certified and their physical address.

Source: Traceability, Wilmar website

Heineken – Assessing labour risks in supply chains
Country HQ: The Netherlands | Sector: Beverages

Heineken has assessed the potential impacts of its business activities by conducting in-depth workshops across the world, which involve where possible engagement with potentially affected stakeholders.

Through the workshops, Heineken has been able to identify salient human rights issues that are now the base for its Human Rights Policy. The business has also put in place specific actions plans in countries identified as high risk; other action plans are under development. The business will also continue to update its policy according to new information coming from monitoring and reporting as action plans are implemented.

Source: Respecting human rights, Heineken website

Sourcing and supplier relations

WHAT SHOULD INVESTORS LOOK OUT FOR?
BASIC
  • The company has a process to assess/monitor labour performance of its suppliers, including:
    • SMART (Specific, Measurable, Achievable, Realistic and Timely) targets
    • Unannounced audits
    • Alignment with an internationally recognised standard
    • Involvement of a third party in the assessments
  • The company reports evidence that auditing and/ or monitoring has been undertaken in the past three years, or according to targets
  • The company provides a summary of findings of the audit/monitoring activities
STANDARD
  • The company has a policy to at least reserve the right to decrease sourcing from or terminate contracts with suppliers where repeated negative performance is identified 
  • The company provides supplier capacity programmes for strategic or critical suppliers
  • The capacity building and training includes suppliers’ workers as well as management 
  • The company incentivises tier 1 suppliers to offer capacity building to their own suppliers
  • The company reports on the process to move nonconforming suppliers to good practice 
  • The company incorporates social criteria into sourcing decisions, particularly when awarding new contracts or renewing existing contracts 
LEADING
  • The company gives preference to suppliers with higher labour performance
  • The company has long-term relationships with some suppliers and sources a significant share of goods from these
  • The company rewards suppliers with higher labour performance

Creating stable and long-term relationships with suppliers provides security (as outlined further below) and enables them to invest in their business. According to JETI, longterm partnerships with suppliers enables the sharing of risks and agreement on broader standards for the relationship beyond price.10

One benefit of forging long-term relationships with suppliers is that they provide stability, especially for suppliers, by having a set cost model that incorporates at least minimum wages, and by helping to avoid short notice requirements and short lead times. According to recent research by the ILO, OECD and the International Organization for Migration, short lead times and last-minute changes in orders mean that suppliers incur higher costs, which in turn reduces their capacity to pay adequate wages and/or makes them resort to practices such as inadequately compensated overtime, casual labour or outsourcing, increasing the risk of forced or child labour.11

The final assessment found that this is an area for improvement for most companies. Only 21% of companies evaluated have a policy on incentivising good practice or on building long-term partnerships with socially compliant suppliers. Only 14% have a target related to this practice. Furthermore, even though 97% of companies have a process to assess or monitor the labour performance of their suppliers, only 15% report on the process or provide examples of how they have helped suppliers move from non-compliance to good practice.

While companies are increasingly being more explicit about their requirements regarding labour practices, only 42% of evaluated companies provide suppliers with some kind of capacity-building programme, such as training or technical assistance, and a smaller number (12%) provide financial support to fill gaps in supplier health and safety compliance. This indicator has the potential to send a strong signal in terms of indicating the depth of a company’s commitment to respecting human and labour rights in supply chains. The ILO’s Global Survey found that, overall, this practice is not widespread, with only 51% of suppliers expected to follow companies’ codes of conduct receiving support for implementation from buyers.12 In addition, JETI found that, even when this support is provided, some suppliers are being charged fees by buyers to participate in training or capacity-building activities.13

Good practice examples

Mondelez – Long-term relationships and supplier capacity building
HQ Country: United States | Sector: Food Producers

CocoaLife is Mondelez’ US$400m cocoa supply chain programme, with a goal for all the business’s chocolate brands to source their cocoa through this programme by 2025.

One focus of the programme is female empowerment, to enable women to gain greater access to and control over both household and productive resources, strengthening their ability to act as leaders in their community.

The programme provides 50,000 women annually with access to finance to fund education and encourage entrepreneurship. By the end of 2018, an additional 74,318 community members had been trained in gender awareness, with the aim of changing perceptions, attitudes and behaviours, with the wider goal of reducing gender inequalities.

Source: Empowering women for more sustainable cocoa communities, Mondelez International website

Tesco – Moving non-conforming suppliers to good practices
Country HQ: United Kingdom | Sector: Food & Drug Retailers

Tesco works with suppliers regarding wages paid to workers; when suppliers are found to be non-compliant – that is, they are not paying wages on time and in full – Tesco requires suppliers to pay back any missing wages. If suppliers do not agree, Tesco looks to exit the relationship in a responsible manner. In 2018/19, 110 cases of concern were identified, involving 88 sites. More than 7,000 workers received a total of US$508,307 as a result of Tesco’s intervention.

Source: Modern Slavery Statement 2018/19, Tesco website

Collaboration on systemic issues

WHAT SHOULD INVESTORS LOOK OUT FOR?
BASIC
  • The company participates in certification schemes that cover labour standards and has SMART targets for certification
  • The company participates in at least one initiative/ multi-stakeholder partnership related to social issues in the supply chain
  • The company reports details of how stakeholder engagement is undertaken and collaborates with peers to address systemic issues
STANDARD
  • The company plays an active role in one or more multi-sector or industry body initiative (MSI) on labour supply chain issues, or forms a partnership with a union to improve labour standards, and articulates how it uses its membership of MSIs to advance its own practices and better human rights outcomes
  • The company reports on how it works with suppliers to improve their practices in relation to freedom of association
  • The company reports on how it works with suppliers and/or trade unions to improve their living wage practices
LEADING
  • The company collects data and analyses trends in the progress made around freedom of association and living wage
  • The company has a pledge to pay living wages to employees within its direct operations and suppliers at least up to tier 1

 

According to a recent report from JETI the causes of low wages are systemic, meaning that efforts by individual companies are not likely to have a sustained impact. In ensuring that workers earn a living wage, companies also need to take action on wider issues, including strengthening freedom of association and collective bargaining.14

This is an area that requires improvement among almost all companies assessed in the final evaluation, as only 24% of companies evaluated have a commitment to paying living wages in their supply chains and only one company has a living wage pledge.

Research cited above from ILO, OECD and IOM and JETI shows that aggressive price negotiations on the part of buyers can be a key factor in the incidence of poor labour practices such as low wages and inadequately compensated overtime, and can increase the risk of using forced or child labour as a way to reduce costs to meet buyers’ demands. However, while companies demonstrated improvement in terms of commitments to good labour practices in supply chains, none of the companies evaluated said they have a product cost model that incorporates labour costs to ensure suppliers are able to pay at least legal minimum wages.

The vast majority (91%) of companies stated that they include freedom of association as one of the expectations in their supplier codes of conduct; however, only 12% described how they work on this issue with suppliers, and no company reported that it analyses trends or collects data on the issue.

Wider cross-sector collaboration is needed here, and companies need to work with peers and policy makers to strengthen local policy around minimum wages, as well as work with suppliers on pricing and contracts to determine how any increases in statuary minimum wages can be incorporated into different products’ cost models. A sudden increase in labour costs could put suppliers out of business or increase their temptation to engage in or overlook poor labour practices such as forced or child labour, setting penalties for workers, or failing to provide other employee benefits and social contributions.

Good practice examples

ABF – Living wage commitment
Country HQ: United Kingdom | Sector: Food Producers

ABF has a commitment in its supplier code of conduct to pay a living wage, stating that “wages should always be enough to meet basic needs and to provide some discretionary income.”

ABF is a signatory of Malawi Tea 2020, which supports living wages for workers in tea supply chains. The first collective bargaining agreement for the sector resulted in a large wage increase for tea workers. As of 2019, 5,376 people had received help to increase their incomes, and 1,317 had attended financial literacy and inclusion programmes.

Source: ABF (2019), Living our values: Responsibility Report 2019

Monitoring and corrective action

WHAT SHOULD INVESTORS LOOK OUT FOR?
BASIC
  • The company has a policy regarding remediation for workers in its supply chain
  • The company reports some information on its grievance process and provides examples of outcomes
  • The company has a communication/grievance mechanism for workers in its supply chain in place and reports on the means of communication
STANDARD
  • The company has a clear and effective procedure for tracking the resolution of identified social and/or labour corrective actions in the supply chain
  • The company reports on the use of the communication/grievance mechanism and grievances raised are investigated and resolved in a timely manner
  • The company encourages suppliers to have communication/grievance mechanisms in place
LEADING
  • The company describes the impact of remediation activities on supply chain workers or provides evidence that remediation is or would be undertaken systematically
  • The grievance mechanism complies (wholly or partially) with the effectiveness criteria of the UN Guiding Principles for Business and Human Rights (e.g. the company engages workers in the establishment of the mechanism and the resolution of grievances; the mechanism is easily accessible, confidential and trusted, i.e. workers are aware of it and can use it without fear of penalty, dismissal or reprisal of any kind)

Grievance mechanisms and access to remedy are key responsibilities of states and businesses as defined by the UN Guiding Principles. Businesses not only have the responsibility to avoid infringing on the human rights of others but should also provide remediation of any adverse human rights impact they have caused or contributed to.15

Although overall scores remained low over the period of this engagement, there has been improvement regarding two-way communications and grievances mechanisms, from an average of 45% to 53% of companies reporting basic and standard indicators linked to policy and processes, and from 30% to 37% on standard and leading indicators linked to implementation and performance. This shows that a growing number of companies are offering workers in their supply chains a mechanism to report on violations of their supplier codes of conduct, and that companies are also being more proactive in mitigating potential risks and acting more effectively in providing remedy.

However, there is still room for improvement when it comes to disclosure around the implementation and effectiveness of grievance mechanisms. Although the majority (70%) of companies evaluated have a policy regarding access to remedy for workers in their supply chains, only 30% report any information regarding processes for solving grievances. In terms of implementation, only 12% report that they have a clear procedure for following up and tracking the resolution of identified social or labour corrective actions in the supply chain, and a mere 6% describe the impact of remediation activities on supply chain workers. The same trend is seen in the reporting of the use of grievance mechanisms, with only 27% of companies doing so. Only 21% encourage suppliers to put a communication or grievance mechanism of their own in place, and just 12% confirm that their grievance mechanism complies with criteria in the UN Guiding Principles.

Companies are often reluctant to disclose numbers of grievances, as a large number could be perceived as poor performance. However, a high number of reported grievances is often a reflection of a better functioning mechanism and workers feeling more empowered to report on violations or allegations. One key aspect of grievance mechanisms is how companies ensure that they are actually being used, including how companies communicate around them, and how reports produced by third-party managed systems are used.

Investors should encourage companies to be more transparent about the use and effectiveness of their grievance mechanisms and remediation actions and recognise those who already report on this area even if results show a high number of reported grievances.

Good practice examples

Wilmar – Reporting on grievances
Country HQ: Singapore | Sector: Food Producers

Wilmar publishes a Grievances Update document on its website detailing grievances reported, broken down by issue raised and stakeholder(s) affected. The update also provides information on the progress of any investigation and the steps taken by the business to resolve any concerns and/or provide remedy to affected stakeholders. For example, in 2017 the company reported changes made to its wages and employment policies and practices after concerns were raised about these practices among suppliers in North Sumatra.

Source: Grievance Update, 22 March 2018, and Strengthening Labour Practices: Twelve Month Progress Report, 4 December 2017, Wilmar International website

ADM – Process of solving grievances
Country HQ: United States | Sector: Food Producers

ADM provides information on its website regarding how employees and suppliers can report grievances to the business. The document explains the link between the grievance process and wider policies and commitments and provides guidelines for anyone who decides to report concerns. The document also includes a workflow that explains the different steps of the review process, and how long the process will take.

Source: Grievances and Resolutions – Background, ADM website