Results from the PRI collaborative engagement 2017-19
This report summarises the results of the second phase of a PRI-led engagement on labour practices in agricultural supply chains. A first phase of the engagement, during 201316, sought to understand labour rights challenges and risks in supply chains. This second phase, which ran from 201719, involved deeper engagement between 29 PRI signatory investors and 33 companies in the Beverages, Food & Drug Retail, Food Producers and General Retailers sectors. Its objective was to identify and assess existing corporate practices, encourage enhanced communication and reporting, and support improvement of performance and impact by target companies.
The engagement involved an assessment of companies across six areas: supplier codes of conduct; governance and accountability; traceability and risk assessment; sourcing and supplier relationships; collaboration on systemic issues; and monitoring and corrective action. For the final analysis, business practices were classified in three categories: basic, standard and leading. The three categories allow investors to assess a given company’s preparedness to identify, prevent and mitigate labour risks in its supply chain and, in turn, better tailor engagement efforts according to the company’s performance against set objectives.
In all six areas, the engagement found continuous and steady improvement across all sectors regarding labour practices in agricultural supply chains (see Appendix 2). However, there is also considerable room for improvement, especially in areas of leading practice. This report sets what investors should be looking for from companies to eliminate labour abuses in their supply chains.
The main issues impacting labour practices in supply chains in the six areas are as follows:
- Supplier codes of conduct: Including the expectations within suppliers’ codes of conduct into contracts is a first step in providing suppliers with a concrete framework for managing labour practices. However, there is more work to be done to better communicate and implement these expectations down supply chains to prevent and mitigate labour risks when suppliers subcontract products and services to meet contract agreements.
- Governance and accountability: Failure to identify, prevent and address adverse human rights impacts can lead to reputational, operational and financial human right risks. Responsibility at all levels of the organisation over human rights and labour practices in supply chains is critical. Accountability has to come from the top, with the leadership demonstrating that they understand the main risks and can set up plans to prevent and mitigate them and ensuring that internal incentives across the whole organisation are aligned with the company’s commitments around labour rights.
- Traceability and risk assessment: By mapping their supply chains, businesses are able to begin to understand the possible labour-related risks to which they are exposed, based on the countries where different commodities are sourced from. Having visibility over the length and complexity of the supply chain will also help businesses prioritise the actions needed to help identify, prevent and mitigate labour risks. As supply chains become more global, the more companies will share suppliers within their own supply chains; collaborating with peers around traceability practices will allow companies to do this in a more efficient and cost-effective way.
- Collaboration on systemic issues: The causes of labour rights issues in supply chains, in many cases, are systemic and interlinked. For this reason, investors need to encourage investee companies to collaborate with peers and other stakeholders such as policy makers, NGOs and trade unions to identify the most effective ways to achieve real change. For example, the causes of low wages are systemic; and therefore, to address low pay, companies need to work collaboratively and review practices around other issues, such as strengthening freedom of association and collective bargaining. Robust collective bargaining mechanisms, such as trade unions, can offer workers stronger representation when negotiating wages and protections against wages variations. Prices and cost models negotiated with suppliers should include, at least, minimum wages as part of their calculation. Cost models that put undue pressure on suppliers can reduce their capacity to pay adequate wages or can make them resort to practices such as inadequately compensated overtime, casual labour or outsourcing, increasing the risk of forced or child labour.
- Sourcing and supplier relations: Long-term relationships can provide suppliers with stability and security, allowing them to invest in the business. Longterm relationships also avoid short notice requirements and lead times, which can increase the risk of forced labour. Such relationships also need to be accompanied by processes to monitor suppliers’ labour performance and clear actions to enhance supplier capacity building, as well as moving them from noncompliance to good practice.
- Monitoring and corrective action: According to the UN Guiding Principles, businesses not only have a responsibility to avoid infringing on the human rights of others but should also remediate any adverse human rights impacts they have caused or contributed to. Companies should be more transparent about the effectiveness of their grievances mechanisms and their remediation actions, and ensure that workers in supply chains know of these mechanisms and how to make use of them.
Finally, the PRI suggests that investors who would like to continue with this engagement should:
- Set objectives around systemic issues, such as low pay, full traceability of key supply chains, and forced labour.
- Assess company’s preparedness to achieve set objectives and assess the level of preparedness against the desired objective, and tailor company engagement accordingly.
- Collaborate to achieve progress and make engagements more effective and efficient.
Companies around the world are failing to address labour abuses in their supply chains. An estimated 40.3 million people are subject to some form of modern slavery, with the agriculture, forestry and fishing sector accounting for 11% of this number, and the wholesale and trade sector another 9%. An estimated US$150bn each year is generated from the theft of their labour.1
It is imperative that businesses and their investors understand their responsibilities toward workers in relation to a range of labour rights issues. The responsibilities of governments regarding labour rights are also becoming clearer through the work of international actors such as the G7, the International Labour Organization (ILO) and the United Nations. They are helping to raise the profile of supply chain labour conditions through soft law mechanisms and within the Sustainable Development Goals (SDGs). At the national level, countries are enacting legislation requiring greater transparency around supply chain practices, such as modern slavery acts in the UK and Australia, and California’s Transparency in Supply Chains Act.
The agricultural sector, including forestry and fishing, is a high-risk sector in terms of forced and child labour.2 To support investors seeking to understand and drive improvement in labour practices in agricultural supply chains, the PRI has supported a multi-year engagement with key companies in the food and drug retail, beverages, food producers and general retailers sectors.
The first phase of this engagement ran from 2013 to 2016 and focused on understanding labour rights challenges and risks in supply chains. The results of this first phase can be found in the 2016 PRI report From poor working conditions to forced labour – What’s hidden in your portfolio?
As a starting point for this engagement, the PRI used the ILO’s Declaration on Fundamental Principles and Rights at Work. It defines the following as fundamental rights of workers: freedom of association; the right to collective bargaining; and freedom from forced labour, child labour and discrimination. The ILO commits member states to respect these rights, regardless of whether they have ratified its conventions. In addition to those rights, the engagement also evaluated the rights to appropriate occupational health and safety practices, safe working conditions and fair wages.
Within the agricultural sector, the major labour risks are forced labour, child labour and high fatality rates. Workers in agriculture also face issues such as the denial of their rights to freedom of association and collective bargaining, hazards to occupational health and safety, poor working conditions, inadequate or non-existent access to medical care or pensions, long hours and insufficient wages.
In the second phase of the engagement, from 2017 to 2019, investors deepened their dialogues with companies that participated in the first phase (see Figures 1 and 2) with the aim of improving supply chain traceability and supplier relationships. The objective was to identify and assess existing corporate practices, encourage enhanced communication and reporting, and ultimately support improvement of performance and impact by target companies. This phase is the subject of this report.
Guidance from the ILO3 and the Joint Ethical Trading Initiative (JETI)4 identify the following aspects as central to improved labour practices in global supply chains: contracts and specifications; prices and costs models; worker representation and wages; and length and type of supplier and buyer relationship. This engagement, and the results and recommendations outlined in this report, are focused on these practices which, if not well managed and monitored by companies, can increase the risk of human and labour right abuses in supply chains.
The engagement aimed to address a range of issues, set out in a public statement, Investor Expectations on Labour Practices in Agricultural Supply Chains. This was then used by a sub-set of PRI signatories to support dialogue with 33 companies and to develop scorecards to track engagement progress.5
The expectations on labour practices covered in the statement, and the resulting areas assessed through the engagement, include:
- Supplier codes of conduct;
- Governance and accountability;
- Traceability and risk assessment;
- Sourcing and supplier relationships;
- Collaboration on systemic issues; and
- Monitoring and corrective action.
The engagement evaluation methodology was mapped against the UN Guiding Principles on Business and Human Rights and referenced a number of sources, including the Corporate Human Rights Benchmark and the KnowTheChain benchmark on forced labour, among others.6
This report summarises the results from the engagement for each of the expectations on labour practices listed above. The indicators used for the evaluation of companies have been classified in three categories: basic, standard and leading (see Appendix 1). For each of the expectations, the report outlines current practices and approaches that investors can use to support companies in improving labour practices in their supply chains.
1 Liechtenstein Initiative for a Financial Sector Commission on Modern Slavery and Human Trafficking (2019), A Blueprint for Mobilizing Finance Against Modern Slavery and Trafficking, Executive Summary
2 ILO says forced labour generates annual profits of US$ 150 billion, International Labour Organization website, 20 May 2014
3 International Labour Office (2017), Purchasing practices and working conditions in global supply chains: Global Survey results; INWORK Issue Brief No. 10
4 Joint Ethical Trading Initiatives (2015), Living Wages in Global Supply Chains: A new agenda for business
5 The engagement involved a group of 29 investors – a subset of the 58 investors, representing US$4.1trn of assets under management, who signed the investor expectations statement on labour practices in agricultural supply chains.
6 Other sources include: The Global Report Initiative, Morgan Stanley’s ESG framework for Retail / Softlines, Mirova’s supply chain engagement (apparel + ICT focus), Sustainable Apparel Coalition - Higgs Index, Human rights supply chain report of the Australian Human Rights Commission, the Sustainability Accounting Standards Board, the International Finance Corporate, Behind the Brands.