How will your organisation demonstrate commitment to ethical supply chains and human rights through ESG activity?
By Shreya Makerji
November 1, 2022
The Big Questions for a Sustainable Future is an ongoing series that explores big questions for companies as they prepare to lead their organisations into the sustainable future. This question explores how organisations can demonstrate their commitment to ethical supply chains and human rights through ESG activity.
Understanding the ‘S’ within ESG
Over the past few years, companies, investors and society at large have become increasingly focused on the role of ESG in business. The focus has been bolstered by the promise that ESG can be good for business and society. Of the three components of ESG—Environmental, Social, and Corporate governance—‘S’ or ‘Social’ remains the least well-understood. It is also the most difficult aspect to analyse—its scope has widened as a result of greater interconnectedness and interdependence between businesses and markets. There are multiple widely accepted definitions of ‘S’ within ESG, but common components include corporate diversity, employee relations, sustainable supply chains, consumer relations and personal data protection, and human rights.
Social monitoring and impact does not focus only on risk-reduction, but also pro-social business behaviour and actions. An organisation’s actions, policies and investments should positively impact people’s lives through avenues like business growth, market relevance and brand purpose.
Recent scrutiny of business supply chains and human rights violations Of the various components of ‘S’, there has been a growing interest on the part of investors and other corporate stakeholders—both globally and in the US—to monitor and track human rights violations in organisations and their supply chains. Economic, public health and social crises have played a major role in bringing this focus on ethical supply chains to the fore.
Supply chain and human rights risks have become a major focus for investors particularly in light of the increased attention on supply chains due to the impacts of the COVID-19 pandemic and geopolitical factors.
Most recently, claims of human rights violations in the Xinjiang region of China and in other parts of the world have pushed legislators in the US to take action. The US enacted the Uyghur Forced Labor Prevention Act in December 2021, effective on June 21, 2022, marking a historic move toward regulating the impact of human rights within corporate supply chains. In this environment, it is crucial that companies understand their own supply chains—particularly when they are complex and operate across sectors and geographies. Human rights issues have become a material focus for ESG investors, and organisations risk serious reputational damage from failure to both monitor and report on these concerns.
Incorporating a human rights focus into the business model
There are a number of steps that companies can take to build and showcase their commitment to the ‘Social’ component of ESG and to incorporate a human rights focus into the business model. At the business-level, companies can start by voluntarily tracking, measuring and reporting on their social impacts. Providing training to relevant internal and external stakeholders involved in activities linked to the supply chain is also an important step to ensure alignment.
Companies can also set out their commitment and adherence to the United Nations Declaration of Human Rights and International Labour Organisation, as well as conventions on child labour, forced labour and modern slavery etc. These declarations are not enough, however; they must be accompanied by ongoing due-diligence throughout business operations and supply chains. ESG-related requirements can also be directly embedded in supply chain contracts.
Integrating international human rights standards across corporate reporting frameworks, benchmarks and other ESG data is also crucial. This includes introducing a human rights-centered approach in screening processes and also communicating expectations and disclosures on due-diligence to relevant stakeholders.