DeHihns then turned to Househam, who spoke about the United Nations’ efforts regarding corporate sustainability and responsible supply chain policies. “There was this realization that the UN needs to work with business to initiate shared values and principles and give a human face to the global market,” Househam said. The efforts of the UN Global Compact grew out of the UN’s Millennium Development Goals, and now encompass a set of Sustainable Development Goals with a target date of 2030. The goals comprise 10 principles that build on such standards as the Universal Declaration of Human Rights and cover human rights, labor rights, environmental concerns, and anticorruption.
“Where the work needs to happen is in the supply chain,” Househam stated. That’s where the biggest impacts are. That’s where the biggest risks are, and that’s where they have the least amount of awareness or transparency of what’s actually happening.” Aside being the ethically right thing to do, she said, a sustainable supply chain mitigates business disruptions, protects the company’s reputation, reduces materiel costs, and increases labor productivity.
She then turned to the Global Compact’s Practical Guide for Continuous Improvement (http://bit.ly/2sTeYe1), which contains the steps the UN recommends companies take to ensure and advance supply chain sustainability. Househam also cited the Human Rights Council’s Guiding Principles on Business and Human Rights. She stressed the importance of transparency and attention to all levels of the supply chain.
“New technology is creating the opportunity for business to be more transparent,” Househam noted, adding that technology also means that issues will be exposed in the press and companies will be embarrassed by not knowing what is happening in their supply chain. She also said that legislation is beginning to be written and enacted to compel compliance, and that companies which have already been following sustainable practices will be ahead of the game. Finally, she said, companies within industries are working together to help each other develop better techniques to ensure sustainable practices in both the supply chain and other areas.
Spreading Innovation through the Supply Chain
Whelan then took the floor to discuss her experience at both the Center for Sustainable Business and the Rainforest Alliance in working with businesses and management to enact environmentally sustainable procedures at all levels of the supply chain. “There’s a very high correlation between a strong ESG performance and strong operational performance, strong stock performance and lower cost of capital,” Whelan claimed, citing a study by the University of Oxford and Arabesque. Examining that phenomenon at the Center for Sustainable Business, she has found that sustainability can drive innovation, risk reduction, operational efficiency, and employee recruitment and engagement. She noted that while much of this is financially intangible, its effects can be felt on the company’s bottom line.
Testing this hypothesis, she said, the center partnered with McDonald’s and some of its suppliers, as well as nongovernmental organizations like the Nature Conservancy, to examine the effect of sustainable practices. “What we found was that the commitment to deforestation-free practices by the ranchers was accompanied by an uptake of sustainable agricultural practices.” The study found that ranchers who adopted such practices increased productivity 2.3 times and profitability 6.8 times over 10 years—up to $90 million in net present value—while also increasing product quality and reducing risk. In addition, the effects are cumulative and ongoing, creating more value for the ranchers in the future and benefitting slaughterhouses, packagers, stores, and restaurants.
Whelan also noted that the reputational benefits contributed to reduced employee turnover, as people felt better about working for companies with demonstrated sustainability commitments. “If you can distinguish yourself as a retailer who has a solid sustainability reputation,” she said, “you’re going to be able to keep your staff longer and hopefully have them be more productive.” She also cited a recent scandal in the Brazilian beef industry regarding the sale of expired beef that was chemically treated to hide the signs of aging, illustrating the reputational risk of following unsustainable procedures. The center plans to examine the automotive, fashion, and fish industries next.
DeHihns then turned to Johnson, who spoke about his experiences fighting slave labor and human trafficking in supply chains at the Center for Justice, Rights, and Dignity. While the moral case against human trafficking is obvious, as Johnson acknowledged, he focused instead on how to convince management of the reputational risk of these issues and “why they create a great deal of legal risk for companies.” The Foreign Corrupt Practices act of 1977 and the Trafficking Victims Protection Act of 2000 create liability for companies whose products use such labor, either directly or through other related practices (e.g., bribing foreign officials to facilitate the movement of trafficked people). Such legislation exists not only in the United States, but also in the United Kingdom and France.
In particular, the Trafficking Victims Protection Act makes criminally liable anyone who “knowingly benefits financially or by receiving anything of value from participation in a venture” that uses forced or child labor “in knowing or reckless disregard of the fact that the venture has engaged in providing or obtaining labor or services” (emphasis added). Thus, even companies which “should have known” that their products are made using trafficked labor are at risk. The act applies for labor conducted inside and outside the United States, and can also lead to civil suits on behalf of the trafficked workers.
Johnson then turned to the Trade Facilitation and Trade Enforcement Act of 2015, which in part gave Customs and Border Protection (CBP) the right to seize, at the border, goods suspected of being made with child and forced labor. CBP recommends that companies have proof that their supply chain employs sustainable principles. Johnson specifically recommended adopting the American Bar Association’s Model Principles on Labor Trafficking and Child Labor. Besides prohibiting the use of forced or child labor, the model principles direct businesses to assess the risk of such labor, maintain effective communications with suppliers, devise a remediation plan, train relevant employees, and continually monitor the implementation of these policies. The ABA is working with its colleagues at the Uniform Commercial Code project to develop clauses that will incorporate these and other human rights principles into standard supply contracts.
Question & Answer
DeHihns then asked the panelists about the issue of “greenwashing”—the use of inaccurate or misleading information in reports to appear more sustainability-conscious than is the case—as well as the extent to which social media affects supply chain and reputation issues. Househam replied that social media efforts by watchdog organizations have made greenwashing more difficult, as offending companies can be “outed” more quickly. She suggested that companies would do better to admit failures rather than greenwash, “as long as they’re reporting on a true intention of improving and doing something about it later down the road.” She added that “companies who aren’t willing to share, they’re the ones that really will get in trouble.”
“It’s getting harder and harder to hide from the realities of what’s going on in your supply chain,” said Johnson.
Whelan added that the current voluntary nature of sustainability reporting leads to “lots of noise,” as different standards and different providers of sustainability data can lead to confusion among stakeholders. Still, she said, “if there’s a consistent intention to mislead, like with Volkswagen, it will sooner or later come out.” Johnson agreed, and added that many of the laws he referenced in his presentation require formal disclosures as to compliance, making greenwashing “very hard.” In addition, CBP has an anonymous website where offending products can be reported, giving activists another avenue for calling out companies. “It’s getting harder and harder to hide from the realities of what’s going on in your supply chain,” he said.
DeHihns then asked the panel about the role of government oversight, noting that some countries prioritize a low regulatory environment over sustainability concerns. Househam acknowledged that, in some cases, corporate standards are higher than the local standards, but that she recommended that companies, at a minimum, ensure that they are meeting the international human rights standards rather than local requirements. She also said that the process of changing a country’s cultural and legislative attitude can take years, but a business still has the responsibility to ensure that its own conduct meets the standards. Whelan added that corporations have an ability to affect policy in this area, citing the World Cocoa Foundation’s efforts against child labor in Ghana and Côte d’Ivoire, although she noted that in such cases, it is important to have nongovernmental organizations involved as well.
Johnson shared his experiences developing the minimum required working age for the ABA’s model principles, as that standard varies legislatively across countries. In that case, the ABA came down on the side of allowing local law to control only if it met the International Labor Organization’s standard of 15 years old.
In closing, DeHihns reiterated consumers’ responsibility to ensure that the products they use are made in a sustainable and ethical manner. “Every dollar you spend goes to revenue to that company,” he said, “and do you know if it’s being used properly or not?”