Supply chains are critical to business, but the lack of transparency across the links in your chain can lead to unwanted consequences. The Shared Assessments Financial Services Vertical Strategy Group has been discussing how to ensure ethical sourcing and protect for human rights issues in the supply chain.
Almost every business walks a fine line between the bottom line and ethical sourcing. Businesses lower production costs through outsourcing – vendors and third parties (and their associated risks) exist for this very reason. In the quest for efficiency, the supply chain extends to unknown Nth parties. In a complex supply chain, clarity of sourcing may be overlooked or lost, making the use of modern slavery far less transparent. Consumers, investors (85% of companies report on ESG issues) and governments (Australia’s Modern Slavery Act Commonwealth Act, for example) are calling for greater visibility into the supply chain.
Take a peek in your pantry. Some of your food might be labeled “gluten free” and some “fair-trade.” But, what about those tasty tokens of American wholesomeness – the Thin Mints labeled “certified sustainable”? In December 2020, Girl Scout cookies were outed as perpetuating child labor in the Indonesian palm oil industry.
When social issues play out close to home, it is easier to comprehend something is amiss in the supply chain. Where were the ingredients in this food sourced? How old were the workers, how was the work overseen and what wages were they paid? These are the same questions Third Party Risk Program practitioners need to be asking of their vendors.
The Shared Assessments Standardized Information Gathering Questionnaire (SIG) probes for human rights issues at your vendors and within their supply chains. It examines key elements of due diligence, communications, policies, training, and metrics on ESG issues. These questions expand your understanding of your overall supply chain risk – and might motivate better practices in the supply chain if your selection is based on these criteria.
Why ask these questions of vendors? Because it is the ethical thing to do and because the ill-effects of supply chain complexity bring reputational risk to organizations. For example, Ripcurl Surfwear, Burberry and H&M have suffered from exposure of their modern slavery practices in their supply chains in the past decade and have reacted with strong policies against the practice.
Increasingly, as investors pay more attention to the ESG Metrics of which Modern Slavery is a part, ethical firms may well benefit from a lower long term cost of capital, a potentially significant competitive advantage.
While name brand examples raise the human rights alarm, the pervasiveness of modern slavery (and the definition thereof) is hard to quantify. Modern slavery is a hidden evil – no company is likely to confess to this pernicious practice and some countries lack the infrastructure to measure it. In fact, some firms in a supply chain may take pains to hide practices they know will cost business if revealed.
In some cultures, modern slavery is a systemic barrier – for example, where children are unacceptably likely working in the palm oil industry to alleviate their family’s poverty. There is a fine line that will continue to be crossed when a culture’s economic reality and ethical practices collide in the supply chain.
While the SIG is not the absolute answer to systemic cultural problems, perhaps it can help provide transparency that will in turn influence an economy in a more ethical direction. Question by question, assessment by assessment, as a risk manager you can effect subtle business innovation in your day-to-day work as you help your organization to select suppliers with integrity.