By Rich Hoffecker, The Red Flag Group®
The past decade has been marked with countless high profile media stories exposing human rights abuses, modern slavery, child labour and human trafficking in the supply chain of industries from high-end fashion, to cosmetics to agriculture and mining. As globalisation of the supply chain became increasingly common, so too did the risk that nefarious suppliers would be cutting corners by exploiting the most impoverished among us and putting the lives of workers at risk to increase profits.
Human Rights issues in a company’s supply chain can lead to brand reputation damage and loses especially when organisations neglect to conduct proper due diligence on suppliers to ensure adequate worker protections. Jurisdictions began to take notice, implementing legislation to push the responsibility of ensuring ethical labour practices, including elimination of slavery and human trafficking, up the supply chain to the procuring companies. Famously the U.S. State of California legislature found “that consumers and business are inadvertently promoting and sanctioning these crimes through purchase of goods and products that have been tainted in the supply chain” (https://oag.ca.gov/SB657) and passed the 2010 Transparency in Supply Chain Act. The United Kingdom Parliament passed the Modern Slavery Act 2015, similarly designed to combat slavery and human trafficking. Australia passed the Modern Slavery Bill 2018, while the United Stated legislature is working on similar measures. Meanwhile ILO Conventions for Asia have placed policy recommendations aimed to set a minimum age of child labour between 14 and 16 years old.
While some critics see these legislative efforts as not going far enough and difficult to enforce, proponents argue the importance of creating a framework of societal expectations and future enforcement options. These steps increase place the responsibility on multi-national organisations who conduct business in these jurisdictions to set up appropriate due diligence and oversight programmes for their supply chain operations. Companies cannot rely on their arm’s length relationship with third and fourth tier suppliers to prevent scrutiny of the poor human rights records of their supply chain. It’s clear that a stroke of government pen will not prevent child labour, the laws are improving but change is slow especially in developing countries.
Combatting Child Labour
In May of 2019, the Dutch Senate voted to adopt the initiative bill, championed by a member of the parliament Attje Kuiken (PvdA), requiring that all companies must declare that they will make efforts to address child labour.
The Netherlands has taken a significant step in holding companies responsible for human rights issues in their supply chains with the passage of the Child Labour Due Diligence Bill. Unlike the broad legislation other jurisdictions have taken to address modern slavery and human trafficking, the Child Labour Due Diligence Bill focuses on the most vulnerable among us, children.
According to a 2017 report by the International Labour Office (Global estimates of child labour: Results and trends, 2012-2016), there are over 154 million children in child labour globally, and nearly half of those are in identified hazardous work. Children in impoverished nations are particularly at risk, with an estimated one in four children in engaged in child labour.
The law, which is expected to take effect in 2020, was created as a way to establish a legal obligation for companies to take responsibility for assessing the risk of child labour involved in sourcing goods and services within their supply chain. This additional transparency will provide Dutch consumers increased comfort in purchased products and services, knowing that producers are required to conduct a reasonable level of due diligence to find and mitigate potential violations of the law. Under the new regulation, all companies that conduct business in the Netherlands, including companies registered in the Netherlands and those registered outside but selling into the country, are required to submit a statement declaring that an appropriate level of due diligence is conducted to identify and prevent the use of child labour in their supply chain. If a company is found to have violated the obligations listed in the policy, administrative fines can be imposed including legal action taken against management.
There are several details that must be worked out before the full implementation of the law. One key consideration is what is to be considered reasonable due diligence? The law requires that an assessment to determine if one could reasonably presume that child labour was used in the production of a good or service, and references the “ILO-IOE Child Labour Guidance Tool for Business” to help develop assessment best practices and relies heavily on the UN Guiding Principles on Business and Human Rights (UNGPs).
Although critics of the Dutch child labour law question the effectiveness of the new law, proponents point out that simply bringing the issue into the spotlight will have a tremendous effect in combatting child labour. By starting the conversation within organizations about the importance of this fight, and discussion of internal practices and oversight of the supply chain, there will be an open platform to exchange ideas and best practices for identification of child labour risks and bringing greater transparency to this issue.
Proactive steps to avoid child labour in your supply chain
In preparing for this and similar regulation being implemented across the globe, there are several steps that organizations can take to communicate their commitment to addressing the issue of child labour and for assessing the risk to their supply chain.
This starts with a tone-from-the-top approach that establishes a commitment at the board and top management level to take affirmative steps to eliminate child labour use in the supply chain. The Child Labour Due Diligence law requires companies registered or doing business in the Netherlands to file a statement declaring how due diligence is conducted on their supply chain. This is a good opportunity to demonstrate the company’s commitment with a strong statement against the use of child labour by suppliers, and articulate the approach to performing due diligence on suppliers.
Building an effective supplier due diligence programme requires the ability to identify risk and also take steps to mitigate them. A due diligence best practice when working with a large volume of third parties, as in a supply chain, is to take a risk-based approach. This involves developing a methodology to risk-tier partners, identifying those that require enhanced scrutiny and mitigation efforts.
When assessing child labour risk, the key factors in building the risk profile assessment is the country where your suppliers operate, the industry, and specific commodities involved in sourcing goods. While no risk assessment can be one hundred percent, reliable risk data gives organisations the ability to narrow in on parts of their supply chain, where additional due diligence can be applied.
Suppliers that score a high or medium risk using a reliable risk rating methodology, should be further assessed to ensure the concern of child labour is not a factor. An approach that is fast becoming the preferred first line of defence for due diligence experts is the use of advanced screening solutions. These are a collection of databases that contain information about organizations and individuals that highlight certain integrity and compliance risks – such as child labour and human rights violations – that would represent an elevated risk.
To make the ultimate decision on maintaining or suspending a supplier may require additional details surrounding potential issues. Questionnaires, reports and surveys can be a good opportunity to learn more about your suppliers and how they protect your supply chain against third and fourth tier suppliers that they use. Getting this end-to-end visibility into your supply chain is an essential part of identifying and eliminating illegal child labour.
Ultimately it is up to the organisation to determine the appropriate level of due diligence under the new law, however the Netherland’s new Child Labour Due Diligence law has started the process of establishing guidelines that are likely to be built upon by other jurisdictions globally. Organisations that do not already have a strong supply chain compliance and due diligence programme in place should begin considering how they will approach this critical issue of significant social concern. Like many other social responsibility issues, the use of child labour in the supply chain can lead to more than just reputational damage as governments implement policy and regulation to address this concern.
At The Red Flag Group®, we believe that supply chains represent significant reputation and regulatory risks when the integrity of third parties is not verified. Our solution to this is Supplier Integrity®, an innovative supply chain ethics, integrity and compliance risk-management solution that automates your supplier onboarding process and continually monitors for new risks. Learn more.