(Bloomberg) — For years, Carolyn Kitto has trekked through the Himalayan foothills in northern India to assess the working conditions of pickers who gather tea leaves for global brands.
At times, that’s meant wading knee-deep in raw sewage to talk to workers in their make-shift cabins looking for signs of modern slavery — forced or child labor, indentured staff or illegal fees paid to recruiters.
“It’s not if they’ve got slavery, it’s when they find it,” said Kitto, the Sydney-based director of Be Slavery Free, a non-profit organization. “It’s that pervasive, almost every business has a risk of slavery in their supply chains.”
A ground-breaking program launched in Australia is making it easier for activists like Kitto — along with governments and investors — to track the harsh, slave-like conditions that afflict some 40 million people around the world, the vast majority of them in Asia.
Under laws that came into force in 2019, companies and investors generating more than A$100 million ($71 million) in revenue must detail how they’re managing the risk of slavery in their supply chains, and are required to upload their reports into a publicly accessible database. Firms must also outline the steps they’ve taken to fix any issues, a requirement that goes beyond laws in the U.K. or France, and is being studied by nations including the U.S. as a potential template for action.
“We’re doing an awful lot more than other jurisdictions around the world,” said Kylie Porter, executive director of the Australian unit of the UN Global Compact, which pushes companies to be more sustainable. The U.K.’s law, which is in the process of being strengthened, requires firms to identify and analyze supply chain slavery risks, while a new law in Germany goes into effect in 2023.
Porter and others say the Australian policy is no cure-all for fighting modern slavery, given how hard it can be to track these issues deep into supply chains, while noting there are no penalties for non- compliance. Still, the Australian program has highlighted labor issues at global giants including Apple Inc., Microsoft Corp. and Unilever Plc, to name a few, along with changes they’ve made to address the problems.
Labor Issues
Microsoft reported 46 “major” slavery-related issues, including fees paid by suppliers to recruiters, while Apple uncovered seven metal smelters or refiners that didn’t meet the company’s sourcing requirements. Unilever found 82 cases of suppliers not following its policies, four out of five of them in Asia.
“We do not tolerate human rights violations within our supply chain, and in order to do business with Unilever, suppliers must meet the requirements of our responsible sourcing policy,” Unilever said in a statement, adding it has addressed all of the non-conformance issues cited in its report to the Australian government.
Microsoft is committed to responsible and ethical sourcing and has specifically banned all forms of forced labor in its supplier code of conduct, a spokesperson said in a statement. The company has made suppliers repay recruitment fees to more than 5,000 workers. “We take this responsibility very seriously and take significant steps to enforce our policies and code of conduct in support of human rights, labor, health and safety, environmental protection, and business ethics,” the software firm said in a statement.
Apple closely monitors plans to fix issues found in metal smelters and refiners within its supply chain. If those plans are delayed, the iPhone maker will use its leverage to speed up remediation, or terminate applicable business relationships.
“No-one deserves to be exploited or taken advantage of and looking into issues around modern slavery is a fundamental way companies like ours can help ensure people are treated fairly and decently,” Tzila Katzel, group manager for sustainabilty and social performance at Australia’s Newcrest Mining Ltd. said in a statement.
Typically in the realm of governments and activists, obligations to respect human rights are shifting to businesses and fund managers as they profit from increasingly complex global supply chains that may exploit labor. Infractions can include putting workers into servitude by confiscating their passports or making them pay recruitment fees. Of the world’s enslaved workers, one in four are children. These employees contribute to products generating about $150 billion in profits a year, according to the International Labour Organization.
The move to stamp out slavery is spreading across the globe. Starbucks Corp. is facing a lawsuit in California over allegations that its claims of ethical sourcing of cocoa were deceptive. Starbucks said it doesn’t comment on legal actions. Nestle SA has faced lawsuits from former child workers in the Ivory Coast over the past decade alleging the company should have known their suppliers used forced labor. The U.S. Supreme Court recently backed Nestle in that case, saying the allegations lacked a strong U.S. connection.
Australia’s laws were developed in part from pressure by billionaire iron ore baron Andrew Forrest and his Minderoo Foundation’s Walk Free initiative. Two-thirds of workers in forced and debt-bonded labor are in the Asia-Pacific region, presenting specific risks for Australian businesses and investors.
Porter and others recognize the Australian policy’s shortcomings. It doesn’t assess whether it’s helping to eradicate slavery, other than highlighting which sectors are most at risk, she said. And just 6% of firms have reviewed slavery risks beyond the first tier of their supply chain, according to consultant Fair Supply, which reviewed the first four tranches of reports submitted. More than a third of companies on the S&P/ASX 300 stock index were given failing grades for their disclosure, according to an assessment released Tuesday by Monash University.
Given the revenue threshold, less than 1% of the estimated 2.4 million businesses in Australia are required to look through their supply chains for instances of slavery, and there’s no financial penalty for companies that fail to meet reporting standards. Companies in Sydney and across New South Wales will soon face a lower revenue threshold under a new proposal from the state government.
The law “assumes that businesses actually understand their supply chain and where the risks are to be able to report,” Kitto said. “You’re relying on them knowing, and you’re relying on them being honest.”
Campaigners such as Kitto point to Lululemon Athletica Inc. as an example of these challenges. At least some of the Canadian clothing maker’s raw material suppliers source cotton from China’s Xinjiang region, the focus of allegations of human rights abuses against the ethnic Uyghur minority, according to a Sheffield Hallam University report. In a supplier report on its website, Lululemon said it doesn’t source any products from direct suppliers or raw material providers from Xinjiang, and it didn’t mention China-related risks in its filing to the Australian government. China has repeatedly denied accusations of forced labor in Xinjiang.
Lululemon declined further comment, referring to its Australian submission.
The Australian Council of Trade Unions and Human Rights Watch are calling for the addition of fines for poor disclosures when the Australian program is reviewed next year. Fines would be in line with Germany, which will penalize large corporations up to 2% of their revenue from 2023 if they fail to comply with a new law.
The policy’s limitations expose the difficulties in addressing these illegal activities, which are typically outside a firm’s direct control, said Mans Carlsson, head of ESG research at Ausbil Investment Management Ltd., a unit of New York Life Insurance Co., who helped draft Australia’s laws.
“Even companies which have the right intentions but the wrong strategy might fall into the trap of having slaves in the supply chain,” Carlsson said. “There is real earnings sustainability risk there.”
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