Supply chain: A safer conversation

Panel

Mark Robertson
Head of communications Sedex Global

Dr Alex Balch
Senior lecturer in international politics and European integration
Department of Politics. University of Liverpool

Dave Parr
Head of technical services
British Safety Council

How can an international company ensure that high health and safety standards are applied throughout its supply chain
Alex: The opportunities are quite different depending on what type of business we are talking about, but a first point is ensuring that application of health and safety regulations should not be an ‘option’. Respect for human rights should be already happening and it should be a core part of everything. It is something that applies to supply chains as well as to customer service and companies producing goods.

So every part of the business should have human rights respect embedded. In the Forced Labour Monitoring Group [Alex is member of the FLMG Steering Group] we tend to differentiate between labour supply chains and product supply chains. But the point is that labour supply chains are quite lengthy within countries as well as across countries. In the UK we have companies that have very long subcontracting supply chains within the country, generally in order to recruit labour; product supply chains are often transnational.

In terms of how they can do this the most obvious answer is due diligence. So it’s really about how well this is done, who is doing it and what sort of knowledge they might have of whatever risks exist in their supply chain. So it’s important that it isn’t just ‘box ticking’.

We know that in certain sectors there are different types of risks. Certain countries have different types of risks and different gaps in governance. If we’re using the example of Bangladesh and Rana Plaza tragedy, we know that there are problems with the construction of factories and buildings.

But sweatshop conditions exist in every country, including the UK.
The important thing is that companies know their sectors and have good knowledge of those risks.

There’s a number of ways to improve how they can protect themselves – one of those ways would be incorporating some sort of human rights aspect into company policy. Large companies in the UK already have to report on human rights through the Companies Act and now we are hearing about maybe being extended through the Modern Slavery Bill.

Another way would be to create a code of conduct, which we know some companies have done, and then having that code of conduct agreed across all their contracts. That would be advantageous if it really was a partnership, if this was a code of conduct which could be agreed sector wide, ideally across all companies in the supply chain.

Mark: From our perspective as a membership organisation with about 37,000 members around the world, I completely agree with that, in particular for the buyer members we work with.

I am going to build a little bit on what you are saying, Alex. Since it is very complex, a targeted approach to supply chain management is really important. Some of our larger members talk of having 30,000 or 40,000 supply bids around the world, so we very much advocate that companies take a risk-informed approach.

Obviously they can’t audit every single one of their suppliers but there are various different tools and judgements they can make to improve their understanding of risk. As Alex was saying there are different risks that are appropriate to different types of sectors, but then there’s also health and safety risks that will exist at a regional or country level.

So it’s about taking a broad look at the key risk indicators; a more detailed look. That might mean that if you are a company in the apparel or the garment sector and you are sourcing, and part of your supply chain spans countries like China, India, Pakistan, Bangladesh or Vietnam, then you know that in the broadest sense some of the risks will be around fire safety and supply chain labour standards, those kind of high-risk issues.

In that case you make sure to look at those issues in those countries, but obviously not necessarily across the board in the more developed countries.

Another really important point when applying health and safety regulations or indeed any other regulation through a supply chain is making sure that you are taking a multi-tiered approach.

Last year we ran some research exploring the extent to which companies are looking right down the supply chain, looking beyond just first-tier suppliers, looking at the risks that exist beyond tier two, tier three, tier four. We found that while companies are getting better at doing this, globally still only a third look much beyond first-tier suppliers. We have also found that the severity of health and safety and other risks increase when you get further down the supply chain.

It is really important to understand and acknowledge how complex supply chains can be; to make targeted decisions that are risk informed, but also taking a multi-tiered approach as well.

Dave: I would agree with the points made by Mark and Alex in respect of organisations adopting a risk-based approach to ensuring health and safety standards are applied throughout the supply chain.

However, I do think that organisations have a massive moral obligation to set minimum expected standards and drive the monitoring of these standards right through their supply chain. Whether such minimum standards involve suppliers being certificated to recognised standards such as OHSAS 18001, ISO 14001, or they are an internally developed process such as a code of conduct, is for each organisation to decide.

In my experience of auditing retail organisations internationally, the former – being certified to a minimum standard – is the most common approach, as the implementation of this is primarily the responsibility of the supplier rather than the organisation itself, as is the case with an internal process.

It is, however, essential that international organisations place as much emphasis on this aspect of supplier procurement as they would on quality and financial conditions. As we have seen, and are all aware, the business benefits of ensuring good health and safety practice and management are many and not to drive this through to your supply chain makes little sense to me.
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Do you think after the Rana Plaza disaster in Bangladesh and the subsequent Accord on Fire and Building Safety western companies working in developing countries are more alert and more able to control what is happening at the bottom of their supply chain
Mark: Yes and no. In some respects the biggest thing that’s changed since the collapse of Rana Plaza and the formation of the accord and also the alliance that was set up to respond is that obviously a lot of audits and factory checks have been conducted since 2013. I think there are a lot more audits now. So there is more understanding of what conditions are in the factories. However, I think we’re at the stage where we understand more but there hasn’t necessarily been a huge shift in terms of efforts to tackle and address those or prioritise actions.

So while some factories have closed temporarily to allow for emergency repairs to be conducted there are still thousands of factories that haven’t been audited and a framework for clear action plans to address them and improve conditions has yet to come into play. So it is necessary to have a clear pathway ahead for who is going to finance the improvements and what the timeframe is for rolling these out.

Alex: I feel the same way. There are some good bits and some bad bits that have come out of what was a horrendous tragedy. Obviously there is more light now being shed upon building regulations in Bangladesh and there are reportedly thousands of inspections which have taken place. That’s obviously a good thing.

The Bangladesh accord is a multi- stakeholder initiative and lots of clothing companies have signed up and I think that’s all to be applauded. It does remind me a little bit of the Morecambe Bay tragedy in the UK where a terrible incident did result in collaboration and an improved inspection regime. So that’s good, but as with the Morecambe Bay tragedy what we found out was that the underlying problem was actually quite a tricky one to solve.

And while the improved inspections obviously are welcome, the core problem isn’t so easy because in Bangladesh there are structural problems about inequality, corruption, injustice and the difficulties workers face in campaigning and organising to improve their conditions.

Those problems are not going to be completely solved by a multi- stakeholder initiative, or they can be solved only partially. It’s a good thing and I think the garment industry is potentially leading the way in a sense. We find similar situations in other sectors; the food sector for example has recently had the scandal about slave workers in shrimp fishing in Thailand.

Supermarkets in the UK are getting better at looking at their supply chains within the country, but they are not so good at spotting things further down the line, whereas garment manufacturers are now much more visible.

We now know that brands like Gap and Nike have factories in certain countries and are quite vulnerable to publicity about poor practices or incidents occurring in those places.

We now need to think about those sectors and industries we do not
have any information about.

Mark: That’s a really good point. I think the accord and the alliance are examples of brands working together and perhaps helping to make the case that certain supply chain risks, particularly health and safety risks, are pre-competitive issues. Leading brands are recognising there are some issues on which they are not competing on, issues they see as important to tackle collaboratively. It is really good to see strong collaborative action.

While the Rana Plaza disaster has increased awareness of risks in the supply chain, in particular sourcing from Bangladesh, it would be good and important to think about the same risks that are repeated across other garment-producer countries. So do we need an accord and alliance for the garment sector more widely? Because if you look at places like Pakistan, Vietnam or China you can find different risks, but key health and safety and fire risks are still very pertinent.

It is really great to see companies collaborating together and hopefully this will lay the foundations for a wider look at the risks in the garment sector and more widely as well.

Dave: I would entirely agree that a unilateral approach is required to ensure the ethos is accepted across all sectors. In an ideal world this would be a legislatively-driven requirement rather than a best practice measure, but obviously there are difficulties in implementing such practice.
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The United Nations Guiding Principles on Business and Human Rights (UNGP) and the OECD Guidelines for Multinational Enterprises recognise the notion of corporate responsibility, but these international standards are not legally binding. Is there space in existing British and European legislation to guarantee proper control of H&S across the supply chain
Alex: I’ve been involved in this slightly because I was working on a project looking at corporate social responsibility (CSR) across the European Union. The EU has been interested in doing something about the UNGP and launched a CSR strategy in 2011.

The UK has actually formulated an action plan that has been published, so there is something going on. It’s early days because we are talking three or four years since the process started at EU level and just getting the agreement on the three-pillar approach of the UNGP has taken a long time. But my initial response to your question would be that implementing strategies have been fairly ambiguous and fairly short on detail.

As you say, worryingly, it is not legally binding. I’m not a legal scholar but I think legal scholars have some concerns over the whole framework, but it does provide something of a conceptual basis upon which to at least understand how we should share these responsibilities between business and government.

To a large extent we are seeing that governments are not willing or not able to regulate properly. We are seeing this in developing countries, but we are also seeing to a certain extent a withdrawal of the state in developed countries where there’s a lot of pressure to scale back regulations to reduce burdens on business – the ‘red tape challenge’ in the UK for example.

The UNGP has the benefit of bringing the debate back into how can business and government work together to respect and protect human rights. But that’s all it is at the moment; it’s pretty much just a conceptual framework and a discussion point.

The current situation in the UK is interesting because the Modern Slavery Bill has bucked this trend slightly and has managed to bring some ideas on to the table with supply chains. We’ve got ideas such as: should there be a voluntary initiative or voluntary codes; should we expand reporting requirements through the Companies Act; should we use the transparency and supply chains model that we’re seeing now in California [the California Transparency in Supply Chains Act of 2010] or, as a lot of the NGOs would like, do we apply something a bit more muscular like the Bribery Act, which means we actually extend corporate liability to become extra territorial?

These are quite interesting options, but I think what we are going to end up with is more in the way of voluntary codes, non-binding initiatives. That leaves us with the question: what’s the best way forward and is it something like the UN guiding principles or another ‘top-down’ initiative? I think and hope the UNGP provide some sort of impetus for social partners, but also workers’ organisations to actually start demanding improved standards.

Hopefully we are going to have more opportunities for the government, like the Modern Slavery Bill, to take a lead so the UK, for example, could claim leadership in cleaning up problems of exploitation in supply chains. Maybe if a country like the UK can take a lead and do something brave, then others will follow. This depends on how optimistic or pessimistic you are, but I think it’s better now that we have the guiding principles than it was before.

Mark: I pretty much agree with all of that. Taking a perspective from the businesses we work with, I suppose the companies that are doing the most on human rights issues or health and safety issues often cite different things that underpin those efforts.

I think legislation and regulation to the extent it does exist on these issues in different parts of the world does help. Voluntary guidance really helps, but I think companies need to recognise from a strategic perspective that these are issues they either should tackle or want to tackle. You need to see real change, you need early recognition from companies such as the case of Unilever, which is one often cited for good practice. But there’s lots of companies out there that are getting to grips with these issues now.

UN Guiding Principles on Business and Human Rights: here

Modern slavery in Leicester: article by Dentons law firm here