Forced labor is a risk that can affect shareholders drastically, in light of increasing regulation, litigation, media and consumer attention. Take the case of Signal International, a US marine-services company, which went bankrupt following compensation payments to victims of forced labor –leading to a US$70 million loss for two Alabama public pension funds that held shares in the company.
Reputational risks of forced labor are particularly high in the supply chains of consumer-facing companies. In Malaysia, for example, nearly a quarter of workers employed in the production of electronic goods are working under conditions of forced labor. Non consumer-facing companies may still come under scrutiny as business partners of consumer-facing companies. In May this year, US Customs and Border Protection seized imports from PureCircle, a Malaysia-based supplier of sweeteners to companies such as Coca-Cola, under a new law banning imports of products produced with forced labor. News of the seizure reduced PureCircle’s market value by almost US$100 million, and forced Coca-Cola to respond to the issue.
The US Customs legislation is just the latest in a growing number of regulations on this issue. As many as 62% of companies in the MSCI ACWI Index will be subject to the UK Modern Slavery Act, the California Transparency in Supply Chains Act, or the proposed Business Supply Chain Transparency on Trafficking and Slavery Act in the US.
In order to make informed investment and active ownership decisions, investors need access to information on how well companies are addressing forced labor risks. However, the information provided by many companies is patchy at best. This is worrying considering the size of corporate supply chains. Global corporations impact millions of workers through their supply chains – for example, Apple alone reported that since 2008 its suppliers have trained over nine million workers.
Benchmarking companies can help fill this gap. KnowTheChain, an initiative of Humanity United, in partnership with Business & Human Rights Resource Centre, Sustainalytics and Verité, has ranked the policies and practices of 20 global information and communications technology (ICT) companies to address forced labor and human trafficking in their supply chains. This will be followed by sector benchmarks in the food and beverage, and apparel and footwear sectors later in 2016.
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