Freshfields was honored to host a two-day conference last week presented by the Innovation Forum focusing on how business can tackle modern slavery and forced labor. The conference was part of a series that Freshfields has sponsored globally and brought high-profile speakers from companies, government agencies, and NGOs to address 80+ attendees hailing from a variety of organizations and industries. Aaron Marcu, senior partner and co-chair of the firm’s US Global Business and Human Rights practice, opened the conference, focusing on five trends in business and human rights, including the continued evolution of the regulatory environment and the greater enforcement of existing regimes, as well as innovation in integrating human rights into core business practices. Partner Deba Das, Stephanie Brown Cripps, and Emily Holland, all members of the practice, also presented.
Summarizing the conference, one participant, invoking UN Guiding Principles architect John Ruggie’s remarks before the UN Human Rights Council, stated that with respect to corporate responses to manage their human rights risks, it felt like “the end of the beginning.”
Here are five, high-level takeaways:
Negotiating regulatory incoherence
Notwithstanding movement, dialogue, and an increasingly shared vocabulary, the lack of consensus in international legal requirements can create challenges for businesses operating globally to comply with the evolving requirements in an efficient manner. The emergence of draft modern slavery requirements in Australia and Hong Kong – purely reporting obligations – on the heels of France’s Duty of Vigilance law suggest there is no uniform direction of travel yet. Concerns were expressed on how broadly worded legislative requirements to undertake due diligence could be interpreted and applied. The practical implications of new human rights-related sanctions, including the Global Magnitsky sanctions and provisions under the Countering America's Adversaries Through Sanctions Act, CAATSA, introduce additional pressures on businesses to scrutinize their business relationships.
Incentivizing the responsible sourcing of migrant labor from third party agencies and intermediaries, and remediating worker-paid recruitment fees, are top of mind for leading brands. Changing local mind-sets to create demand for responsible recruitment, and forging an enabling environment to increase the supply of ethically sourced labor, present significant challenges. Approaches being piloted, or at least discussed, include the rollout of new guidelines, training, and tools (including the Employer Pays Principle); introducing service provider audits; and the use of blockchain technology to improve transparency along the recruitment process and help migrant workers to send remittances home securely. Discussion on the evolving function of audits in detecting and evaluating supply chain risk suggests their continued utility as part of a larger compliance program that embraces other methodologies (e.g. collaborative assessments, scorecards, and socioeconomic profiling).
The growing consensus that companies are responsible for their supply chains and have a duty to exercise commercial leverage to encourage sustainable change in suppliers has prompted some to exercise alternatives to terminating relationships where serious problems are found. The degree of leverage a company has turns on a host of factors, including influence and spend, and the supplier’s nexus to a company’s products and services. Corrective actions may include root cause analyses and carrot and stick approaches, such as introducing commercial incentives, recognition, and awards, and publicly identifying noncompliant suppliers in relevant reports.
New trends in transparency
On a related note, and for an increasing number of companies, the bottom-line benefits of human rights transparency to brand value outweigh the risks, including the potential litigation risks, associated with publishing detailed disclosures. A small number of companies are introducing bold supply chain information disclosure strategies: publishing information on specific instances of modern slavery in their supply chains, quantitative data on the results of supply chain audits, and, where the approach will not lead to a loss of proprietary information, their supplier lists. Participants stressed the importance of accuracy and consistency, and aligning information disclosure strategies to a business’s overall strategy. Companies that claim not to have forced labor in their supply chains, or to have remediated every instance of forced labor, can invite unwanted scrutiny from regulators and law enforcement.
Making human rights information investor-relevant can be challenging considering the range of material sustainability risks that arise from social issues. Case studies and anecdotes on, for instance, supply chain disruption, lack of turnover, and the consequences of deforestation or overfishing can prove useful in illustrating threats to the sustainability of a sector, and correlations between best practices and better performance. The use of ESG criteria in investment decisions is growing but not yet mainstream.