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Child Labor in Supply Chain – Managing ESG Risks

By August 5, 2022Blog

Global supply chains have generated robust economic output, enabled skill development and accelerated the adoption of technology. However, they have also faced allegations of human rights abuses like child labor, forced labor and human trafficking.

Though the number of child laborers aged 5 to 17 has decreased since 2000, estimates place the number today around 160 million. The agriculture, services, construction, mining and manufacturing industries have the highest prevalence of child labor. According to a report by the ILO, OECD, IOM and UNICEF, child labor can be linked to three critical factors:

  1. Loopholes in statutory legislation and enforcement
  2. Socioeconomic pressures
  3. Business conduct and unethical environments

Child labor is a major ESG risk and businesses with global supply networks should regard the increased attention toward child labor as a sobering warning. Companies regularly implicated in child labor violations are likely to face irreversible reputational damage and diminished profits. But the negative effects of child labor aren’t limited to individual organizations. Child labor prevents schooling and hinders knowledge dissemination, expertise development and value creation in society. Any nation with rampant child labor has limited access to qualified workers, severely reducing productivity and long-term prosperity.

Businesses with global supply networks must create responsible sourcing and trade policies and build supply chains that reflect their values, and the values of their stakeholders. Ensuring compliance requires supply chain visibility and actionable insights.

The following best practices should be considered in an organization’s ESG strategy.

Supply Chain Evaluation: This is a good exercise for any company, but particularly those in regulated industries or with supply chains vulnerable to the dangers of child labor. An audit and evaluation by a third party can provide great insight. Suppliers can be objectively evaluated and rated so that the business teams can work with the suppliers that get the best scores. While it may not be possible to conduct onsite audits of all suppliers, an analysis using survey questions, high-level conversations and information gathered through secondary sources can help provide a top-level understanding of risks and areas of improvement.

ESG Policies Forbidding Child Labor: An organization might have a sustainable business practices program, and that’s a great start, but ESG programs are comparatively more holistic. Companies should guarantee that their environmental, social and governance (ESG) policies and codes of conduct are transparent and exhaustive, and explicitly ban forced and child labor. ESG programs should incorporate the International Labor Organization’s labor standards, and businesses should ensure that their program has a Supplier Code of Conduct that talks about how to buy things in an ethical and environmentally responsible way.

Supply Chain Mapping: A supply chain mapping exercise can help companies identify all their suppliers and sub-suppliers. If possible, they should examine their entire supply chain down to the raw material production level. This exercise can help evaluate risks and target policy efforts in critical areas for those with complicated supply chains. It’s especially helpful for businesses that are under regulatory scrutiny.

Supplier Interaction: When researching suppliers, organizations should ensure that child labor is a rejection criterion. Contracts with suppliers and sub-suppliers must contain specific terms that prohibit child labor, establish a timeframe for taking remedial action if child labor exists, and specify the penalties in the absence of corrective action. In addition to these clauses being included in new supplier agreements, they must also be added to existing contracts as they are renegotiated and ensure suppliers agree to follow the code of conduct.

Documentation: Companies facing government investigation often need to prove that their imports were not made using unethical labor practices. In addition to ensuring compliance steps are adequately recorded and organized, they should be able to easily access supplier records if necessary. Suppliers and possibly their suppliers may also be approached for information on labor and global trade. Organizations should insist that their contracts have clear language about who can see what records and agree to furnish information when asked.

Training: Businesses should educate their stakeholders about child labor concerns and outline their commitment and adherence to ethical sourcing. Employees with compliance duties and those entrusted with procuring items from foreign suppliers must be trained to identify red flags. Training records must be maintained and updated when requirements and threats change. Organizations should also educate other people in the supply chain, such as vendors or agents, suppliers, labor brokers, recruiters and recruitment agencies.

Continuous Evaluation and Improvement: For compliance programs to be effective and successful, they must continuously adapt to new risks and stakeholder concerns, which can happen only through regular self-evaluation, monitoring and, if necessary, improvement. Diverting resources from high-risk to negligible risk locations may sometimes be warranted.

The global community must take prompt and effective action to eliminate modern slavery, human trafficking and child labor. Businesses that align their supply chain around ESG goals and fundamental values are not only doing their part to drive positive change in the world, but also reducing their risk, empowering their people and enhancing their public image.

ARPIT RAJ
Senior Consultant
Bristlecone

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