Analyst Insight: The largest multinational companies across apparel and footwear, food and beverage, and information, communication and technology (ICT) sectors are demonstrating a lack of real progress in addressing forced labor in supply chains.

In March the International Labour Organization released a report evidencing a drastic increase (37%) in illegal profits generated by forced labor over the last 10 years. That amounts to an estimated $236 billion annually — or almost $10,000 profit per victim on average. With both a sharp rise in the number of victims of forced labor globally, as well as the amount of profit per person generated, the figures highlight that current approaches to mitigating forced labor in the private economy are failing.

Findings from KnowTheChain put these figures in sharp relief. While the largest multinational companies are making incremental improvements, they lack real progress in addressing forced labor. The findings highlight an inadequacy of risk identification, failure to appropriately prevent potential impacts, and lack of remedy provision where violations have occurred. 

Identifying and assessing actual and potential risks in a company’s supply chain allows companies to proactively address threats before they cause damage, and make sound decisions based on accurate information. Material risks from poor performance on human and labor rights appear to be growing. Worker protests, civil litigation and state-led investigations into human rights practices can undermine a company’s top line and margin by impacting its ability to secure a steady supply of products. The mapping of risk is also seen as a baseline step for human rights due diligence, and a legal requirement across existing and emerging legislation.

Identifying Risks

While businesses across all sectors have made some improvements in how they carry out human rights risk assessments since previous KnowTheChain assessments, just under half (45%) of apparel & footwear and ICT companies, and 35% of food and beverage companies, have yet to disclose details of their risk-assessment processes, including stakeholders involved. The efficacy of these assessments is further undermined by a lack of transparency around risks identified as a result. Only 17% of food & beverage companies assessed disclosed details of forced labor risks across supply chain tiers, thereby demonstrating a more rigorous approach to due diligence. This falls to a mere 8% of ICT companies which do the same. 

Migrant workers, who form the backbone of global supply chains and are three times more likely to be trapped in forced labour exploitation, are almost absent from the data companies report using to understand their risks. Only 10% of ICT companies and 7% of food & beverage companies disclosed any data about the number of migrant workers in their supply chains. The apparel & footwear sector outperforms in this regard, with 28% of companies disclosing this data, 12% of which relates to below the first tier. 

Stronger practice from the apparel & footwear sector may indicate the positive impact of longstanding pressure from civil society groups, which expect brands to have a higher degree of oversight of their supply chains. This type of scrutiny has largely eluded companies in the other two sectors.

Preventing risks

The charging of recruitment fees to workers, leading to debt bondage, is a critical contributor to forced labour, especially for migrant workers. From Taiwan to Malaysia, Bangladesh and China, evidence indicates that the expenses incurred by international migrant workers during recruitment take on average 3.93 months of work to pay off — although this figure varies greatly between countries.

The number of companies disclosing a policy prohibiting recruitment fees has increased across the three sectors, rising to as much as 85% of companies in ICT. However, the content of these policies varies widely, with many not stipulating that the employer, not the worker, should pay for the cost of recruitment (the “employer pays principle”). Others cover only certain types of recruitment costs and don’t meet the standard set by the ILO, or pertain to foreign migrant workers only, thereby creating loopholes for worker exploitation. 

A gap also remains between companies that disclose a policy and those that can demonstrate they’re taking steps to implement it, and preventing recruitment fees being charged to workers in the first instance. On average, only 12% of companies across the three sectors demonstrate they’re tracing labor agencies, mapping migration corridors and associated costs, or conducting specialized investigations to identify the charging of fees. Without effective mitigation efforts, remedy for fee charging becomes a costly game of Whac-A-Mole, as made plain by a number of recent high-profile cases of fee reimbursement by companies, including Sime Darby, Amazon and Top Glove. 

Practical support for workers’ right to collectively bargain is another highly effective mitigation measure,  but is also largely missing from the data. Collective bargaining functions as a way to prevent risk, enable real-time monitoring and raise grievances about poor working conditions. It also creates a balance of power between employers and workers, bringing about improvements in wages and working conditions, vital pre-requisites to mitigate forced labor. Yet the majority of companies across the three sectors do not demonstrate, beyond paper commitments, their support for supply chain workers’ right to organize. The ICT sector performs the worst in its engagement with unions, with only one company disclosing engaging with a union to resolve a worker grievance in its supply chains. This increases to almost 30% of apparel sector companies that disclose being party to a global framework agreement or enforceable labor rights agreement, not just evidencing productive engagement with a union but legally committing themselves to concrete steps to ensure workers' association and collective-bargaining rights. Yet with 70% of apparel companies yet to disclose union engagement, and only 12% disclosing collective bargaining coverage in the supply chain, the sector still has a long way to go in championing the rights of its workforce.

Getting to Prevention

Considering the endemic nature of fee charging and exploitation, access to remedy and remedy provision by brands to workers whose rights have been abused should be commonplace and fully transparent. Yet while the majority of companies across the three sectors disclosed a grievance mechanism open to supply chain workers, a lack of data on the use of the mechanism by supply chain workers calls into question the efficacy of those mechanisms. 

Indeed, remedy is the lowest-scoring theme across the food & beverage (6/100) and apparel and footwear (7/100) sectors. Despite a moderate increase in the number of food and beverage companies disclosing remedies for workers whose rights have been violated, only 8% provided an example of remedy in practice.

In terms of fee remediation specifically, only 8% of companies in the apparel and footwear sector disclosed examples of fee repayments to workers, indicating a reactive and inconsistent approach to addressing this prolific issue. The ICT sector performs better, with 32% of assessed companies providing an example of fee-remediation for workers in their supply chains. Better practice from this sector indicates that a commitment to the “employer pays principle” can be effective at improving the situation for workers on the ground. 

The poor performance of the three sectors in the 2022-23 benchmarking cycle calls into question their preparedness and long-term resilience, in an environment where the ability to demonstrate proper risk assessment and mitigation measures will be mandatory. While the majority of companies assessed appear largely reactive to increasing human rights risks, a handful of leading companies across the three sectors, including supermarket Woolworths, athleisure brand Lululemon and technology hardware company HPE, show that a corporate strategy which embeds human rights due diligence doesn't have to come at the cost of long-term sustainable growth or investor returns.