Human Rights – Can we protect the vulnerable in global supply chains?
The first game of the Qatar 2022 World Cup will kick off on the 20th of November. The excitement that usually surrounds “the greatest show on Earth” has been marred by reports of labour and human rights infringements. This case highlights the difficulty of monitoring and implementing robust human rights practices in every corner of the globe. Particularly when decision makers are willing to overlook this important consideration when it comes to selecting business partners, suppliers or, it would seem, nations that should host football tournaments.
The Beautiful Game
Many have raised eyebrows at FIFA’s decision to select Qatar to hold the World Cup. The gulf nation seems like an odd choice for a number of reasons: the lack of an established football culture; the heat of the desert necessitating an interruption in La Liga, the Bundesliga and the Premier League (amongst others) in order to host a winter tournament; and the shocking human rights abuses committed by the state.
The non-profit organisation Freedom House have evaluated the nation and have categorised it as Not Free:
“Qatar’s hereditary emir holds all executive and legislative authority, and ultimately controls the judiciary as well. Political parties are not permitted, and the only elections are for an advisory municipal council. While Qatari citizens are among the wealthiest in the world, the vast majority of the population (around 90%) consists of noncitizens with no political rights, few civil liberties, and limited access to economic opportunity.”[1]
A 2021 report from The Guardian estimated that more than 6,500 migrant worker deaths had been recorded in the 10 years since Qatar was awarded World Cup hosting rights[2].
The international media attention ahead of the World Cup appears to have catalysed some action to mitigate the dangers associated with infrastructure development. The government has undertaken some reforms and introduced new labour laws between 2017 and 2021. These improvements in legal protection have led to noticeable progress for the country’s two million migrant workers. However, Amnesty International found that a lack of effective implementation and enforcement has undermined their impact. Thousands of workers across all projects are still facing issues such as delayed or unpaid wages, denial of rest days, unsafe working conditions, barriers to changing jobs, and limited access to justice, while the deaths of thousands of workers remain uninvestigated[3].
Football fans are not disinterested in the plight of construction workers, far from it. A global poll commissioned by Amnesty in conjunction with YouGov revealed overwhelming support among both the general public and football fans for the compensation of migrant workers who suffered during preparations for the World Cup[4]. The findings back the #PayUpFIFA campaign launched by a coalition of human rights organisations, fan groups and trade unions, calling on FIFA and the Qatari authorities to establish a comprehensive remediation programme to compensate workers and prevent future abuses[5].
Clearly the exploitation of workers did not start with the 2022 World Cup, nor will it end with Qatari employment reforms.
However, as a high-profile global event, this World Cup has provided a distressing example of the prevalence of migrant worker exploitation. FIFA’s selection has cast an ugly spotlight on the choice between the economic interests of decision makers and the millions of people around the world who endure inadequate and dangerous working conditions as a consequence.
Even if we know when, where and why abuses are happening, they are not stopped.
The example above also shows that, even when there is widespread awareness of a particular problem, meaningful action to prevent and remedy abuses is difficult to achieve. The world’s eyes have been trained on Qatar since the awarding of the World Cup in 2010. And yet, the working conditions experienced by those building the necessary infrastructure have been appalling and the death toll associated with this spectacle has mounted. How then, can we hope to look through the opaque, convoluted and vast supply chains that service companies with a global footprint to address these issues?
Legal Responsibilities
Over the last decade there have been regulatory attempts to manage human rights risks throughout value chains. One of the most important and wide reaching being the USA’s Dodd Frank Act. Introduced in 2010, Section 1502 of the Act requires companies listed on US stock exchanges using tantalum, tin, tungsten and/or gold (also known as 3TG minerals) in their production processes to declare the origin of such minerals and perform due diligence exercises when sourcing these raw materials.
The selection of 3TG minerals is due to the association of their mining with the Democratic Republic of Congo (DRC). They are defined as conflict minerals because the profits from the extraction of and trade in minerals sourced from unstable regions affected by armed conflict can play a role in intensifying and perpetuating violence. This can take various forms including:
- illegally controlled mines and mineral trading routes by armed groups;
- the use of forced labour or other human rights abuses within the mining operation;
- the extortion of tax, money and/or minerals as a result of controlled mining activity[6].
As a result, armed groups and security forces in conflict regions can finance their activities from the proceeds of mining and trading of minerals which later enter the global supply chain. Companies further down the production chain run the risk of supporting armed activities and have an interest in sourcing from such regions responsibly.
Under the Dodd Frank Act, companies that are required to file a Conflict Minerals Report must exercise due diligence on the source and chain of custody of their conflict minerals. Companies do not have to stop sourcing from this region in order to be compliant but are required to show they are working with the appropriate care to make sure they are not funding armed groups or human rights abuses. The due diligence measures must conform to a nationally or internationally recognised framework, such as the guidance approved by the Organisation for Economic Co-operation and Development (OECD)[7].
By necessitating a report, the legislation hopes to prevent participation (even if inadvertent) in cruelty and abuse associated with raw material extraction in the DRC.
The UK subsequently introduced its own legislation to reduce the risk of human rights abuses associated with corporate supply chains, specifically modern slavery. The UK Modern Slavery Act was introduced in 2015 and looks to tackle the illegal exploitation of people for personal or commercial gain. It covers a wide range of abuse and exploitation including trafficking, domestic servitude, forced labour and criminal exploitation[8].
Although the hidden nature of modern slavery makes producing an accurate measure of prevalence difficult[9], we can measure how often the grievance and safeguarding mechanisms are used. In 2020, 10,613 potential victims of modern slavery were referred to the National Referral Mechanism and the most common nationality of suspected victims was UK nationals. The most recent Global Slavery Index estimated that the number of actual victims in the UK could be up to 136,000[10]. This highlights that labour abuses are not just a problem occurring overseas, but on British soil.
The National Crime Agency estimates that there are over 200 organised crime groups involved in modern slavery[11]. Large companies have been caught up in this criminality. In 2019, what is thought to be the largest modern slavery ring ever uncovered in the UK was broken up. They had around 400 victims who worked for as little as 50p a day and were trafficked to Britain with the promise of gainful employment but instead were housed in squalor. Hidden in plain sight, some of the victims were employed by legitimate businesses and were working on farms, rubbish recycling centres and poultry factories in the Midlands but had their wages stolen by the gang. Three of the victims brought a case against a FTSE 100 listed waste management company for a failure to prevent forced labour within its workforce[12].
Whilst modern slavery crimes are not new to the UK, and they were punishable against previous offences, the new Act represents a consolidation and clarification of existing laws. In addition, the legislation significantly enhances support and protection for victims, gives law enforcement the tools to punish perpetrators and includes a provision to encourage business action[13]. However, there is no expectation that company supply chains can be guaranteed as “slavery free”. There is a requirement of certain businesses to make a public statement[14]. These statements must be uploaded to a government registry to track compliance and must be updated annually. The government recommend that reports cover the following topics:
- Organisation structure and supply chains
- Policies in relation to slavery and human trafficking
- Due diligence processes
- Risk assessment and management
- Key performance indicators to measure effectiveness of steps being taken
- Training on modern slavery and trafficking
The points above are suggested by the Home Office but there is no requirement to adjust business practices to reduce the risk of modern slavery and if an organisation has taken no steps to deal with modern slavery risks, a statement can still be published[15]. Addressing the risk of modern slavery might require actions such as the simplifying of supply chains; building strong, supportive and long term relationships with suppliers; and implementing Key Performance Indicators to monitor progress. All of these measures are voluntary and are likely to incur additional costs, meaning the incentive to take meaningful action is limited.
Both of these pieces of legislation brought the topic of human rights to the forefront of the minds of businesses. Further international action on conflict minerals in particular was catalysed by Section 1502 of the Dodd Frank Act. In 2015, the China Chamber of Commerce of Metals Minerals & Chemicals Importers & Exporters published voluntary Due Diligence Guidelines for Chinese companies active in the minerals trade. In June 2017 the European Union (EU) adopted a regulation requiring companies importing 3TG metals into the EU to carry out supply chain checks, regardless of where in the world they source from. Congo and Rwanda have passed similar laws for all companies operating in their 3TG sectors. All of these international laws and standards are based on the OECD standard for responsible mineral supply chains.
However, it is difficult to evaluate the real-world impact of the statements produced by businesses in compliance with these Acts. There is no measure of how many human rights abuses a company may be exposed to. Companies are encouraged to evaluate risk points, but investors usually have to rely on the presence (or absence) of a policy, rather than quantitative evidence that labour rights have been protected and safe and secure working environments have been provided.
As part of our investment process, Montanaro collect data on whether a company has human rights and business ethics policies in place (preferably in line with the United Nations Guiding Principles). We want to encourage businesses to promote human rights for sustainable development and will engage on the topic to assess how well a company may be managing these risks. But with obscure supply chains spanning the globe, ensuring that human rights are respected throughout diffuse spheres of influence is harder than ever.
A situation we have been keeping a close eye on is the abuse of Uyghur people in China.
In 2021, China was the UK’s largest import partner and sixth-largest export partner for goods. The UK imported £63.6 billion of goods from China (13.3% of all goods imports to the UK).[16] This most important trade partner is also classified as Not Free according to Freedom House (the same as Qatar). China has a repressive, authoritarian regime implemented by the ruling Chinese Communist Party (CCP). The CCP leader and state president, Xi Jinping, has consolidated personal power to a degree not seen in China for decades. The media, free speech, education and all aspects of civil society are tightly controlled. Any dissent incurs great personal costs for activists.[17]
In the summer of 2022, a new report from the United Nations High Commissioner for Human Rights implicated the Chinese Government in Crimes Against Humanity. The report was long awaited, and publication had been delayed until minutes before the four-year mandate of the commissioner came to an end. This delay is thought to be as a result of the power China wields. New evidence showed that China’s top leaders, including Xi Jinping, were directly involved in the design and implementation of the most draconian policies affecting Uyghurs and other ethnic minority groups, including programs aimed at changing demographics in the relevant areas. Rare first-hand accounts from inside detention camps in the Xinjiang Uyghur Autonomous Region revealed systemic sexual abuse and torture of ethnic minority detainees, in addition to credible reports of deaths in custody. The authorities took further steps to forcibly assimilate all ethnic minorities into the dominant Han Chinese national identity, in part by imposing Mandarin as the language of instruction at all educational levels[18].
How are businesses implicated in these abuses?
Given the power of Chinese production and that the country plays a significant role in many global supply chains. It is difficult for any company to completely extricate themselves from the influence of China.
The Xinjiang Region is the area most associated with the repressive actions taken against the Uyghur population and is also a leading cotton producer. There is evidence of forced labour and trafficking from detainment camps for the picking of this cotton as well as the manufacturing and garment making that occurs in the area. It is thought that 85% of China’s cotton and 20% of the world’s cotton is sourced from the region[19]. The internment of the population and subsequent forced labour is a catastrophic failure to uphold human rights and, worryingly, it appears that the raw materials and products made under these conditions are entering supply chains. Researchers say they have found traces of Xinjiang cotton in shirts and T-shirts made by Adidas, Puma and Hugo Boss, despite promises from these companies to revise their supply chains to eliminate cotton from the region[20]. In 2022, The Uyghur Forced Labour Prevention Act (UFLPA), came into force and assumes that any product partly or wholly made in Xinjiang is linked to the region’s labour camps and gives US border authorities greater powers to block or seize goods[21]. However, the UK has lagged behind and as a result has been taken to court by Uyghur rights activists. The case is ongoing and was filed by the World Uyghur Congress who are suing the government over a failure to prevent Xinjiang prison-processed cotton entering UK supply chains. They state that cotton imports from Xinjiang should not have been able to enter the UK and there should have been criminal investigations under the Proceeds of Crime Act[22].
We have spoken to investee companies where we identified risks of exploitation of Uyghur Muslims within supply chains. We sought an explanation of how they monitor suppliers to identify areas of potential risk and to develop an action plan to address them. All had already undertaken an assessment and noted the importance of the issue and agreed with our view that there is an ethical impetus to abolish these practices.
However, there have been cases of companies (none that Montanaro have ever invested in) using staffing agencies to source Uyghur labour within their supply chains. In 2021, it was revealed that a NASDAQ listed company, Universal Electronics, struck a deal with authorities in Xinjiang to transport hundreds of Uyghur workers to its plant in the southern Chinese city of Qinzhou, the first confirmed instance of an American company participating in a forced labour transfer program. This firm has sold its remote control equipment to large tech and broadcast companies, including Sony, Samsung, LG and Microsoft[23]. A month later the firm was forced to end this relationship after the media spotlight placed on their actions led to pressure from US senators.
What can we do?
As investors, we will continue to engage with companies on how they can effectively evaluate, monitor, audit and address problems within their supply chain. Beyond this being a corporate responsibility effort, there is a business case for transparency on the issue which is strengthening. This is particularly relevant in the case of the garment trade as a result of consumer pressure and because more fashion stock is likely to be impounded as new regulation comes into effect regarding cotton sourcing. Legislative efforts in the US look likely to be followed by similar requirements in the EU, but the draft proposals look set to be far more wide reaching as they encompass human rights and environmental risks more broadly. The intention will be to increase corporate accountability for their value chains[24].
In addition to efforts by investors and regulators, activists are taking action against those who endorse abuses, either through funding or their silence. Campaigns such as #PayUpFIFA highlight the widespread approval from society at large that those affected by adverse human rights should have improved access to remedies. The Uyghur support groups battling the UK government in the high court are sending a clear message that products made from exploitation should not be in circulation, and organisations that are not doing enough to prevent this will be held accountable.
How companies may go about building a picture of their value chain is still a barrier to accurate monitoring. However, new technology might be the answer to this issue. Using blockchain to create digital ownership of the entire supply chain can help identify areas of weakness so they may be remedied accordingly. One such charity, Enduring Net[25], is looking to deploy a blockchain platform to support organisations in their fight against labour exploitation. The system aggregates and anonymises all sensitive data while enabling the identification of patterns in the reported incidents of forced labour. However, this type of technology is still in development and is not regulated, so the sensitive data being collected has limited oversight. Nevertheless, this is a promising avenue to explore for companies that look set to experience more enforcement of supply chain due diligence from their stakeholders and governments.
Conclusion
Human rights abuses are made more difficult to identify and rectify as a result of globalisation and complex value chains. However, the nature of the crimes mean that even when modern slavery is occurring on home soil within the direct influence of the company, it can be missed. Whilst some governments and intergovernmental bodies have attempted to implement regulation that mitigates these risks, accountability is still limited.
Social activism is an important force for highlighting injustice and organising restorative action. Organisations such as Freedom House, Amnesty International and the World Uyghur Congress investigate abuses and mobilise the public to defend human rights and promote democratic change. But the change itself is dependent on enforcement from both the public and private sectors responsible for citizens and employees respectively.
Currently, investors are reliant on evaluating the quality of policies published by investee companies rather than having any concrete data on how this translates to performance on human rights. There are internationally recognised frameworks that can help to indicate the effectiveness of policies and help with our analysis of social risks, for example adherence to the UN Guiding Principles.
Technological developments are helping with the investigative processes and mean the lack of transparency that is a current barrier should be minimised in the future. Armed with accurate information, companies and their stakeholders can have a clearer picture of where compliance with international labour standards may be breached and which supplier is responsible. This should translate to appropriate action and redress for victims.