Human trafficking and conflict minerals compliance
Supply chain due diligence and transparency
The potential for human trafficking in supply chains is a growing concern for regulatory bodies, non-governmental organizations (NGOs), investors, and other stakeholders in a range of industries, most notably those that have a global and complex supply chain. Responding effectively to these concerns is a challenge for many companies. This report takes a look at how companies that built frameworks to comply with conflict mineral disclosure requirements can leverage those frameworks to address similar anti-human trafficking (AHT) requirements.
Rising to the challenge
Initially, some companies believed that Securities and Exchange Commission (SEC) disclosure requirements related to conflict minerals would be difficult or impossible to meet. Now, three years into the SEC Rule requirements, many companies have achieved compliance with the rule’s objectives and realized risk mitigation benefits. The latter includes enhanced visibility into supply chains, better information on risks, and increased cooperation from suppliers.
The SEC Rule required affected companies to establish a due diligence program to determine the existence and sources of tin, tantalum, tungsten, and gold in their supply chains to support disclosures in an SEC filing.
In general, the environmental and societal impacts of certain business practices are prompting policymakers to focus on organizations’ social compliance systems. Investors, customers, and other stakeholders are also scrutinizing companies for programs that address human rights risks at every stage of the value chain as part of the organization’s capacity to respond to unforeseen circumstances and risks.
Although many companies may view social compliance efforts as cumbersome, experiences with conflict minerals compliance suggest that these efforts have helped companies improve supply chain transparency and risk identification capabilities.
Companies can build on their experiences in conflict minerals compliance, or on those of other companies, to address requirements around human rights and anti-human trafficking. Those experiences apply to activities such as organizational policy development, program governance and execution, training, and auditing and disclosure. These activities should be conducted within a risk management and governance context that considers the organization’s industry, global footprint, and growth targets.
Human trafficking includes, but is not limited to, forced labor, child labor, and slavery, as well as coercion, abduction, fraud, and exploitation connected with labor.
The impact of human trafficking
The International Labour Organization (ILO) has estimated that almost 21 million people are victims of forced labor, and that forced labor in the private economy generates $150 billion in illegal profits per year. Research by the Ashridge Centre for Business and Sustainability and the Ethical Trading Initiative found that 71 percent of companies believe there is a likelihood of modern slavery occurring at some point in their supply chains.
Many companies see themselves as immune to human trafficking risks or see no urgency in addressing the risks within their operating models. Yet the US Department of Labor has identified some 136 goods from 74 countries produced by child or forced labor—spanning all industries and many parts of corporate operations. Goods reflected in this list are potentially tied to American-owned supply chains.
New regulatory requirements are compelling organizations to gain alignment at the highest executive leadership levels around how to approach this issue, establish and effectively implement policies, and develop evaluative metrics to address human trafficking beyond the “check the box” requirements to mitigate scrutiny from stakeholders and NGOs.
Getting with the program
Supply chain compliance programs can reduce legal, operational, and other risks. They can help companies respond effectively to stakeholders demanding greater transparency and regulators mandating more detailed reporting. And they can help position the company to quickly and credibly respond if human rights issues are identified in the supply chain.
Companies seeking to bolster the AHT elements of their social compliance programs can draw upon the lessons learned from conflict minerals compliance programs. Instead of reinventing the wheel, they can use those lessons and leverage existing frameworks and governance structures to integrate requirements into their current processes. By leveraging mechanisms already in place, companies can realize potential cost savings, make more informed decisions about risk, and combat human trafficking within their supply chains.
To learn how your organization can build a robust social compliance program, download the full report.