Human rights abuses have worsened significantly across Asia’s major manufacturing hubs since the start of the pandemic, prompting calls for a more innovative approach to supply chain due diligence from buyers and financial institutions.
Modern slavery, child labour and occupational health and safety hazards are all found to have intensified over the past five years, according to new research into human rights violations carried out by risk consultancy Verisk Maplecroft.
The risk of forced labour in Myanmar, Bangladesh, Vietnam and Cambodia – all identified as key sourcing countries for manufactured goods – has been upgraded from “high” to “extreme”, it says, putting them on a par with China and Pakistan.
Across China, India, Vietnam, Indonesia, Cambodia and Bangladesh, the report finds more than 2 billion people are living in sub-regions given the worst possible score for potential violations.
Combined with the disruption to working practices and the economic damage caused by the pandemic over the past 18 months, the report warns that “maintaining responsible supply chains [is] more difficult than ever”.
In Bangladesh, for instance, the garment industry has previously been exempt from lockdown restrictions, yet workers have not been prioritised for vaccination. As a result, they have continued to work in conditions where the virus is likely to spread.
“The pandemic has not only upended traditional human rights due diligence, it has forced companies to rethink the fundamentals of sourcing low-cost labour from countries that have been devastated by the ensuing socioeconomic fallout,” says Sofia Nazalya, a human rights analyst at Verisk Maplecroft.
“Add to the mix a political and human rights decline in key sourcing locations and a perfect storm arises for responsible procurement.”
The report says companies “would do well to innovate human rights due diligence so that supply chains not only overcome the challenges of current restrictions but become future-proof”.
There is already growing international pressure on companies to stop sourcing from suppliers involved in human rights abuses. The report gives the example of Xinjiang in north-west China, where the treatment of the Uyghur minority population and the use of forced labour have sparked international outrage and enforcement action against companies purchasing from the region.
At the same time, trade finance lenders are under growing pressure to tie facilities to the borrower’s environmental, social and governance (ESG) credentials, for instance by providing extended terms, reducing the cost of capital or improving the tenor and pricing of a loan in response to positive performance.
However, those efforts have often been focused on environmental issues where external data – such as satellite imagery showing deforestation activity – can be combined with information provided by a supplier.
Deeti Vyas Béghin, chief of business longevity at sustainability consultancy Global Bright Futures, says it is difficult to obtain accurate information on a supplier’s approach to human rights issues in particular, and therefore to link financing accurately to its performance.
“A lot of these things don’t get caught in an audit,” she tells GTR. “An audit checks the situation at a specific point in time, and factories can sometimes only show what they want to show.”
Another difficulty for buyers is how to respond if human rights abuses are unearthed in their supply chains. Vyas says that if a company terminates a relationship with a factory, for instance, that can worsen the problem.
“That factory has lost an important piece of businesses,” she says. “They don’t operate under these conditions because they think it’s the right thing to do; it’s a matter of survival.”
Initiatives to tackle these issues are starting to emerge, however. Vyas says Global Bright Futures has partnered with Halotrade, a sustainable financing platform, to collect and score data directly from a factory’s employees on a continuous basis, and link financing to that.
“This is live data coming straight from the workers, so it bypasses that audit stage, and because it’s anonymised they will hopefully feel safer in responding to the questions that are being asked,” she says.
Shona Tatchell, Halotrade’s chief executive and founder, says a factory that is found to be performing well can then access financing at preferential rates or with preferential timing. If it is not, those funds can be held back and released if the factory’s rating improves.
“If they never improve, there is an agreement those funds can be spent on direct intervention to improve whatever issue the workers are facing,” she tells GTR.