By: Charisse Dean, Managing Director, KPMG US ESG Social Strategy Leader; Jessica Libby, KPMG Human Rights Co-Leader, Principal, Tax – Trade & Customs; Laura Clawson, KPMG Human Rights Director
Traditionally, business has viewed supply chains through the lens of expediency and efficiency. Today, however, focusing solely on these factors is no longer sufficient. With increasing awareness of human rights violations hidden deep in complex, global supply chains, governments worldwide are stepping in to bring greater attention to and regulation over supply chain activities that fail to respect human rights and mitigate egregious violations like forced labor.
The latest research paints a sobering picture: Globally, an estimated 28 million people are victims of forced labor—two-thirds of whom are exploited in the private sector.[i] The G20 alone are collectively responsible for importing an estimated $468B worth of goods at risk of being produced using forced labor.[ii]
According to Blueprint, forced labor in supply chains can be the result of practices that foster that environment such as below market wages, imposing heavy financial penalties for production delays, and unpredictable ordering[iii].
Yet, while most companies realize they must address these adverse impacts in the supply chain, the majority are slow to act: KPMG’s recent anti-forced labor survey of global companies found that only seven percent of companies consider their anti-forced labor programs to have reached “high maturity,” while a third characterize their programs as “low maturity.”
Meanwhile, the regulatory landscape is quickly evolving. Global anti-forced labor regulations now include the U.S.’s Uyghur Forced Labor Prevention Act (UFLPA),[iv] the German Supply Chain Due Diligence Act, Canada’s Bill S-211, and a number of EU regulations at the country level. Since the UFLPA’s implementation in June 2022, U.S. Customs has detained 6,315 shipments worth nearly $2.205 billion.[v] under suspicion of forced labor.
Forced labor touches nearly all parts of the private economy. In the battle to ensure human rights in the supply chain, corporations have a unique opportunity to lead.
Where do companies start?
Respecting human rights starts with clear commitments to—and business processes that enable—identifying, mitigating, remediating and preventing adverse human rights impacts like forced labor. This includes benchmarking wages against wage calculations in orders and contracts and establishing enforceable worker agreements. Also, establishing pricing structures that enable suppliers to pay living wages and provide a safe workplace[vi].
Companies also need to establish clear responsibility through an anti-forced labor team or taskforce. Such teams should be cross-functional, comprising individuals from legal, compliance, regulatory, and even individual business units. Teams should oversee human rights compliance programs — a set of policies, procedures, and training that helps companies meet their ethical and legal obligations. Policies should be clear, concise, easy to understand, and, perhaps most importantly, aligned with a company’s overall business strategy.
Businesses can create cultures of respect for human rights by creating codes of conduct and performance metrics that reference international norms and standards and outline expectations around human rights. While establishing these standards is essential, companies must provide both employees and suppliers with ongoing training, monitor performance, and provide accessible avenues for workers across the supply chain to report concerns.
Tracking and analyzing forced labor risks across multiple tiers of the supply chain require a variety of technology tools, including a wide spectrum of available automation platforms that use artificial intelligence and machine learning to map supply chains, create deep dive processes for the highest-risk suppliers, administer risk surveys to suppliers, create supplier scorecards, and more. Companies who proactively monitor forced labor risk can then get a clear overview of their risk exposure at the product, entity, and/or country level, including chain of custody across the supply chain (from raw materials to finished goods).
Finally, while there is a great deal that companies can do on an individual basis, partnership and collaboration is critical to creating momentum. Businesses can exponentially increase their impact by tapping into the resources and guidance of industry organizations, collaborating with multi-stakeholder groups, and connecting with trade unions, worker representatives and community-based organizations to gain valuable insight from those most impacted by forced labor.
The consequences of inaction
Failing to put a robust program in place for monitoring human rights abuses in the supply chain can have serious consequences.
- Legal: The U.S. State Department has codified a list of consequences for violators, which includes sanctions and visa restrictions.
- Administrative: If a company’s products are detained at the border, the company may be required to furnish production records, commercial invoices, and financial records to demonstrate that products were not sourced or manufactured through forced labor, causing unplanned supply chain delays and potential for long-term disruption.
- Financial: As a shipment is under review, the importer may be required to pay for additional storage fees. Should the shipment be deemed to be excluded from the US, the importer may need to reexport or destroy, again, incurring additional costs.
- Reputational: Public attention around forced labor, child labor, and other human rights violations is growing. Failing to identify and monitor high-risk products, supply chain lanes, and sourcing geographies may mean negative publicity and severe damage to a company’s brand and reputation.
- Deal validation: Investors increasingly conduct buy side due diligence as it relates to ESG exposure and require that companies address potential supply chain violations. Investment in anti-forced labor compliance programs demonstrate a commitment to core human rights principles, critical to attracting investment.
The last 12 months have seen significant momentum toward the elevation of human rights principles within cross-border supply chains. In addition to the UFLPA, the Inflation Reduction Act has helped compel U.S. companies to provide visibility to their supply chains.[vii] Both in the U.S. and in other geographies across the globe, trade authorities are raising the bar to ensure that companies really understand and trace all elements of their production processes and supply chain. With significant resources and leverage, multinational corporations are in a unique position to take a leading role in the ongoing effort to ensure that fundamental human rights are truly extended to all individuals and communities worldwide.
[i] “Global Estimates of Modern Slavery: Forced Labor and Forced Marriage,” International Labour Organization, Walk Free, IOM UN Migration, September 2022.
[ii] “The Global Slavery Index 2023, ” Walk Free, June 2023.
[iii] “For A More Just Supply Chain: Ending Human Trafficking and Forced Labor,” DiversityPlus Magazine, 2023.
[v] Richard Vanderford, “Lawmakers Look for Tough Implementation of Forced Labor Law Targeting China,” Wall Street Journal, April 18, 2023.
[vi] “For A More Just Supply Chain: Ending Human Trafficking and Forced Labor,” DiversityPlus Magazine, 2023.
[vii] Charles Wessner and Srishti Khemka, “Getting Real on the Inflation Reduction Act,” Center for Strategic & International Studies, March 7, 2023.