Worldwide decline in labour rights strikes at heart of global supply chains

The last 18 months have seen health crises, disasters, conflict and widespread human rights violations flare up in the world’s major sourcing countries, making the challenges of maintaining responsible supply chains more difficult than ever. However, according to our data, these recent events are more than an aberration. They form part of a sustained trend where the rights of workers are under increasing threat from multiple directions.

Across the board, our risk indices show that issues such as child labour, discrimination, forced labour, health and safety, and the exploitation of migrants in the workplace have worsened globally for the past five years. And nowhere is this happening more than within the world’s manufacturing hubs. This decline, all taking place against the backdrop of a global pandemic, presents a set of dilemmas for ethical procurement for which there are no easy answers.

Myanmar, Bangladesh, Vietnam, Cambodia downgraded to ‘extreme’ risk for modern slavery

When you drill down into the individual issues making up the labour rights landscape, the complexities facing global supply chains are as varied as they are challenging. Let’s take modern slavery.

The latest annual edition of our Modern Slavery Index shows that over the last five years Myanmar, Bangladesh, Vietnam and Cambodia have all plunged from ‘high’ to ‘extreme’ risk in the ranking of 198 countries to join the likes of China, Pakistan and DR Congo. Their inclusion means the number of countries in the highest risk category of the index has jumped to 30 since 2017, up from 25. In this period, Vietnam (ranked the 26^th riskiest country globally) and Cambodia (28^th) have seen the largest fall in rankings in Southeast Asia, dropping 53 and 36 places respectively; this is due to an intensification in violations and a deterioration in the enforcement of labour laws.

Narrowing the focus even further, our subnational data reveals that pockets of ‘extreme’ modern slavery risks exist within 20 countries that otherwise score as ‘high’ risk on a national level. Furthermore, a third of all subregions in the world – 1,101 out of 3,338 – pose an ‘extreme’ risk to supply chains for modern slavery violations.

As shown in Figure 2, many key Asian manufacturing hubs – China, India, Vietnam, Indonesia, Cambodia and Bangladesh – are home to the riskiest subregions. Our data finds that approximately 2.2 billion people live in areas that record the worst possible score.

Xinjiang now a ‘no-go’ for responsible sourcing

Widespread reports of human rights violations against the Uyghur population in Xinjiang have turned the global court of public opinion against Beijing. Pressure on brands sourcing from the region is building, not least from US sanctions targeting raw materials and products produced there, but also from a range of international sanctions on Chinese officials and companies.

It is unsurprising to see that the region is one of two in China that is rated ‘extreme’ risk in our subnational Modern Slavery Index (see Figure 3) – the other being Tibet. The situation in Xinjiang has opened a Pandora’s box for companies, which must perform a delicate balancing act of remaining in-country on the one hand and meeting their responsible sourcing obligations on the other.

With no possibility of a resolution in sight, the reality for companies operating in China is that they will face an increasingly hostile political environment should they be seen by Beijing as divesting from Xinjiang. As the world ratchets up pressure on China, companies must also anticipate potential bans on additional products produced in the region, such as footwear, cell phones and other agricultural and food items. Nevertheless, even without explicit bans, the reputational risks of being linked to Xinjiang are likely now too great for companies to bear.

Additionally, as investors increasingly incorporate ESG strategies into their investment formulas, any dealings in Xinjiang are also likely to create material risks. To avoid rising scrutiny, many companies are now seeking alternative suppliers.

Pandemic exacerbates declining OHS for workers

Even as countries push to immunise their citizens, manufacturing will remain hindered by both slow vaccine rollouts and ongoing restrictions. As Asia continues to put out new fires arising out of COVID-19 variants, we expect intermittent lockdowns similar to those imposed in India and Myanmar. The absence of secure work will have long-lasting implications for workers. Factory closures put livelihoods at risk, with millions facing underpayment or non-payment of wages.

In Bangladesh, where the garment industry has previously been exempt from lockdown restrictions, workers have not been prioritised for inoculation, and have been left little choice but to work in conditions where the virus is likely to spread. The situation is broadly similar in Indonesia, Sri Lanka and Cambodia, where outbreaks in garment factories have been reported.

Even with increased vaccinations, the prospect of improved occupational health and safety (OHS) in Asia remains dire. Our data shows a steep decline in OHS in sourcing countries over the last five years (see Figure 4). High-profile disasters such as the Rana Plaza collapse in Bangladesh have failed to trigger more robust enforcement – as is evident in the July 2021 factory fire in Dhaka that killed at least 52 people.

Spiraling humanitarian crises too big a price to pay for low labour costs?

It is not just labour rights that are stoking concerns for responsible sourcing departments though. The ongoing crisis stemming from the military coup in Myanmar and ethnic conflict in Ethiopia have dashed hopes of the two countries becoming major manufacturing hubs for the foreseeable future. Our Security Forces and Human Rights Index shows the severity of the situation, with both countries recording the worst possible score for violations. Investor backlash and consumer boycotts are likely to arise if manufacturers are seen to be associating with abusive regimes.

On the other hand, abandoning an existing workforce is unlikely to be seen favourably either. Myanmar has 700,000 garment workers, mostly women, while Ethiopia is home to 100,000. Many face unemployment in the event of a sourcing shift to South Asia – an option already taken by manufacturers directly impacted by the Tigray conflict.

While these emerging sourcing hubs were once attractive for their low labour costs, companies that choose to remain face heightened risks with continued destabilisation. The threat of new or increased economic sanctions on both countries further compounds the situation. Even if some semblance of political stability materialises in either country, and disruption is kept to a minimum, the ability to responsibly source there will still hang in the balance.

Companies must gear up human rights due diligence as pandemic winds down

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. Add to the mix a political and human rights decline in key manufacturing locations and a perfect storm arises for responsible sourcing.

In a climate where volatility appears to be the norm rather than the exception, companies would do well to innovate human rights due diligence measures so that supply chains not only overcome the challenges of current restrictions but become future proof. With increasing expectations for companies to improve their ESG performance, erring on the side of caution is fast becoming the default state of play. Committing to and implementing best-practice responsible sourcing standards will be key to meeting this principle.