Excerpted from the Domini Funds 2024 Impact Report
Creating Transparency and Establishing Accountability
Corporate supply chains often consist of multiple tiers of suppliers between the raw-material level and final product, often spanning numerous countries and continents. Within these complex supply chains, there are often many opportunities for human rights abuses to occur.
When we began our work in the 1990s, most companies provided little acknowledgment that they had a responsibility to help ensure the safety and fair treatment of workers in their supply chains. Within the apparel industry, we had a good sense that The Gap was doing a relatively better job than most, but there was very little publicly available data to allow us to effectively evaluate its efforts.
In the early 2000s, we helped change that. We participated in a working group dialogue with Gap and filed a shareholder proposal that resulted in the company agreeing to produce a transparent report discussing working conditions in its supplier factories. This corporate social responsibility (CSR) report was the first time an apparel company had publicly reported on these issues, and it received worldwide media attention.
Importantly, Gap’s report created a model that other companies could follow and build upon, and companies like Nike and Hewlett-Packard soon followed suit. With reporting still fairly limited in those days, however, we would give credit to companies in our evaluations if they disclosed any supply chain data at all. However, as more and more companies began to report on these issues, we were able to refine our standards and raise the bar for transparency and accountability.
Our Supply Chain Standards Today
Reporting on supply chain management issues is now a baseline expectation. Companies have increasingly recognized that they have an obligation to protect worker health and safety and prevent abuses, even if those controversies are found deep within their supply chains. Accordingly, investors have also raised their expectations.
In accordance with our Impact Investment Standards, we expect companies to adopt comprehensive policies for their suppliers that incorporate international human rights and labor standards, and we encourage them to conduct thorough human rights due diligence in alignment with the United Nations’ Guiding Principles on Business and Human Rights. Companies should monitor their suppliers’ practices and actively look to prevent abuses, including abuses around forced labor, child labor, and unethical recruitment of migrant workers. They should take necessary measures to remedy adverse impacts when they do occur and confront challenges honestly and openly with the public.
Evolving Challenges
Since the 2010s, there has been growing media coverage about the exploitation of migrant workers in global supply chains. Unscrupulous recruiting agencies often use force, fraud, and intimidation to coerce migrant workers into signing labor contracts, often in languages they do not speak, which effectively enters them into conditions of bonded labor. These migrant workers are charged exorbitant recruitment fees that they need to work for years just to pay off, often without access to their passports, in poor working conditions, and subject to harassment, violence, and wage theft.
Early reports about these abuses helped us realize that analyzing what was happening within supplier factories was not enough; we also needed to look at how workers came to be in those factories to begin with. We joined other investors and stakeholder groups, including the Interfaith Center on Corporate Responsibility (ICCR) and ShareAction’s Workforce Disclosure Initiative (WDI), to promote ethical recruitment practices and encourage companies to adopt policies prohibiting recruitment fees and to reimburse them when they were paid. We engaged with numerous companies in the apparel, technology, and food industries to improve supplier requirements. A dialogue with food distributor Sysco led it to update its requirements for suppliers to add ethical recruitment policies and strengthen policies against child labor. We filed a shareholder proposal on the issue with Michael Kors (now known as Capri Holdings), which led to the company agreeing to improve labor requirements for its suppliers, including prohibiting and reimbursing recruitment fees and requiring suppliers to disclose information about the recruitment agencies they use.
In 2019, with more companies enhancing their supply chain auditing and monitoring processes, we refined our key performance indicators (KPIs) for supplier relations. These updated KPIs help focus our evaluations on additional factors like disclosure of supplier factory lists, third-party versus internal audits, announced versus unannounced audits, and the efforts companies make to remediate violations once uncovered.
As these issues continue to evolve, the exploitation of migrant workers remains a significant challenge. In the last several years, there have been reports of growing numbers of migrant children who have entered the U.S. alone and are now working dangerous jobs in violation of child-labor laws, including at many factories that supply well-known food brands.
In response, this past year, we further enhanced and expanded our KPIs for the food industry. We have been pleased to see several companies in the Domini Funds, including Costco, Ford Motor, Starbucks, and Unilever, take steps to improve their supplier monitoring programs. Such steps include commissioning more factory audits with Spanish-speaking inspectors, ceasing to announce these audits in advance, and reviewing night shifts managed by outside contractors like cleaning companies. We have been in dialogue with several companies to express our concerns and learn more about the steps they are taking to help address this serious child labor crisis.
Our standards do not stand still. As impact investors, we must continuously evaluate and adapt our approach as issues evolve, so that we can continue to hold companies accountable and ensure the well-being of people, planet, and portfolios.