Forced labor, a form of modern slavery, is a problem that humanity continues to grapple with. As the world becomes more connected and awareness rises among consumers, companies and governments are taking more responsibility for the issue with new regulations that penalize companies using forced labor and hold them accountable for their supply chains, regardless of their location. The aim is that the problem will no longer be just reputational damage, but that it also poses a direct financial risk for the companies involved.
Supply Chain Accountability
If you are old enough, you might remember the cover of Life magazine in 1996 in which a boy was stitching footballs that carried the Nike logo. This was an inflection point for companies and people, as it made visible a widespread problem that few wanted to acknowledge. To be clear, companies and consumers benefited from these situations, which, although controversial, happened far away in a world that was not fully connected. Several years have passed, and awareness about human rights in global supply chains has increased worldwide. However, we all know that controversies like this have not stopped, especially that businesses now have ever-more complex supply chains. This, combined with the high connectivity of societies, leaves companies under continuous public scrutiny.
More recent and emblematic controversies involving forced labor are those related to major chocolate brands accused of child labor. In these cases, while resulting in reputational damage for the companies involved, attempts at prosecution have mostly not succeeded in court. A highly covered exception was in September last year, when a Brazilian court ordered Cargill to pay 600,000 Brazilian reais (USD 120,185) as an indemnity for buying cocoa from farms where child labor or forced labor had been identified. The company stated it would appeal the ruling to a higher court, while there is no evidence to date that any part of the payment has been made.
Supply chain management is a complex issue to assess, especially when suppliers are in countries where the company doesn’t operate directly and works with middlemen, transferring the responsibility to the intermediary company. Taking the Cargill case as an example, the company stated in the September lawsuit that “the company buys cocoa from hundreds of producers, co-ops and merchants in the country and has no way of knowing whether child labor was used in any stage of that chain.” Cargill has not yet made it fully clear how this statement aligns with the company’s human rights commitments found in its latest 2023 ESG Report, in which it also states, “We do not tolerate the use of any form of forced labor…” and “We work to eradicate child labor from our operations and supply chains.” In addition, being more specific about the cocoa supply chain, the company has the Cargill Cocoa Promise and the Child Labor Monitoring & Remediation System. It is also aligned with organizations such as Save the Children. This whole issue is aggravated by the fact that Cargill is also supplier to large companies like Hershey and Nestle, which at the same time are part of organizations trying to stop the problem like the International Cocoa Initiative and the World Cocoa Foundation. This leads us to conclude what is already widely recognized: being aligned with global initiatives against child labor in the cocoa industry helps to tackle the issue, but it is not enough, just like being aligned with any other ESG initiative, principle, framework, or standard.
In short, we could question how accountable a company is for its own supply chain and how efficiently it can prevent forced labor. On one hand, this will have a financial impact due to the control processes and ensuring fair conditions for workers. On the other hand, there are additional difficulties that sometimes the company cannot control, such as local idiosyncrasies, permissive laws, and corruption. The truth is that without a legal obligation to force companies to control their supply chains, it is difficult to establish responsibilities.
Forced Labor Is Not a Narrow Issue
According to the International Labor Organization (ILO), forced labor refers to "all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily." There are an estimated 28 million people globally affected by forced labor, including children, making it a widespread problem, with no exemption for any country, sector, or industry.
If we consider a broader term like modern slavery, there are even more people living in these conditions, almost 50 million, according to the Walk Free group. Modern slavery is considered an umbrella term that covers not only forced labor but also forced or servile marriage, debt bondage, human trafficking, and the sale or exploitation of children.
Not all regions have the same risk level of issues related to forced labor, and the same applies to sectors and industries. Factors that increase the risk include migration, poverty, gaps in legislation, and lack of social support, among others. According to the ILO, the Asia-Pacific region has the highest number of people in forced labor, while the Arab states have the highest incidence rate.
The Global Slavery Index indicates a direct relationship between GDP per capita (PPP) and the prevalence and number of modern slavery cases, as well as vulnerability. However, a relevant concept is the Importing Risk, where developed countries that are part of the G20 present a high risk of modern slavery through the importation of products from high-risk countries or sectors. This includes labor-intensive industries such as Information and Communications Technology (ICT), Food and Beverage, and Apparel and Footwear.
Following the concept of importing risk of modern slavery and how developed countries can tackle this issue and stop underpinning this problem connected to supply chains worldwide, some countries have taken action. One of the latest controversies involves the suitability of Shein, a global fast fashion retailer, for its listing on the London Stock Exchange. The matter concerns Shein’s alleged use of modern slavery in the autonomous region of Xinjiang in China. As expressed by Alicia Kearns, the Conservative chair of the UK Parliament's Foreign Affairs Committee: “A company which has failed to make full disclosures about its supply chains as required by UK law, and where there are grave concerns about its factory working conditions has no place in London.” In addition, human rights groups including Stop Uyghur Genocide and Amnesty International UK have raised campaigns to stop Shein’s stock listing.
Shein faced similar opposition when attempting to register its issuing of securities in the United States. U.S. lawmakers wanted the SEC to mandate that Shein independently audit and verify that the company does not use Uyghur forced labor.
In sum, we can say that forced labor is not a minor issue from a business perspective, and of course less so for the victims. There are regulations in place tackling the problem such as the UK Modern Slavery Act (2015), Australia Modern Slavery Act (2019), California Transparency in Supply Chains Act (2012), the Uyghur Forced Labor Act (2021), French Duty of Vigilance law (2017), and the Norwegian Transparency Act (2022). More regulations are on the horizon, aiming to increase transparency and accountability in global supply chains.
Increasing Regulations – Could They Solve the Issue?
While it will be difficult for additional regulations to eradicate the practice of forced labor entirely, they should serve to continue to raise greater awareness about the problem and further assign responsibilities.
The German Supply Chain Due Diligence Act (LkSG), effective from January 1, 2023, mandates that companies ensure human rights and environmental standards throughout their supply chains.
In the European Union, one of the most recently approved laws is the Corporate Sustainability Due Diligence Directive (CSDDD), which requires companies to identify and address adverse human rights and environmental impacts in their operations, subsidiaries, and value chains. This regulation entered into force in July 2024, and EU member states have two years to transpose it into national law. Therefore, 2026 will be the first year these obligations are applied, although it could be later depending on specific situations.
The other EU regulation, specifically focused on human rights, is the law on Prohibiting products made with forced labour on the Union market, approved in March this year. This regulation is still awaiting approval from the EU Council before being published in the EU Official Journal. After that, it will enter into force the following day, with EU countries having three years to start applying the new rules.
The implications of these laws are considerable, given the complex network of suppliers that many multinational companies have. Additionally, they also pose a significant challenge to medium and small companies based in the EU, as well as suppliers in developing countries. Regardless of a company’s size and location, modern slavery is a problem that requires more attention and an effective way to stop and control it.
Evalueserve ESG Regulation Radar and customized solutions powered by GenAI proprietary tools can help in this evolving scenario. Discover here how Evalueserve can complement and add value to your business strategy.
