Posted by Stuart Bell

Time to move on from codes of conduct on labour issues?

The developing business and human rights agenda is creating interesting challenges for those businesses that have tended to focus their human rights related activities on labour risks located in their supply chains and mainly in developing countries.

With understanding increasing about the scope of companies’ duty to respect human rights – under the UN Guiding Principles on Business and Human Rights – and particularly obligations related to carrying out human rights due diligence,  it is increasingly clear that a supply-chain, labour-only perspective is too narrow.

There are two dimensions to the challenge. The first relates to where impacts lie and involves extending thinking on due diligence from simply a supply chain focus, to encompassing the full range business activities and relationships from raw materials to manufacture, through to a company’s own employees and customer relationships.

A prominent theme of a recent ETI/SHIFT workshop held in London in April was recognition among the group of leading UK retailers there that it makes no sense to have a separate set of standards for suppliers and for their own operations. Proper contracts, decent hours and pay, and freedom of association are as important in Birmingham (both England and Alabama), as in Bangladesh. An integrated and consistent approach is required.

Broader is best

The second challenge is about defining the  scope of the rights agenda and moving from a labour standards focus to including the full panorama of potential human rights impacts. So these two challenges mean that companies need to broaden their analysis not only in terms of the rights potentially impacted, but also the business activities and relationships that might impact them. This inclusive approach is underlined by upcoming regulation in the EU and the UK. The EU Non-Financial Reporting Directive (effective from 2016) requires large companies to include information on how they manage human rights in relation to their own operations, their supply chains and other associated activities. In the UK there are already requirements to provide narrative reports on human rights issues. While only relating to trafficking and forced labour, the UK’s Modern Slavery Act, passed at the end of March, will require companies to report annually on actions taken to identify and address modern slavery risks in both their supply chains, and in any part of their own business. (The size threshold of such reporting is currently subject to public consultation).

So does this emphasis on broader human rights spell the end of labour-only supply chain codes of conduct?

Well yes and no. Clearly, reliance on having a supplier labour code will be insufficient to satisfy both the requirements of the UN Guiding Principles and some stakeholders that the full panorama of human rights risks have been identified and addressed. Companies need to have a far wider policy scope and due diligence process. Based on this they then need to prioritise those impacts which are relevant and susceptible to action.

However, in working with a range of companies in implementing such due diligence, we have found that, while there may be new issues and opportunities for action and collaboration they hadn’t previously focussed on, labour rights impacts involving supplier employment practices often remain among their most salient human rights risks. In this respect supplier labour codes – and associated monitoring through auditing or new emerging alternatives – will remain key tools for identifying and addressing impacts. But they need to be widened to include other rights issues that companies affect through their suppliers and other business relationships (e.g. land), as Marks & Spencer has done in its recent revision of its Global Sourcing Principles. This widening field of vision also reflects the growing impact of civil society campaigns such as Oxfam’s Behind the Brands.

It would be premature and ill-advised to jettison the Code of Conduct approach, but in the new UNGP-driven world, companies should be looking to build on the standard approach, with a more far-reaching and structured human rights due diligence process. It will also be interesting to see whether supply-chain-labour initiatives follow the UK’s ETI in starting to embrace the due diligence / UNGPs approach at least in terms of process, rather than necessarily scope and standards.

Getting to the salient issues

However, there is currently no ‘standard’ way of undertaking human rights due diligence and much debate around how to identify and prioritise ‘salient’ issues. A significant part of our current consulting practice is around working with clients to explore different approaches in sectors including the financial sector, food, garments, extractives and hospitality. While the challenges are different, a robust impact assessment approach – compared to focussing on just risk and materiality – supported by appropriate stakeholder engagement, tends to get to the really salient potential and actual impacts and can prioritise appropriate responses. For many companies labour – in supply chain, direct employees and contractors – regularly comes up top of the list, but for others (dependent on sectors) land, security and rights to remedy typically are also important. This process also helps to locate auditing as an element in a system of due diligence and action-driven response.

There is much merit in companies taking a hard look at their activities through the UNGPs lens, not least to provide the opportunity to ask some hard questions about the ways in which they address supply-chain labour-rights impacts.