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Ranking Human Trafficking Disclosures How Would Your Company Rank?
March 7, 2016
ADVANCED SUPPLY CHAIN COMPLIANCE SERIES
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Michael Littenberg
Michael Littenberg Partner T +1 212 596 9160 F +1 646 728 2554 [email protected]
Michael Littenberg is a partner in the securities & public companies practice group at Ropes & Gray.
As part of his practice, for more than 25 years, Michael has been active in advising leading public and private companies on supply chain and corporate social responsibility matters, including relating to, among other areas, anti-human trafficking and conflict minerals and other commodities, and he is widely viewed as the leading practitioner in this emerging area.
Michael advises a significant number of companies on compliance with the US Conflict Minerals Rule, the proposed EU Conflict Minerals regulation, the California Transparency in Supply Chains Act, the UK Modern Slavery Act and the FAR anti-human trafficking regulation. Michael advises clients on, among other things, disclosure and compliance with legal requirements, the construction and implementation of compliance programs, mitigating customer, litigation, NGO and socially responsible investor risk and in their interactions with these constituencies.
Michael was previously a partner at Schulte Roth & Zabel.
Forced Labor in Supply Chains
According to the International Labor Organization (ILO):
• Almost 21 million people are victims of forced labor
• Forced labor in the private economy generates $150 billion in global profits a year
Change: Legal Environment
Change: UK Modern Slavery Act
Impacted Companies
12,000+ Companies £36 million All Doing Business in UK
Requirements No Specific Requirements Annual Reporting Director Sign-off
Companies have responsibility to respect human rights [and to] go beyond obedience to local laws.
Results of the Economists, The Road from Principles to Practice. Survey results based on interview with 853 top executives across industries.
Change: Normative Shift
Public benchmarking of company performance one of the most helpful ways to increase company response to human rights.
Top Executives said:
71%
KnowTheChain
KnowTheChain is a resource for businesses and investors who need to understand and address forced labor abuses within their supply chains. It benchmarks corporate response trends, develops insights, and provides practical resources that enable companies to comply with growing legal obligations while operating more transparently and responsibly.
We will prioritize working with companies and investors to influence behavior and management practices.
New Regulation or Reporting Due
Compliance Takes Effect Adjust indicators based on Advisor &
Supporter input
Compliance Resources Benchmark
Expanded Strategy
Early Reporting on MSA
Transparency Pilot Report
Key Insights
ICT: Apple Inc., Cisco Systems Inc., Intel Corporation, Microsoft, QUALCOMM, Samsung, Taiwan Semiconductor Manufacturing
Footwear & Apparel: Fast Retailing Co. Ltd., Gap Inc., Indetex, H&M, Nike Inc., TJX Companies.
Food & Beverage: Associated British Foods plc., Danone, General Mills Inc., Hershey Co., Mondelez., Nestlé S.A., Unilever plc
65/100 Outperform other sectors
59/100
34/100 Despite a few industry leaders the overall score for ICT was the lowest.
Policies and Standards
Impact and Risk Assessment
Impact and Risk Assessment
Highlighting Promising Practices – Gap, Inc. Transparency on its Supply Chain Risk Assessment Results In 2013, Gap, Inc. enlisted the support of Shift, a third-party, nongovernmental organization, to review its policies and processes relating to human rights in its supply chains. In the assessment, Shift identifies the human rights risks in Gap’s supply chains and outlines the implication of the UN Guiding Principles on Business and Human Rights for Gap’s efforts to respect human rights in its global supply chains. Shift engaged in document reviews and interviews with key staff members in order to develop the assessment. Shift did not assess the effectiveness of Gap’s policies and process in practice.
Integration
Monitoring
Monitoring
Highlighting Promising Practices – Intel in the DRC In the Democratic Republic of Congo, the mines for minerals used in electronics and cellphones are sometimes controlled by armed groups, where miners are in forced labor conditions. Rather than stopping sourcing from the country, Intel committed to developing a “conflict-free” supply chain there. This has included participating in in-region mining efforts, such as the Tin Supply Chain Initiative and “Solutions for Hope” pilot on tantalum, visits to almost 100 smelter and refiner facilities in 21 countries, and establishment of industry-wide groups that led to the creation of the Conflict Free Sourcing Initiative. In January 2014, Intel announced that it had accomplished its goal of manufacturing microprocessors that are DRC conflict-free for tantalum, tin, tungsten, and gold.
Remedy
Remedy
Highlighting Promising Practices – Apple Paying Back Fees In its 2015 Supplier Responsibility Report, Apple reports that it “recouped US$3.96 million in excessive recruitment fees for foreign contract workers.” The company explains that some suppliers turn to third-party recruiters to secure contract workers when labor supply is limited. Those recruiters may charge excessive fees in exchange for jobs. Since Apple started requiring its suppliers to reimburse these fees in 2008, total reimbursements have reached $20.96 million to over 30,000 foreign contract workers.
2016 Benchmarking
20 companies in three high-risk sectors June 2016: Information Communication Technology • 20 companies selected • Company outreach underway • Methodology framework published Fall 2016: • Two additional benchmarks launched • Companies from the footwear & apparel, and food & beverage
sectors • Companies to be selected • Methodology framework will be tweaked to align with each industry
@Kmoote
Thank You
Visit www.knowthechain.org to download the full report.
Ranking Human Trafficking Disclosures
Patricia Jurewicz Director and Founder
Responsible Sourcing Network
March 23, 2016
Responsible Sourcing Network (RSN)
Mission: RSN champions human rights with vulnerable communities in the mining and harvesting of raw materials found in products we use every day.
• Project of As You Sow www.asyousow.org; launched in 2010 • Multi-Stakeholder Networks
Cotton (started in 2008) Minerals (started in 2010)
• Provide info to Sustainable, Responsible, and Impact Investors (SRIs) • Negotiated and submitted five letters of recommendation to the
Securities and Exchange Commission (SEC) regarding Conflict Minerals • RSN rates companies on their disclosures and practices
Increasing use of ESG
In 2014 US SIF found $6.2 trillion of US-domiciled assets apply various environmental, social, and governance (ESG) criteria into their investment analysis and portfolio selection.
Usefulness of Benchmarks
• The market needs benchmarks to measure the impact of ESG strategies on portfolio composition:
Quantify the financial impact of ESG strategies
Define the ESG characteristics of portfolios
• Differentiate between companies
Identify ESG risk exposure
Investors Interest in Benchmarking
• Want transparent and credible rules-based indices • Gives company comparisons on specific topics Defines leaders and laggards
• Sector-specific is the most useful • Offers guidance on what to engage on and with
which companies to engage • PRI signatories must document progress
incorporating ESG into their investments
Examples of Useful Benchmarking
• Climate Change Carbon Disclosure Project
• Governance Political Spending
• Recycling Waste and Opportunity
• Conflict Minerals Mining the Disclosures
• Human Rights Corporate Human Rights Benchmark
UN Guiding Principles and OECD Due Diligence
• UN Guiding Principles on Business and Human Rights
Companies are expected to RESPECT human rights:
• Need to know their human rights impacts and take steps to improve them
• Perform Due Diligence
• http://business-humanrights.org/en/un-guiding-principles
• OECD Due Diligence for Multi-National Enterprises
First international instrument to integrate corporate responsibility to:
• Respect human rights as set out in the UNGPs
• Incorporate risk-based due diligence into business ethics related to adverse impacts
• http://www.oecd.org/corporate/mne/
UNGPs and OECD DD Increasing Importance
• UNGP National Action Plans
Existing: Columbia, Denmark, Finland, Lithuania, Netherlands, Norway, Sweden, UK
In Consultation: Australia, Brazil, Indonesia, Jordan, Malaysia, Mexico, Myanmar, US, and others
• ICAR: nationalactionplan.us
• LSE Guide on implementing UNGPs into Investment Policymaking
• DD incorporated into Dodd-Frank 1502 on Conflict Minerals
• EU will include OECD DD in its Conflict Minerals legislation
KTC Benchmarks in relation to UNGP and OECD
• Five KTC Benchmarking Themes aligned with UNGPs and OECD
Policies and Standards - Prevent
• Policies, Standards, Communication
Impact and Risk Assessment - Identify and Mitigate
• Mapping, Assessment, and Transparency
Due Diligence: Integration and Accountability - Mitigate and Account
• Management Practices
Due Diligence: Supply Chain Monitoring - Account
• Auditing
Remedy - Support with Remedy and Grievances
• Corrective Action Plan
• Grievance Mechanisms
Global Alignment of Benchmarks and International Norms
• The “S” in ESG risk exposure will grow with NAPs
• Litigation and financial liability will increase
• License to operate will be impacted
• Being proactive will differentiate market leaders
• Benchmarks will standardize and be incorporated into non-financial analysis
Thank You
Patricia Jurewicz Founder and Director Responsible Sourcing Network [email protected] sourcingnetwork.org 510.735.8145
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QUESTIONS & ANSWERS