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Why Forced Labour Matters
by Erin Lyon
17 May 2017

The modern global economy provides access to a continuous supply of low-paid workers. This has created the conditions for human trafficking and forced labour activity. As commercial networks expand, it is increasingly difficult for companies to effectively monitor the activities and practices of businesses and contractors throughout their supply chains and direct operations.

The unprecedented levels of global displacement and migration witnessed in 2016 significantly increased the risk of all forms of modern slavery, including forced labour.1

In a growing number of situations, ignorance is no longer an adequate legal defence against accusations concerning the use of forced labour. With companies now potentially liable for the actions of their suppliers, partners and other intermediaries, it is important for businesses to be able to identify where forced labour risks exist in business operations and to understand the factors that drive the use of forced labour which include:

  • Employment of workers for hazardous and/or undesirable work and unskilled workers who are easily replaced
  • Sharp seasonal or product life-cycle fluctuations in labour demand
  • Hard-to-monitor operational sites, such as those in remote and/or inaccessible areas
  • Heavy reliance on a migrant workforce, especially on workers from countries with high prevalence of trafficking
  • A strong presence of labour contractors, recruiters, agents or other intermediaries in the supply chain
  • Lack of supply chain oversight and control as supply chains become increasingly complex and opaque and a greater proportion of production and procurement is outsourced
  • The trickledown effects of aggressive pricing to drive down costs
  • Corruption and lack of accountability measures within the supply chain

For most businesses forced labour remains hidden and is difficult to identify. The most common exposure to forced labour risks is through:

  • The recruitment of workers via recruitment agencies and sub-contractors
  • The use of commodities produced in forced labour conditions

But what is the impact for business of forced labour?

Impact of Forced Labour on Company Operations

Legal and compliance issues

  • Forced labour is a criminal offence, prohibited under international law and most national legislation; prosecuted companies could face criminal or civil sanctions
  • In a growing number of countries, companies have enforceable obligations to report on forced labour risks and how these are being addressed
  • Companies operating internationally have legal liabilities beyond domestic laws in host countries and may be liable under regulations that are in place in their domestic market and/or third countries,and under legislation with extraterritorial scope
  • Legal risk can arise from forced labour allegations raised by employees, NGOs, lobby groups, the media and the actual victims of forced labour

(Annex 1 lists key laws and regulations worldwide – cross-reference to be included after paper design)

Threats to reputational capital

Forced labour allegations can:

  • Present serious threats to brand value, company reputation and consumer trust
  • Taint entire industry sectors and significantly affect business partners beyond national boundaries
  • Threaten both existing and future business partnerships, resulting in a loss of contracts and/or future business opportunities
  • Lead to increased scrutiny by regulators and/or the risk of reputational damage for the company and/or the industry sector in the eyes of regulators and the general public
  • threaten share value and damage the reputation of the company and/or industry sector in the eyes of investors

Trade-related risks

  • In jurisdictions prohibiting the import of goods produced under forced labour conditions, allegations of forced labour could result in goods being seized

Threats to investment and finance

Forced labour allegations can:

  • Significantly threaten investor relations and risk divestment from both ethical and mainstream investors (particularly if a company’s reputation has been tainted or if it faces legal prosecution)
  • Jeopardise access to public funds such as export credit where public authorities link financial support to ethical performance

Supply chain disruption

  • Supply chain disruptions can involve strikes by workers
  • Supply chain disruption typically reduces productivity and delays the production or delivery of goods, which can derail sales and reduce profits
  • It can also lead to substantive costs for crisis management

With this in mind there are an increasing number of business activities focussed on eliminating forced labour.  To find out more about join us at the CSR Asia Summit to hear more about the issues, the solutions and business solutions for these global challenges.

1. Walk Free Foundation, Global Slavery Index, 2016

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