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Commentary

Diversify for a Just Transition

Anita Dorett, Director of the Investor Alliance for Human Rights, warns of the pitfalls of relying on social audits to address state-sponsored forced labour risks.

Given multinationals’ complex global supply chains and trading relationships, the vast majority of today’s goods are sourced and produced far from where they are sold and consumed. For this reason, to meet their responsibilities under the UN Guiding Principles on Business and Human Rights (UNGPs), companies must ‘know and show’ where human rights risks may be present at every link in their global supply chains.

To address supply chain risks, companies are expected to disclose all their suppliers and business relationships throughout the entire supply chain, develop stringent supplier codes of conduct, and implement robust monitoring systems to ensure their codes are being enforced on the ground. Third-party social and labour audits and related supplier certifications have long been the go-to method for supply chain monitoring, noting that there are significant shortcomings with these programmes. Where these programmes fail, however, is in geographies where state-imposed forced labour is prevalent. In these cases, even the best-intentioned of such risk-assessment schemes are rendered wholly unverifiable and, therefore, meaningless.

Prohibited practices

Distinct from forced labour imposed by private actors like companies or individuals, state-imposed forced labour is compulsory labour enforced by state or governmental authorities. According to Walk Free’s Global Slavery Index, in 2021, 3.9 million people were forced to work by state authorities.

The International Labour Organization’s (ILO) convention No 105 expressly prohibits state-imposed forced labour. State-imposed forced labour is often implemented as a means of political coercion or ‘re-education’ or as a punishment for expressing dissenting political views; as a method of mobilising labor for economic development; as a means of labour discipline; or as a means of racial, social, ethnic, or religious discrimination. State-imposed forced labour can be found in 17 countries including Uzbekistan, Turkmenistan, Eritrea, North Korea, and China.

Nowhere is this pernicious form of human rights abuse better illustrated than the Chinese government’s long-term repression and enslavement of people in the Xinjiang Province (Uyghur region). The pervasive use of state-imposed forced labour programmes, enforced through an extensive surveillance system in the Uyghur region, vividly illustrates the impossibility of conducting credible supply chain human rights due diligence where the state controls the outcome.

According to auditors, they are only given limited access to worksites, can only inspect a curated ‘snapshot’ of factory conditions, and may be denied entry into facilities altogether. Worker interviews, which are an essential component of any social audit or human rights investigation, cannot be reliably generated in a repressive or coercive environment where workers cannot participate without placing themselves and their families at risk of retaliation. A finding of “no forced labour” after a 2023 audit commissioned by Volkswagen for its Urumchi plant in the capital of Xinjiang unleashed a firestorm from human rights groups demonstrating the perils for brands relying on social auditing in these contexts.

Independence curtailed

The largest international auditing and certification organisations – including Bureau Veritas of France, TÜV SÜD of Germany, Sumerra of the US, RINA of Italy, and American non-profit certification organisation Worldwide Responsible Accredited Production – have long since exited the Uyghur region and remaining firms are at risk of retaliation as the government acts to systematically curtail the independence of international audit and due diligence firms. Many auditing organisations came under direct fire from the Chinese government and were left with no choice but to cease their audits in the Uyghur Region. Auditors have been shut down, raided, and threatened with calls for divestment as a result of their attempts to conduct human rights due diligence in the region.

The US Uyghur Forced Labour Prevention Act bans goods made in whole or in part in the Uyghur Region on the presumption that they have been produced with Uyghur forced labour, and just last month the EU took steps to pass its own trade ban on goods made with forced labour. The recent guidance by the UN Office of the High Commissioner for Human Rights states, “Although the UNGPs stipulate that businesses should seek to exercise leverage where they are contributing or linked to such harms, it may be the case that business enterprises have little if any leverage with governments involved in carrying out egregious violations. Where sufficient leverage is lacking, those enterprises that are at risk of being involved in gross human rights abuses will need to rapidly decide about [disengagement].”

And therein lies the rub. Admittedly, the Chinese case presents a unique dilemma for companies that is not easily surmounted. China is a force to be reckoned with in the global market and the dominant actor in many critical supply chains impacting hundreds of global brands including the apparel, automotive, and renewable energy sectors where Uyghur forced labour has proven to be pervasive. Replacing sourcing and manufacturing for those sectors will not be an easy task, but is not only possible – it is necessary. Yet, given the lack of transparency, the manipulation of worksites during auditor visits, the exclusion of authentic worker voice, and the general repressive environment, social and labour audits cannot be relied upon by companies to demonstrate an absence of state-sponsored forced labour. For this reason, companies may have no choice but to cut business ties with the region.

As illustrated by the Volkswagen-Urumchi debacle, any company that remains associated with the Uyghur region exposes itself to significant brand risk and accusations of human rights-washing and continued sourcing from the region increasingly carries legal liability.

Supply chain diversification

Companies and investors need to explore opportunities for supply chain diversification outside of the Uyghur region and begin directing investments to alternative supply chain solutions.

For example, to facilitate the vital transition to renewable energy, alternative sources for green technologies must be supported by government policy that incentivises financial subsidies, development finance, and public-private partnerships. A transition reliant on forced labour will never be a just transition.

What is clear is that companies can no longer turn a blind eye to the pitfalls of social audits in a country actively sponsoring forced labour. To do so is to be complicit in these egregious human rights violations.

 

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