Ethical Performance
inside intelligence for responsible business


‘Black holes’ undermine supply chain progress

March 2009

Many manufacturing and retail companies still have huge gaps in their ethical supply chain management programmes, according to a leading global asset management firm.

F&C Investments says that despite progress in improving labour standards in emerging markets, the pace of change in the field has been ‘slow’.

Outlining the firm’s experiences as an investor in manufacturers with global supply chains, the UK-based firm concludes that too many companies ‘have gone for low-hanging fruit’ such as health and safety changes, when improving standards.

This means that ‘black holes remain in workers’ wages, freedom of association, collective bargaining and the treatment of temporary, migrant and agency workers’. It also says ‘solutions are still needed’ to confront child labour, the living wage issue and trade union rights.

F&C, which makes its comments in a report on the results of its engagement on supply chain issues with 231 companies in which it invests, advises businesses to turn their attention to solving the more intractable labour problems and ‘reach for the high-hanging fruit’. It warns that if this does not happen ‘the reputation of the retail and manufacturing sectors remains at risk’.

However, it singles out several potential successes on the issue and recommends ways for companies to build on this progress. Commitment to International Labour Organization (ILO) conventions in recent years has been promising, says the report, enabling companies to increase ‘co-operation with fellow retailers, suppliers and factories to improve working conditions’.

It also recommends that companies work more closely with local trade associations to promote industry-wide approaches to supply chain challenges – and says business leaders must ‘reach out more actively to host governments and laggard companies’ because without action on their part, more wide ranging changes cannot be achieved.

F&C, which operates in 14 countries and manages more than £90billion ($126bn) for institutional and retail clients, says progress on ethical supply chain management is also being hampered by a lack of transparency among companies.

It argues that with the ‘notable exceptions’ of Gap, Nike, Hennes & Mauritz and Inditex, public reporting on auditing and the results of remedial action plans is ‘remarkably weak’.

It suggests three reasons for this:  the undeveloped nature of data collection systems; fears among companies that disclosure will ‘backfire and generate negative publicity’, and the failure until recently of customers, competitors and investors to press businesses to publish factory audit data.

F&C Recommends:
Companies should:

  •  Adopt  ILO core conventions and audit ‘robustly’ against them
  •  Integrate labour standards goals and commercial management processes
  •  Engage with suppliers, factories and industry bodies
  •  Report publicly on labour standards management systems and performance

F&C | Global | Supply Chain Management

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