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Supply chain labour issues ‘a reputational timebomb’

November 2012

More than a third of companies appear uninterested in supply chain labour conditions, despite the increasing risk the issue poses to corporate reputation and the threat of boycotts and other sanctions.

And this is particularly true of companies with operations in Asia, according to an ESG study by the FTSE Group based on data from 456 companies listed on the FTSE Developed Index identified as at high or medium risk.

The report says this is because, in addition to practical supply chain issues, targeted activist campaigns are spreading from the apparel sector to a wider range of products, including technology and, particularly, electrical goods. FTSE says these campaigns can cause reputational and brand damage which may impact on a company’s valuation.

Called Brand Value At Risk: Defusing the supply chain labour reputation bomb, the report showed the companies’ lack of interest is at odds with institutional investors’ concern. Investors increasingly expect companies to develop comprehensive approaches to improving labour conditions, communicating with and training their suppliers, and to disciplinary procedures for ignoring guidelines.

FTSE says the electrical components and equipment, and consumer and office electronics sectors, as well as the sourcing and selling of agricultural products, have a particularly poor record.

Another poor performer is the travel and tourism trade. However, the report explains: “This is not because travel and tourism is necessarily a high-risk sub-sector, but because companies identified as having higher risk exposure are Japanese railroad companies with diversified business activities, which include high-risk activities such as retailing.”

Japanese trading companies have responded better to the risks over the last two years and FTSE forecasts the whole sub-sector will gradually improve.

The research also shows that some regions are performing better than others. European and North American companies are managing supply chains well, says FTSE, but Asian markets lag behind. In Asia, almost half the identified companies in Japan are responding well, but the Korean figure is below 20%.

Meanwhile, in September, Clean Clothes Campaign supporters feigned faints at fashion stores in London, Paris, Amsterdam, Brussels, Copenhagen and Warsaw to highlight the plight of underpaid and ill-nourished workers sewing goods for H&M, Zara, Gap and Levi’s in Cambodian factories.

The protests marked the start of a drive in 11 European countries demanding that Cambodian employers pay their sweatshop workers a living wage.

Jeroen Merk, the group’s research co-ordinator, said: “Although the monthly minimum wage for Cambodia’s factory workers is $61 (£38, €47), a living wage is more than four times this amount.”




FTSE Group | Global | supply chain

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