A few weeks ago, we were again reminded that the clothes we wear carry with them a risk of us unwittingly supporting modern slavery.
The ABC’s Four Corners program exposed a mass internment camp in the Chinese province of Xinjiang, where it is alleged that Uyghurs, a Turkish-speaking Muslim minority group in China, are being detained and forced to work in garment factories which supply some of the world’s largest clothing brands.
With consumers increasingly demanding cheaper products and faster turnarounds, brands are under pressure and pass this onto their suppliers. As a result, some suppliers cut corners by foregoing the necessary social and environmental checks.
Several brands sold in Australia obtain cotton from Xinjiang and following the Four Corners report, some of them have started investigations into the suppliers and factories they use in the province.
Many of these brands immediately started investigations into the suppliers and factories they use in the province.
Unfortunately, the further a company goes down its supply chain the more opaque things become. Subcontracting is common for companies in the apparel sector, especially those producing high volumes at a very low cost.
The risks of modern slavery
The International Labour Organisation estimates there are 40.3 million people in modern slavery globally, including 24.9 million in forced labour1.
As we have communicated previously, labour rights abuses and poor working conditions are not only unethical, they also carry significant investment risks over the longer term to brands and business operations.
The Modern Slavery Act, which came into force in Australia last year, requires all businesses with revenues over $100 million to disclose details on the actions they are taking to stamp out modern slavery in their operations and supply chains2.
There are no penalties for failing to comply with the Act, which means it is important that shareholders hold businesses to account and demand they meet their reporting obligations.
Among other things, we have been encouraging companies to:
- Publish a full list of the factories they source from,
- Ensure they have the appropriate internal governance structure to deal with modern slavery risk management,
- Aim to consolidate their supply chain which will allow them more influence and oversight capabilities,
- Train employees to recognise modern slavery, especially those in procurement and supply chain functions and build awareness throughout the organisation,
- Enhance their reporting of suppliers and ethical sourcing to board and management,
- Ensure all their suppliers have the appropriate grievance mechanisms in place so workers can raise issues; and
- Collaborate with other buyers of the same supplier to increase influence.
Lastly, investigations by companies shouldn’t just be focused on modern slavery, businesses should be using the Modern Slavery Act reporting obligations to investigate all forms of social and environmental abuse which may be lurking in their supply chains.
While every care has been taken in the preparation of this article, neither AMP Capital Investors (US) Limited nor any member of the AMP Group make any representation or warranty as to the accuracy or completeness of any statement in it including without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.