Perspectives in Responsible Sourcing

When is 'Conflict-free' really conflict-free?

When the Kimberley Process (KP) was launched in 2003 with the backing of the UN there was a feeling that something was finally being done to address the atrocities committed in connection with the diamond trade and that through the efforts of this tripartite system blood diamonds would soon disappear from global markets.

Nevertheless, last week the BBC’s Panorama uncovered the existence of torture camps in Zimbabwe’s Marange diamond field and the subsequent surfacing of diamonds from there on international markets. Of equal concern is the European Union’s push to legitimise trade of Zimbabwean diamonds under the KP despite questionable connections to the Mugabe regime and reports of police and military action against miners over recent years.  Similarly, the KP has come under criticism for failing to prevent trade of conflict diamonds from countries like Côte d’Ivoire and Venezuela.

These developments beckon the question: What is going wrong? Is there any guarantee that diamonds on the market now have been sourced ethically? Dealers appear to believe not.

It has certainly become evident that the KP lacks the capacity to investigate complaints or performances in individual cases and a widely held view is that the process was never designed to prevent human rights abuses in connection with the diamond trade in the first place. In addition, the makeup of member States to the KP with strong interests in the diamond trade and the requirement for consensus decision-making will unlikely bring about any rapid change to KP standards or enforcement.

So what can players in the industry do? After all, films such as ‘Blood Diamond’ and associated campaigns have made consumers conscious of the issue and there is a growing demand for ethical stones. 

Industry commentators argue that one of the best approaches is to join an industry-wide standard and initiative providing ethical certification such as the Responsible Jewellery Council (RJC). The RJC looks to certify supply chains in the gold and diamond industry – from mining to retail – in the areas of business ethics, human rights and social responsibility, environment and management systems.

Those who would point out that the RJC itself relies on the KP as part of its certification scheme will be interested to learn that the body is currently developing its own Chain of Custody certification which should be launched in 2012. This would be a valuable addition to securing conflict-free diamonds and hopefully be a more effective vehicle for consumers and traders to know that their purchase really is conflict-free.

Remedy: An Intersection between State and Business Duty within the UN Guiding Principles on Business and Human Rights

To continue our series of blogs reviewing the Ruggie Framework I’d like to explore the intersection between the State’s Duty to Protect with the Enterprise’s Duty to Respect; both having independent, yet complementary roles addressing adverse human rights impacts.

While the framework lays out a States’ obligation to protect against human rights violations by taking appropriate steps to prevent, investigate, punish and redress abuses; it also requires companies to address adverse human rights impacts by taking adequate measures to prevent, mitigate, and where appropriate remediate. Within this balance of responsibilities, there is room to strengthen remedial measures by all.

The Guiding Principles first task business with identifying where they are causing or contributing to adverse impacts, and then providing or cooperating in legitimate mitigation and remediation processes. States similarly have a duty to provide effective remedy and redress. However, the framework interestingly calls upon States to consider also ways to provide access to effective non-State-based grievance mechanisms to deal with business related human rights harms.

The framework endorses the possibility for grievances to be addressed early and remediated directly by companies at the operational level. These mechanisms can be established by businesses alone, with stakeholders, industry associations, or multi-stakeholder groups.

Operational-level grievance mechanisms perform two key functions:

• As part of due diligence, they help identify adverse human rights impacts by providing a channel for those directly impacted to raise concerns when they believe they are being or will be adversely impacted. Businesses can also identify systematic problems by analyzing complaint trends.

• Once identified, these systems make it possible for grievances to be addressed and remediated early and directly, preventing harm from compounding and escalating.

In order to ensure their effectiveness, the Principles recommend grievance mechanisms should be legitimate, accessible, predictable, equitable, transparent, rights-compatible, a source of continuous learning, and based on engagement and dialogue.

Look for our next post further exploring the Ruggie Framework soon.

DR Congo: how to get the focus back on implementation

The op-ed article by David Aronson in the NYT, entitled “How Congress Devastated Congo”, triggered a vivid debate on various online platforms over the merits and shortcomings of Section 1502 of the Dodd Frank Act on conflict minerals. The piece in the NYT, criticizing the unintended consequences of Dodd Frank, prompted the Enough Project to respond in the Huffington Post, clarifying “What [The] Conflict Minerals Legislation Is Actually Accomplishing in Congo”. Other newspapers and commentators have picked up on the discussion, including the UK’s Guardian, the UN Special Representative of the Secretary General for Sexual Violence in Conflict, Ms Margot Wallström, and a number of bloggers.

While it is certainly interesting to follow the exchange over positive and negative consequences of US policy making on Central Africa, the discussion seems to be somewhat missing the point. First and foremost, the law has already been passed. Most probably, the Congolese people would benefit more from an exchange on how to alleviate the unintended consequences of the law, rather than whether or not it was a good idea to start with. Secondly, there appears to be almost a competition as to who is the most legitimate representative of the interests and views of the Congolese people. My guess would be that with 70 million Congolese, each of the writers captures the views and interests of some of them.

It is encouraging to see that at last Congolese are joining the discussion. Preceding the op-ed article was an interview by Jason Stearns with Eric Kajembe, founder and director of Observatoire Gouvernance et Paix (OGP), a civil society NGO based in Bukavu. Though still in minority (and sometimes struggling with the English language) it is important to capture those voices. And to see that even the Congolese have diverging opinions on the merits of Dodd Frank.

One point that emerges from contributions by Congolese is that the situation in the DRC is far more complex then conflict minerals. This is not to say that Western observers are not aware of those complexities, however, it reflects the various issues that need to be addressed in conjunction with conflict minerals as well as the difficulty of prioritizing them. To mention just a few, areas include security sector reform, corruption as well as sexual and gender based violence. On the last issue, it is worth noticing the absence of the voices of Congolese women on the various online platforms.

The challenge then remains to move forward with the implementation of Dodd Frank, while finding ways and means to alleviate negative side effects of the law and without neglecting the broader socio-economic context in which the illegal exploitation of and trade in minerals is taking place.

Many people are working hard to put in place the necessary transparency and chain of custody schemes and have made significant progress over the past year. Progress that, if compared to other development related projects in the region, is very impressive. Buyers are noticing this progress: companies like Motorola and AVX Corporation have launched the “Solutions for Hope” project, committing to purchase Tantalum from Katanga Province in the DRC. One of the world’s largest tin smelters, Malaysia Smelting Corporation, decided to remain engaged with the Congo

Undoubtedly, the campaigns by NGOs like Enough Project and Global Witness have helped to bring public attention to the suffering in the DRC. Certainly, the Dodd Frank Act has provided significant pressure on all actors concerned to step up and address the problem. And, sadly, there have been unintended, negative consequences in the process.

In the words of Eric Kajembe: “The motivation behind the law is very good […]. But the implementation has been the problem.” Let’s re-focus the discussion on the implementation.

New Labor Laws in Asia allow Employers to Find Loopholes

Unfortunately employers do not always willingly comply with labor laws that aim to protect workers. Employers often attempt to find loopholes to cut costs and liability. Here we explore two recent examples of this, one from Bangladesh and the other from Hong Kong.

In October 2010, the Bangladesh Export Processing Zone Authority (BEPZA) revised the grading of workers in the garment, textile and electronics industries. The previous categorization of workers from 1989 was based on the training period and the numbers of service years. The new grading system lays down no such reasoning for the classification of workers, which creates a loophole for employers, who are creating their own designations.

By failing to explain what factors differentiate a skilled from a semi-skilled worker, the BEPZA 2010 revision makes it easier for employers to structure their worker classifications in ways that do not accurately reflect the workers’ skill set. Many employers are taking advantage of workers in the process. Recent cases highlighted in the media have shown that some employers are grading workers lower than their actual skills reflect; thus compensating them less.

Employers in Hong Kong are also taking advantage of ambiguities in the city’s new Minimum Wage Ordinance, which became effective in May 2011. The ordinance has been heavily criticized for not addressing details such as whether meal breaks, regular rest days and public holidays are to be calculated as hours worked.

The minimum wage guidelines published by the Labour Department only specifies that calculations for meal breaks and rest days should be agreed to in individual contracts. Often workers have less bargaining power during contract negotiations, and thus, not counting meal breaks and rest days as part of hours worked has become a common practice among companies. However, with the aid of social media, the Hong Kong public has responded with criticism of this approach which has helped pressure companies to alter their behaviors.

Hiring workers are independent contractors (who are “self-employed”) is also a loophole that is being used by some employers in Hong Kong. This is done to avoid the added cost of adding full-time employees to their payrolls. Hong Kong legislation does not provide a detailed description of what constitutes self-employment, making it easy for employers to continue this practice. In this case, the public has also critized this behavior through social media sources.

In these examples from Bangladesh and Hong Kong the media and the public have helped to highlighting some of the ways in which companies are finding loopholes in labor laws and engaging in controversial practices. Companies and monitoring organizations should continue to be aware of these types of loopholes that can lead to the exploitation of workers.

This post was co-authored by Dona John and Lowell Chow.

What responsibilities does the Ruggie Framework outline for states and businesses?

This is the second part in a blog series on Human Rights and the Private Sector.

One of the main guidelines coming out of John Ruggie’s framework is the request for companies to map out those human rights which may be most affected by their particular operations. Internationally recognized human rights are mainly outlined in the following international conventions:Universal Declaration of Human Rights, International Covenant on Civil and Political Rights, International Covenant on Economic, Social and Cultural Rights and ILO core conventions.

In John Ruggie’s framework, states and businesses have independent but complementary responsibilities to address human rights, and businesses are held to international legal frameworks to comply. The report outlines specific tasks for businesses and states to follow.

1. The State Duty to PROTECT Human Rights

• Through regulations that encourage corporations to respect human rights, e.g. sustainability reporting and evaluating corporate policies
• Working to balance investor interests (from Home states) with the desires of Host states to protect human rights, e.g. export credit agencies requiring due diligence on human rights impacts
• Capacity building and guidance from international bodies or other states
• Home state policies to protect against human rights abuses in conflict zones

2. The Corporate Responsibility to RESPECT Human Rights

• By acknowledging the human rights challenges in their specific country context
• Through their roles as “producers, service providers, employers, and neighbors”
• Through their connections with “business partners, suppliers, State agencies, and other non-State actors”

3. Access to REMEDY Human Rights Violations

Corporations and states are to strengthen grievance mechanisms for citizens or workers to report abuses through:

• State-based judicial and non-judicial grievance mechanisms
• Company-level grievance mechanisms
• Multi-stakeholder or industry initiatives and financiers

The framework holds companies to a high standard of upholding human rights – both in their own activities and in the activities of their partners and even country environment. Companies can be found complicit with human rights abuses while they conduct business as usual.

The Ruggie framework attempts to provide guidelines for firms to adhere to, albeit in different ways depending on the industry. Many industry leaders have already included the Ruggie framework in their own policies and completed audits of their policies and activities based on the Ruggie framework.

Next posts will explore the ongoing debate of which actors are responsible for upholding human rights – state or companies – and provide further insight into each of the framework’s pillars.

Bipartisan Bill to Fight Human Trafficking: Business Transparency on Trafficking & Slavery Act (H.R. 2759)

On August 1, 2011, the Business Transparency on Trafficking & Slavery Act was introduced into the legislative process by Congresswoman Carolyn Maloney (D-NY) as H.R. 2759.  The bill received co-sponsorship by Rep. Christopher Smith (R-NJ) – current Chairman of the U.S. House Subcommittee on Africa and Global Health and a very outspoken Congressman on the issue of human trafficking and modern-day slavery.  His passion for this pressing issue is reflected in a session by the Subcommittee with regards to fighting human trafficking, and a public panel discussion on human trafficking organized by ATEST and the CNN Freedom Project.  Further co-sponsors are Jackie Speier (D-CA), and Jim McGovern (D-MA).

In many ways, this bill resembles The California Transparency in Supply Chains Act – SB 657.  It too, focuses on public disclosure of companies with regards to the extent of their activity in areas of best practice within a supply chain to eradicate human trafficking and slavery.  There are, however a few differences between the Business Transparency on Trafficking & Slavery Act and SB 657 that should be highlighted:

• Being a federal bill, it shall apply to any entity with worldwide global receipts in excess of $100,000,000 that is a) publicly-traded or b) a private entity required to submit any annual report to the U.S. Securities and Exchange Commission (SEC).
• An applicable entity shall report annually on its measures to “identify and address not only conditions of slavery and human trafficking, but also of forced labor and the worst forms of child labor within the entity’s supply chains.  Definitions of “forced labor, slavery, human trafficking, and the worst forms of child labor” as well as “supply chain” are provided in the bill.
• The bill mandates additional disclosure topics:

• Existence of actual policies,
• ­Outcome and methodology of verification activities,
• Assessments of management and procurement systems of suppliers,
• Auditing of labor recruiters and the results of such audits, and
• Remediation in cases of identified forced labor, slavery, human trafficking, and the worst forms of child labor.  The definition for remediation is provided.

It also covers all the disclosure requirements of SB 657, but again with a focus not only on slavery and human trafficking, but also on forced labor and the worst forms of child labor.  These requirements are engagement in 1) 3^rd party verification (definition provided), 2) independent and unannounced audits, 3) supplier certification, 4) training to those with direct responsibility for supply chain management, and 5) maintenance of internal accountability standards.

• Not only shall the disclosure be made public through SEC channels, but applicable entities shall also disclose the information on their Internet homepage with a link labeled “Policies to Address Forced Labor, Slavery, Human Trafficking and the Worst Forms of Child Labor.”

Another significant difference between SB 657 and the Business Transparency on Trafficking & Slavery Act is private sector support for the bill.  Missing at the introduction of SB 657, the new federal bill has received public support from Compass Group, a food-services firm and the “11th-largest private employer in the world” according to the press release from Rep. Maloney’s office.  

It will remain to be seen whether the bill comes to pass, but with bipartisan and private sector sponsorship, and SB 657 at its back, this federal bill already stands on solid ground. 

For more information on Supply Chain Transparency visit our Responsible Sourcing California Transparency page.  Also note that STR Responsible Sourcing is hosting two vendor-targeted seminars on slavery and human trafficking in Hong Kong and Shanghai. To receive future communication on this topic and weekly news on corporate social responsibility sign up for The Responsible Source.

Raising the Bar for Human Rights, Social and Environmental Due Diligence in Investments

Earlier this week on August 1, 2011, the International Finance Corporation (IFC) released its newly revised Environmental and Social Standards and Access to Information Policy.  In the wake of scarce natural resources, environmental degradation, and severe social problems, the IFC the first enacted a Policy and Performance Standards on Social and Environmental Sustainability and a Policy on Disclosure of Information in 2006, aiming to mitigate social and environmental risks, incorporate sustainability strategy in businesses and projects financed by the IFC, and enhance development opportunities in its private sector investments.  After three years of implementation, IFC launched an 18-month Policy Review process to assess the effects and impacts of its Sustainability Policy framework, consult with stakeholders on lessons learned and areas for improvement, and update the Performance Standards and Disclosure Policy.

On May 12, 2011, IFC’s Board of Directors approved the updated Policies and Performance Standards and they will become effective on January 1, 2012. Main changes related to human rights and labour are summarised below. General changes included a more clearly defined application scope that extends to IFC’s Advisory Services and to Financial Intermediaries (representing a quarter of IFC’s financing in FY10), detailed requirements under different scenarios, corrective or mitigation mechanisms as follow-up, and increased consideration for affected communities and other stakeholders, reflecting IFC’s commitment to reducing negative impacts and pursuing positive development outcomes and broader sustainability goals.

While not explicitly referencing the recent work of the UN Special Representative of the Secretary General, John Ruggie, IFC’s revised Policy on Environmental and Social Sustainability alludes to the Business and Human Rights Framework and Guiding Principles in the newly added section that “recognizes the responsibility of business to respect human rights”, including the responsibility to “avoid infringing” human rights, to “address adverse human rights impacts” the business may have caused or contributed to, and to establish “access to an effective grievance mechanism”.  However, for NGOs that were seeking more extensive coverage of human rights, the changes do not go far enough.  For example, the human rights standards referred to only cover the UN Declaration on Human Rights, their two associated Conventions (ICCPR and ICESCR) and eight ILO Conventions, rather than all core human rights conventions.

A provision in an earlier version of the Policy stating that IFC “may…refrain from financing the business activity” where there was a “risk of being complicit in gross human rights violations” that was criticized by NGOs as implying that other, less severe human rights violations were acceptable, was subsequently dropped from the final version which just states that “certain risks may require IFC to refrain from supporting the…business activity”.

Furthermore, the revised Policy and Performance Standards do not incorporate an explicit requirement to conduct a human rights impact assessment and does not contemplate the IFC performing human rights due diligence assessments, but rather, limiting the IFC’s role to reviewing the company’s processes to identify risks and impacts.

Under Performance Standard (PS) 2: Labor and Working Conditions, significant changes include the incorporation of human trafficking under the Forced Labor provision that prohibits clients (recipients of IFC financing) from employing “trafficked persons” where trafficking is defined as “the recruitment, transportation, transfer, harboring, or receipt of persons, by means of the threat or use of force or other forms of coercion, abduction, fraud, deception, abuse of power, or of a position of vulnerability, or of the giving or receiving of payments or benefits to achieve the consent of a person having control over another person, for the purpose of exploitation.”

In addition, PS 2 requires the client to put in place and implement policies on the quality and management of worker accommodation and provision of basic services. Monitoring of third party employers and ensuring contracted workers have access to a grievance mechanism has also been incorporated into the updated PS 2. Moreover, the supply chain provision under PS 2 has been expanded to require monitoring of suppliers where “there is a high risk of significant safety issues” in addition to the previously stated risks or incidents of child and/or forced labor.

In what may be perceived as a win for NGOs, the IFC has adopted the concept of Free Prior and Informed Consent (FPIC) in regard to relationships with Indigenous Peoples (PS 7) whereas previously PS 7 only required “FPIConsultation”. Also, under PS 1: Assessment and Management of Social and Environmental Risks and Impacts (previously titled, “Social and Environmental Assessment and Management Systems”), the client is required to develop a Stakeholder Engagement Plan with a slightly broader definition of stakeholders, to implement and maintain a procedure for handling external communication associated with environmental and social performance as part of its environmental and social management system, and to disseminate information among affected communities.

Overall, the changes made in relation to human rights reflect a growing international consensus around the UN “Protect, Respect and Remedy” Framework and Guiding Principles for implementation that have also been incorporated into other recent standards developments, alignments, and revisions including the OECD Guidelines for Multinational Enterprises, the UN Global Compact, the International Council on Mining & Metals, and ISO 26000, among others.  For more on the latest developments in the Framework and Guiding Principles, see our blog series on Human Rights and the Private Sector.

The updates to the Sustainability Policy and Performance Standards mean that the bar has been raised for other international financial institutions to identify, consider, and address the human rights, social, and environmental impacts of their investments, especially in view of the Equator Principles Update Process that was launched last month.  Since the revised IFC Standards do not go into effect until next year, it remains to be seen if and how they will translate into changes in oversight mechanisms, project monitoring, access to remedies, and actual reductions in negative impacts on communities.

The author gratefully acknowledges the assistance of Rong Chen, M.P.A. Candidate 2012, Economic Policy and Finance, Cornell University in preparing this blog entry.

Will China seriously commit to the fight against Human Trafficking?

About a month ago, we presented a snapshot of human trafficking in China. There is yet again more to share on this topic – this time it appears to be pro-active efforts by the Chinese government against human trafficking.

On July 27, 2011, the PRC Ministry of Public Security reported on its official website that 89 trafficked children were rescued and 369 suspects arrested after uncovering two child trafficking rings. Among these victims, the youngest was only 10 days, while the oldest was 4. The government raids were carried out in 14 provinces throughout the country.

If the PRC continues with this pro-active stance against trafficking, it may have a chance at improving its status in the eyes of the US government. The 2011 US State Dept Trafficking in Persons Report (TIP Report) released in June 2011, provides a comprehensive picture of the trafficking status quo in China and, once again, places China on the Tier 2 Watch List, stating that “[t]he Government of the People’s Republic of China does not fully comply with the minimum standards for the elimination of trafficking.” Furthermore, it reports that “[t]he government did not demonstrate evidence of significant efforts to address all forms of trafficking or effectively protect victims.” The report, however, does acknowledge some progress on the anti-human trafficking front: “The government (…) increased cooperation with foreign governments on alien smuggling and trafficking, particularly with those bordering China, as well as with South Africa, the United Kingdom, France, and the DRC.” This is an important area of improvement, considering China is a source of trafficking victims, as reflected in the Ministry of Public Security report, where one of the two trafficking rings sold children in Vietnam.

There is still much room for the Chinese government to improve its efforts against human trafficking. With the enactment of the California Transparency in Supply Chains Act (SB 657), there is some anticipation that brands operating in California and sourcing from China will enhance their supply chain management to address the risks of human trafficking, by placing more requirements on suppliers/ vendors and engaging in more due diligence.

STR RS is rolling out its SB 657 seminar series in Shanghai and Hong Kong to assist Chinese vendors and suppliers in better understanding the Act and how it can impact their business. Check out our website for more information.

Introducing the John Ruggie Framework and Guiding Principles

This is the first part in a blog series on Human Rights and the Private Sector.

A recent surge of interest on how private sector operations affect human rights is leading CSR into a new, challenging, and exciting journey. Much of this buzz has been triggered by the work of Harvard professor John Ruggie. John Ruggie’s Framework for Business and Human Rights is part of his work as Special Representative of the Secretary-General through the UN Human Rights Council (UNHRC). The most recent report identifies the Special Representative’s progress in operationalizing the framework through practical guiding principles. These efforts have culminated in countries endorsing the framework and guidelines through the UNHRC this past June.

STR RS will be blogging about different aspects of the framework and guiding principles in an effort to inform our clients of the importance of this work and provide insight on what the framework means for businesses.

The Ruggie framework marks an important systemic approach to the treatment of human rights by states and corporations, following what he deems the three pillars of Protect, Respect, and Remedy. It was created through years of multi-stakeholder consultations including global law firms, companies, investors, NGOs, and international institutions.

The framework is increasingly necessary to identify the distinct but complementary responsibilities of states and corporations in addressing human rights, so that each does not claim that the other is responsible while abuses continue unabated. With the global scope of modern business and the tangle of international and national standards (or lack thereof), it can be difficult for companies to know what they are responsible for.

In short, according to the framework and guidelines, global companies are expected to comply by:

• Adopting a human rights policy
• Verifying non-infringement through human rights due diligence
• Addressing any human rights abuses the company was involved in
• Measuring and reporting on human rights compliance

The Ruggie framework marks a shift in the scope of international standards for compliance programs. While previous compliance programs have focused on labor or environmental standards, the Ruggie framework addresses all human rights, specifically refusing to limit the list. It also expands the notion of who the company is responsible for – not only to internal stakeholders but to all business partners, certain actions of State actors, and the broader community.

Our next blog will take a deeper look at the framework and its different pillars. Stay tuned!