Modern slavery risks in electronics supply chains in Asia
Investor risk identification and response. Pooja Daftary, MFS and Kristen Le Mesurier, Platypus2 September 2022
Key modern slavery risks in the electronics sector in Asia
The electronics sector supply chain is known to have pervasive modern slavery risks with several well-documented cases of forced labour making headlines. Investment in the global production of electronics has increased dramatically, and developing economies are increasingly manufacturing more electronics products. The electronics sector produces electronic equipment and consumer electronics and manufactures electrical components for a variety of products.
Asia’s proportion of the market for electronics is expected to be approximately half of the global market within the next several decades. The India, Indonesia and Thailand industries are increasingly important segments of the global supply chain for intermediate and finished products. These countries also have high modern slavery prevalence and significant modern slavery numbers. According to the 2018 Global Slavery Index, India has estimated modern slavery prevalence of 6.10 per 1,000 people and an estimated 7,989,000 people living in modern slavery. CSOs in these countries have reported the presence of different key indicators of forced labour.1 In India and Indonesia, there are problems relating to a lack of freedom of association and the right to collective bargaining, as well as excessive working hours. Indian workers are also not likely to receive a living wage. While Thailand has a large migrant worker population that must often pay recruitment fees and experiences other vulnerabilities throughout the migration process and foreign workplaces.
More generally, structural challenges in eradicating forced labour from the sector exist, including the use of temporary, part-time, and sub-contacted labour recruited through labour brokers to meet seasonal demand for products and multi-tiered supply chains located in high-risk jurisdictions with limited labour rights and protection.
Investor actions to combat modern slavery in the electronics industry
Investors have also made some progress in engaging with electronics companies to find, fix and prevent modern slavery in the supply chain but lack visibility into the expansive network of electronics suppliers and access to workers and unions required to create impact at scale.
Notwithstanding, investors need to do a lot more than simply ask companies about their modern slavery initiatives and encourage them to do more. Both companies and investors have been overly reliant on third party auditors to conduct social audits. These have been broadly ineffective as auditors typically have restricted access to workers, an insufficient understanding of local, cultural, and geographic drivers of forced labour, and tend to be unduly influenced by line managers and supervisors during the audit process. While there is no silver bullet when it comes to detecting instances of modern slavery, there are things companies can do to boost the chance of detection. The key for companies is to adopt substantive detection processes rather than a ‘tick-the-box’ compliance approach.
These are also the things investors can ask companies to adopt to find, fix and prevent modern slavery:
- Risk mapping using independent data – to get an objective view of where the modern slavery risks are by geography and product type. Publicly available data sources like the Global Slavery Index, IOM data on migrant corridors, US State Department data and the UN Human Development Index can be used to paint a picture of likely or actual risk. This can then be consulted when considering whether to manufacture or source a new product in a particular country or with a specific company or review an ongoing factory. It provides a high-level guide on what to look for.
- Conduct a deep dive when the product or region is high risk for modern slavery on the numbers – this ensures resources are focused on the high-risk products or sectors. Thorough research should be done in consultation with a broad range of stakeholders including civil society organisations (CSOs) on the ground to see if issues can be detected outside the audit environment.
- Publish factory lists – factory lists provide CSOs with the ability to review conditions on the ground.
- Adopt best practice policies on modern slavery – policies should directly address all the ILO’s forced labour indicators; for example, excessive overtime, recruitment fees, a living wage, and withholding identity documents. Policies provide factories with investor expectations upfront, and a framework that can be independently checked by appropriate auditors. Smaller electronics manufacturers or retailers can source best practice policies from collaborative groups like the Responsible Business Alliance (RBA) and incorporate them in their contracts with suppliers.
- Focus on where there is leverage – smaller electronic retailers are often better off focusing on where they have leverage, like their private label manufacturing or small third-party manufacturers. This recognises that a small company is unlikely to be able to drive change by very large global electronic mobile phone manufacturers.
- Audits subject to reputable frameworks – audits are necessary to understand company standards, systems and practices, but they are not always sufficient to identify modern slavery risk or incidence. Companies should ensure that audits are subject to reputable frameworks like the RBA’s Validated Assessment Program, amfori BSCI, Sedex and Intertek. It is important that audits reach right down to the factory floor level rather than the aggregated supplier level.
- Independent worker voice systems – worker feedback and complaint mechanisms that are accessible, independent and culturally appropriate can address the weaknesses associated with audits, particularly the fact that vulnerable workers may not feel safe or comfortable reporting their treatment to auditors.
- Incentivise suppliers to monitor conditions in their own supply chains – ideally, procurement teams and factories would be incentivised to detect any of the forced labour indicators early on, and to report those higher up the supply chain.
- Commitment to remediation – once instances of modern slavery are found, companies should ensure the issues are investigated and resolved, workers are remediated to their satisfaction using appropriate forms of remedy, and the circumstances that gave rise to those instances of modern slavery do not recur. This should be couched as a commitment to fix instances of modern slavery and work with the suppliers on their systems and processes where it is possible, rather than simply terminating a supplier contract and finding another source.
- Disclose instances of modern slavery and how the instances are being remediated – the current best practice in relation to disclosing instances and remediation is to breakdown and report the issues identified and actions taken on these. Investors should then communicate to suppliers how much their transparency in this respect is valued.
In engaging with a company to improve its actions to find, fix and prevent modern slavery, it is important to find the most relevant people in the company to talk to about risk and taking effective action in response. That might be people in the procurement team or the sustainability team. If more needs to be done, the Executive Team or the Board can be approached with examples of best practices and tangible changes that can make a difference.
Meaningful stakeholder consultation for more effective engagement
For investors, one of the biggest challenges is accurately assessing the merits of a company’s approach. Independent analysis can often be needed, and that might require doing meaningful consultation with a wider range of stakeholders than just suppliers and auditors; for instance, international organisations and non-profit organisations (like IAST APAC knowledge partners, Walk Free and FAST), national CSOs, trade unions, former employees, and even other suppliers in the same industry from the same high-risk countries or regions.
For example, IAST APAC knowledge partners, Walk Free and FAST, have organised for investor members to hear presentations from national CSOs that work with victims in the electronics sector in India, Indonesia and Thailand to improve the investor understanding of the risks and actions to take to strengthen engagement with focus companies that brand, export/import or retail electronics products. Organisations such as these national CSOs can play an invaluable role in connecting the perspectives of workers directly with those tasked to oversee and improve their working conditions. They can give workers an additional voice, protect them from various sources of pressure and coercion, and help workers collectivize and negotiate for better rights.
In addition, national CSOs, in concert with other stakeholders mentioned above as appropriate (such as trade unions for local action and international NGOs for regional/global awareness and advocacy), can:
- Protect workers from management coercion and educate them on their legal rights.
- Identify vulnerable groups and their unique circumstances that require special attention; for example, women, children and migrant workers.
- Highlight different (and often hidden) forms of forced labour such as excessive overtime, restriction of movement, withholding of wages, charging recruitment fees etc.
- Differentiate forced labour risks by country, providing context for cultural and language barriers.
- Help customers understand the impact of their purchasing practices on supply chain labour treatment and outline potential changes to purchasing departments.
- Advocate for enhanced ESG policies and public disclosure of the electronic sector’s direct and indirect supplier base so that stakeholders can identify non-compliant suppliers.
- Evaluate the effectiveness of different forms of remediation, grievance redressal and engagement mechanisms to not only fix but to permanently prevent forced labor.
All stakeholders including investors and civil society can play an important role in asking companies and suppliers the right questions about their modern slavery risk, encouraging them to adopt the most effective systems and processes and be transparent in disclosing harm and response, and placing those
who are the most vulnerable to and potentially victims of modern slavery at the heart of investment decision-making, company engagement and stakeholder consultation.