Personal Care, Drug, Grocery Stores
For companies involved in the retail of groceries, cosmetics, and other "every day" products, the risk of human rights risks abuses, such as modern slavery and child labour, within supply chains can be particularly prominent. Products such as tea and coffee, and those containing ingredients such as palm oil and cocoa, are often of concern due to the large, complex supply chains associated with them. Transparency within the supply chain can also be a problem, with full traceability or mapping not always undertaken.
In this month's Company in Focus, we examine the Co-operative Group's (Co-op) approach to managing human rights risks within its supply chain, and the potential benefits to investors associated with holdings that have high-quality supply chain management processes in place.
The Co-operative Group - Company Overview
Co-op is a UK-based company primarily associated with food retail and wholesale, with reporting segments of the same names constituting approximately 81.2% of total company revenue in FY 2021. The company can be traced back to 1863 and the founding of The Co-operative Wholesale Society, and is now considered to be one of the world's largest consumer co-operatives. In light these origins, and its co-operative structure, the company is renowned for its ethics, social goals, and community-based initiatives.
The Co-operative Group - Supply Chain Management
Due to its objective to operate ethically (and the noted high-risk nature of products such as tea, coffee, and chocolate), Co-op has engaged in certain activities and established a range of policies, processes, and control procedures relating to its supply chain. For example, as can be seen in its Sound Sourcing Code of Conduct, Modern Slavery Statement 2021, and Sustainability Report 2021, Co-op:
(i) Is a founder member of the Ethical Trading Initiative, and partners with other organisations such as Sedex, the Food Network for Ethical Trade, and the Seafood Ethics Action Alliance.
(ii) Has clearly outlined its expectations of suppliers in relation to issues such as forced labour, child labour, working conditions, living wages, and working hours.
(iii) Has conducted extensive supply chain mapping and subsequently identified the total number of tier 1 supplier sites, the total number of workers at these sites, the gender breakdown of these workers, and the proportion of these workers employed on either temporary or permanent contracts. As a result of this, it has also been able to break this data down to a continental basis - i.e. the number of supplier sites, number of workers, etc. located within North America, South America, Europe, Africa, Asia, and Oceania.
(iv) Has engaged in risk assessment activities, identifying priority risks associated with product categories and countries.
(v) Maintains risk monitoring and management processes, requiring all own-brand suppliers in its food business to join Sedex, and requiring all tier 1 suppliers based in high-risk countries to have had an independent audit in place prior to approval (as of FY 2021, 100% of tier one suppliers had completed a Sedex self-assessment, and 99% of tier 1 supplier sites in high-risk countries had been audited).
(vi) Has established governance relating to the management of its supply chain, for example by forming a Food Policy Governance forum and a Procurement Risk and Audit Committee.
(vii) Continually tracks its progress in relation to modern slavery, establishing objectives and targets for 2022 and beyond.
Modern Slavery, Supply Chain Management, and Implications for Investors
Despite having been formally abolished in almost every country, slavery in the 21st century persists. Often referred to as "modern slavery", this refers to situations in which individuals are forced into work, and prevented from leaving, via violence, threats, debt, or illegal confiscation of documentation, among other things. As of 2022, it is estimated that:
- Approximately 50 million people worldwide can be considered to be living in modern slavery.
- The amount of people living in modern slavery has increased by 10 million over the past 5 years.
- 54% of those living in modern slavery are female.
- 25% of those living in modern slavery are children.
Beyond the moral reasons for wanting to avoid returns that can be attributed to human rights violations such as modern slavery, there is also a business case for investors to consider the supply chain management procedures of companies when making investment decisions, or engaging with companies within which they are already invested. By failing to actively identify and manage risks associated with supply chains, a company will be at greater risk of controversies (and any reputational damages, legal fees, or fines deriving from these) negatively impacting its future sales, cash flows, growth potential, or cost of capital. The example of Co-op, as discussed above, is one example of a company that has undertaken a range of measures that will limit this risk.
The Co-op is a company that features on our Ethical Screening Portal. To find out more about this company, or our services please contact info@ethicalscreening.com
Sources:
www.co-operative.coop/about-us
www.co-operative.coop/ethics/ethical-policies
https://www.co-operative.coop/ethics/modern-slavery
Sustainability Report 2021: https://www.co-operative.coop/investors/reports
www.antislavery.org/slavery-today/modern-slavery/
www.bbc.co.uk/news/world-62877388