Red Flag 14. Commodities with unclear provenance and visibility to impacts on workers or communities

• IHRB notes that commodities can be associated with adverse human rights impacts “at the point of production or extraction e.g. unfair working conditions, activities taking place in absence of adequate community consent, child and forced labor, health and safety abuses, discrimination of migrant workers, resettlement of communities without Free, Prior and Informed Consent (FPIC), abuses of public/private security forces infringing workers’, indigenous peoples’, and communities’ rights.” In addition, where lowest cost is the largest business driver, e.g. in the commodities market, farmers, fishermen and smallholders have limited influence in negotiating terms of trade and receive an ever-diminishing share of the fruits of their labor. (See further Red Flags 1 and 19).
• As just one example, sheet mining of mica is a labor-intensive process, and is predominantly carried out by the very poor and vulnerable in low-wage countries. Mica mining, particularly in illegal small-scale artisanal mines, has been associated with child labor; 22,000 child laborers were identified in two areas of India, which, geographically, covered less than half of the so-called “mica mining belt.”
• Where commodities of unknown provenance are bought, sold, traded and hedged, purchasing companies in the value chain focus on price, defined specifications and quality standards rather than where the materials came from or under what conditions they were produced. It becomes difficult for companies upstream in the value chain to influence these decisions so as to address potential negative impacts on the rights of people in the value chain.
• Transparency, shortening of supply chains and longer-term commitments from buyers can “demystify complex supply chains,” and allow “different actors [to] identify and minimize risks and improve conditions on the ground and inform whether and where progress is being made.”

• Business Continuity Risks: Extreme price pressure on farmers and other workers at source can undermine availability of product and stability of supply.
• Reputational, Operational and Legal Risks: The company risks being involved in business relationships with disreputable organizations or individuals, including groups using forced or child labor or providing unsafe working environments, or may be financially supporting conflict. Operational challenges and even legal risks can arise where such connections come to light and the business must act reactively to exclude such sources from their value chain. Where traceability to individual companies is limited, entire industries can face civil society pressure to improve (e.g. in the case of palm oil).
• Business Opportunity: Focusing on improved livelihoods for people within the supply chain helps to bring them into the consumer base; failure to do so foregoes this opportunity. Opportunities for price reduction and new sources can be unlocked:
  • Barry Parkin, Chief Procurement and Sustainability Officer of Mars, has noted that supply chains are “broken.” In an article arguing that the “commodity era is over,” he identifies win-win opportunities to “mov[e] beyond commodities that are bought and sold in markets where the lowest cost is the largest business driver,” and “[shift] to long-term models for corporate buying that are anchored on building mutuality, reliability, resilience and risk management into the core of our buying patterns.”

*For an explanation of how companies can be involved in human rights impacts, and their related responsibilities, see here.

Addressing impacts on people associated with this red flag indicator can contribute to a variety of SDGs, depending on the impacts associated with the commodities. This may include, for example:

SDG 1: Eradication of poverty in all its forms.

• Which commodities that we use may be of higher risk from a human rights perspective, based on known information about potential source countries?
• Where information about impacts associated with the commodity is scant, how can we learn from known information about human rights impacts associated with other commodities sourced from the same area?
• Which partnerships, including with peers, international organizations, academics or NGOs, can we leverage to gain greater transparency or ensure traceability? Where no initiatives exist, can we create one?
• What opportunities exist/ can we create to build longer-term sourcing relationships?

• In 2018, the BMW Group and Codelco, a Chilean copper mining company, signed an agreement to cooperate on a sustainable and transparent supply of copper. In the “decommoditized” copper market, prices reflect differences in levels of certification.
• Many large consumer goods companies are disclosing the source of their palm oil through the Roundtable on Sustainable Palm Oil, including Unilever, which, in 2018 announced that it was “the first consumer goods company to publicly disclose the suppliers and mills it sources from” (both directly and indirectly), and Nestle, which has committed to achieving RSPO sustainable certification for 100% of its palm oil by 2023. In November 2019, the RSPO announced “shared responsibility” rules, that will require RSPO members who buy palm oil to increase the proportion of their sustainable purchases by 15% every year or face fines and possible suspension.
• Rather than prioritizing short-term electricity contracts, Mars is establishing long-term, country-level contracts in Mexico, the United Kingdom and the United States in an effort to contribute to addressing the environmental and social impacts of climate change. In this way, “electricity is no longer a commodity, but a long-term investment within which business is a market maker not simply a price taker.”

• A growing share of food commodities are now marketed as value-added (sustainable) products. California-based B-Corp Uncommon Cacao supplies raw cocoa beans to artisan chocolate makers disconnected from world market prices. It aims to provide a transparent alternative to commodity exchange and certified cocoa by setting fixed farm gate and export prices annually to help farmer incomes grow.

• An impact investing fund created by Danone, Firmenich, Mars and Veolia with respect to vanilla, offers a 10-year commitment, cooperative and a minimum price, through an “innovative model where formers and industry players share both the benefits and risks.” The project estimates that 60% of cured vanilla’s value will go back to farmers (compared to initially observed shares of 5% to 20%).

• IHRB (2018) The Commodity Trading Sector: Guidance on Implementing the UNGPs is a tool for the commodities trading sector as a whole in developing a shared practice of responsible trading which is consistent with international standards relevant for the respect of human rights.
• Parkin (2018) Is the Commodity Era Over? is an article by the Chief Procurement and Sustainability Officer of Mars discussing the need for companies to “move beyond commodities that are bought and sold in markets where the lowest cost is the largest business driver.”
• SOMO (2018) Global Mica Mining and the Impact On Children’s Rights is a mica-focused report that maps global production of a commodity and seeks to identify direct or indirect links to child labor or any other relevant children’s rights violations.
• OECD-FAO Guidance for Responsible Agricultural Supply Chains provides guidance for enterprises across the agricultural supply chain, from the farm to the consumer, anchored by a “framework on risk-based due diligence.”