Archives: Resources

• The International Bar Association’s Human Rights Institute (IBA-HRI) found that in the context of the developing world, tax practices considered most relevant to potential human rights impacts include transfer-pricing and other cross-border intra-group transactions (see Lipsett). Multi-national enterprises may “take advantage of gaps in the interaction of different tax systems to artificially reduce taxable income or shift profits to low-tax jurisdictions in which little or no economic activity is performed” (see OECD). The Task Force also identified the following as areas of greatest concern: the negotiation of tax holidays and incentives, the taxation of natural resources, the use of offshore investment accounts and, finally, secrecy jurisdictions due to their role in facilitating tax abuses. (See Lipsett).
• Highly digitized business models have been associated with challenges to existing taxation frameworks, including where the business is highly involved in the economic life of a jurisdiction without any significant physical presence, as well as where a high number of assets are intangible (such as algorithms and software). (See OECD).
• Aggressive taxation practices such as those identified above can “deprive governments of the resources required to provide the programmes that give effect to economic, social and cultural rights, and to create and strengthen the institutions that uphold civil and political rights.” (See Lipsett). Lost revenue from taxation can lead to decreased funds available for spending on “services such as health, education, housing, access to water and other human rights.” It has been noted that countries in the global south lose much more money to tax evasion and illicit financial flows than they receive in international aid.
• The connection between tax and inequality has been explored by the IBA-HRI, which has noted that “the global shadow economy is contributing to a growth in global inequality, which is also having a major impact on democracy.”

• Reputational Risks: “Over recent years, the tax affairs of major businesses have been subject to unprecedented levels of scrutiny, debate and controversy.” The FT, has noted that despite the “dry, complex nature of corporate tax planning,” campaigners have begun to focus on the issues with “zeal.”
• Regulatory Risks: Concerns over the facilitation of base erosion and profit shifting through uneven legislation has led to a multilateral international tax policy initiative under the OECD, resulting in a multilateral convention, the sharing of information between tax administrations, disclosure of previously secret tax rulings and “legislative changes made to amend/abolish 110+ [‘harmful preferential tax regimes’].”
• Operational Risks: Public outcry over taxation inequality has “contributed to significant political instability in many developing countries” which has also been to the detriment of companies operating in these areas. Such outcry has not been limited to developing countries: in the UK several companies have appeared before the Public Accounts Committee or had their high street stores occupied by protestors, and US companies have been the subject of major news investigations.
• Legal, Financial and Operational: Risks also arise where public outcry leads to a re-examination of tax settlements. Calvert Investments, referencing the International Accounting Standards Board, has noted: “Reputational damage [from a perception that a company is not paying its fair share of tax to a host country] may lead to liabilities for external costs associated with a company’s operations, greater difficulty in permitting that could lead to project delays or cancellation or the loss of favourable tax status or other forms of government financial assistance.”

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

Taxation policy is a key element in facilitating the achievement of the SDGs. As such, this red flag indicator is relevant for a range of SDGs, including:

• Do we have a policy on tax planning that includes a human rights perspective? Do we have a considered and disclosed position on use of “tax havens”?
• How transparent are we about our taxation strategy including as regards our operations in developing countries? Do we disclose how our approach to taxation planning aligns with our business purpose and sustainability strategy?
• To what extent do we review the structures and practices of tax planning through the lens of our responsibility respect human rights, (rather than merely the amount of tax paid, which is an outcome of these practices).
• Are we involved in projects for which tax rules are being created? Is our approach to these negotiations aligned with our sustainability commitments/ responsibilities?
• How meaningful is the interaction between our departments and external advisors responsible for taxation strategy and our corporate responsibility/ sustainability/ human rights teams, with a view to internal alignment?

*Mitigation examples are current or historical examples for reference, but do not offer insight into their relative maturity or effectiveness.

In 2012 Starbucks announced that following “loud and clear” messages from customers, the company would make “changes which will result in Starbucks paying higher corporation tax in the UK – above what is currently required by law.”

• The B Team’s Responsible Tax Principles were developed through dialogue with a group of leading companies, convened by The B Team with contributions from civil society, institutional investors and international institution representatives.
• The International Bar Association’s Human Rights Institute released a 2013 report entitled Tax Abuses, Poverty and Human Rights. The Report addresses tax abuses from the novel perspective of human rights law and policy. It is based on extensive consultation from diverse perspectives and offers insight into the links between tax abuses, poverty and human rights.
• The Business and Human Rights Resource Centre portal on Tax Avoidance.
• Oxfam (2017) Making Tax Vanish: How the practices of consumer goods MNC RB show that the international tax system is broken. Contains an in-depth analysis and critique of the taxation planning practices of one company as well as the company’s response.
• M Lazala, Business & Human Rights Resource Centre (2015) Tax avoidance: the missing link in business & human rights?
• Tax Justice Network is a UK-based international research and advocacy network focusing on the link between taxation and, inter alia, human rights. It publishes the Corporate Tax Haven Index.
• OECD (2019) Tax and Digitalization discusses the tax challenges that arise from digitalization in furtherance of a work program to culminate in 2020 with an agreed global, long-term solution.
• The OECD’s Tax portal includes its Action Plan on Base Erosion and Profit Shifting and Inclusive Framework.

Where the business model is substantially dependent on gaps in legal frameworks, the company may engage in:

• Practices associated with maintaining this business model feature risk perpetuating a “race to the bottom,” as countries compete with lower regulatory standards to attract corporate investment.
• Lobbying against measures or laws that protect people from human rights impacts, for example lobbying against:
  • (increased) minimum wage laws, affecting, inter alia, the right to just and favorable conditions of work, including decent remuneration;
  • Indigenous title to land affecting, inter alia, Indigenous people’s rights;
  • restrictions on emissions into land, sea and air, affecting the right to an adequate standard of living;
  • laws that support informed choice, affecting the right to health.
• Legal strategies that prevent the state from protecting people from human rights impacts (potentially various), for example:
  • seeking to use investment treaties (including stabilization clauses) to limit states’ abilities to enact or amend legislation or regulations that increase human rights protection;
  • seeking to enforce intellectual property rights against public health imperatives.

• Reputational and Operational: risks arise due to inconsistencies between what the company says in public and in private regarding regulatory protections, and in what it does in different parts of the world based on different levels of regulatory protection. Reputations may also be open to attack where the company invests considerable resources in weakening human rights protections.
• Legal and Financial Risk: where a company mounts an unsuccessful legal challenge to government regulation aimed at public protection, it may face financial penalties. For example, tobacco company Philip Morris was ordered to pay the Australian government millions of dollars after unsuccessfully suing the nation over its plain-packaging laws.
• Financial Risks: can arise where investors consider companies’ attempts to influence public policy in their investment decisions. For example, US-based Trillium Asset Management reportedly monitors the levels and recipients of corporate giving, corporate policies on political contributions and membership of industry (lobbying) associations as part of their background research for stock selection in their socially responsible investment funds.
• Business Continuity Risks: where business contributes to the degradation of resources or people on which the business relies, e.g. by lobbying against laws that protect consumers or the community or limit environmental degradation.

*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 range of SDGs depending on the impact concerned, for example:

Applying purpose and principles to lobbying activities:

• In 2017 Campbell’s Soup withdrew from the Grocery Manufacturers Association citing “our purpose and principles,” including positions on food labelling. When the United States Food and Drug Administration agreed to extend a deadline for food and beverage companies’ to introduce a “Nutrition Facts Panel,” the company announced it was “continuing to strive to meet the original deadline.”
• The CEO Water Mandate’s Guide to Responsible Business Engagement with Water Policy (2010) contains “Principles for Responsible Water Policy Engagement.” Principles 1 and 2 provide that “responsible corporate engagement in water policy must be motivated by a genuine interest in furthering efficient, equitable, and ecologically sustainable water management” and that companies should ensure “that activities do not infringe upon, but rather support, the government’s mandate and responsibilities to develop and implement water policy…”.

Contributing to a regulatory environment that enables respect for rights:

• Oil and gas companies have jointly pressed a government to improve transparency requirements before proceeding with bids for concessions, in order to level the playing field and avoid human rights performance becoming a competitive issue. (See Shift’s Using Leverage guide at p. 22).
• In 2014, eight apparel brands wrote to the Cambodian deputy prime minister and the chairman of the local Garment Manufacturers Association to say they were “ready to factor higher wages” into their pricing.

Incentive and benefit structures, a key component of the sales promotion strategy of many companies, are designed to reward salespeople for revenue generated for the business. However, such structures can lead to negative outcomes for people where targets are excessively high, practices are subject to inadequate oversight, promotion activities towards third parties lead to over – or inaccurate prescription or recommendations, and, in some cases, where incentives are profit-based.

• Excessive sales targets and inadequate oversight can lead to predatory sales behavior. In the retail banking industry, this has included:
  • Unauthorized transactions on client accounts;
  • Sale of insurance products to clients who do not meet eligibility requirements (and therefore cannot take advantage of them);
  • Targeting the elderly or people conversing in their second language;
  • Sale of loans to people who cannot meet repayment obligations. (Privacy and Information rights; Economic security rights; Right to an adequate standard of living; Right to housing).
• Heightened risks arise where salespeople are required to use discretion in evaluating customer fitness for access to a product and/or have the ability to access/ modify private customer information without adequate oversight.
• Influencing third parties leading to excessive or inappropriate prescription or recommendation of products: Where incentive structures influence a professional’s exercise of discretion, people may be given advice or products that are not appropriate for their personal circumstances, affecting their health and/or finances:
  • Provision of baby formula to mothers in poverty by hospitals/ doctors receiving samples from companies, with subsequent impact on child health as mothers abandoned breastfeeding but could not afford an adequate amount of formula (see OHCHR) (Right to life; Right to health);
  • Sale of “sub-prime” loans by mortgage brokers receiving commissions from lenders, at interest rates above market and/or to borrowers who could not afford repayments (see CESR) (Right to an adequate standard of living, including Right to Housing); and
  • Over-prescription of potentially addictive painkillers facilitating or leading to addiction (Right to life; right to health).
• In the context of essential medicines, sales incentives that reward based on profits on products (rather than revenue) can drive up the price of essential medicines, reducing access to medicines for vulnerable persons (Right to life; Right to health).

• Reputational, Financial and Business Opportunity Risks: Scrutiny from governments, investors and civil society is becoming increasingly sophisticated and granular, including to the level of the existence and effect of sales targets. One example is the well-known Access to Medicine Index for the pharmaceutical industry, which includes Market Influence within its measurement areas, including “sales-based performance incentives and bonuses for sales agents.” Consequently, companies are unable to claim ignorance of expectations and best practices; to do so risks loss of investment, reputational risks and loss of access to business partners applying such standards in their criteria for engagement.
• Regulatory Risks: The impacts flowing from excessive sales targets and inadequate oversight can affect the reputation of an entire industry and potentially lead to increased regulation. The Banking Royal Commission in Australia was established in 2017 to inquire into and report on misconduct in the banking, superannuation and financial services industry, including fraudulent lending to elderly customers and the widespread provision of inappropriate and predatory financial planning advice. It was reported in 2020 that “about 40 pieces of … legislation sit on [the government’s] parliamentary agenda.”
• Reputational, Financial, Business Continuity, Regulatory and Legal Risks: As the impacts associated with this red flag tend to accumulate over time and exacerbate exiting social vulnerabilities, when impacts reach public consciousness, they tend to do so explosively, in the form of scandals, exposés and the partial collapse of industries. Companies face resulting litigation, increased scrutiny and regulation and reputational damage. For example, in the context of aggressive sales tactics and over-prescription in the opioid crisis, drug companies faced lawsuits, saw their reputation damaged and stock lose value. Reportedly 70% of Americans support “making drug companies pay the cost of addiction treatment services and cover the cost of naloxone, used to revive people who’ve overdosed.”

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

Addressing risks to people associated with this red flag indicator can contribute to, inter alia:

Promotional practices influencing third parties

• Do we have a policy in our marketing practices with regard to potential human rights impacts, and do we include our marketing practices as part of our human rights due diligence?
• What evidence do we have as to whether our salespeople are acting in practice in line with our marketing policies and prescribed processes?
• What are the different contexts in which our products/services will be sold/recommended to individuals? How might poverty, a lack of information or other vulnerabilities affect potential impacts from our products? What strategies do we have in place to ensure that our products are not sold/recommended in circumstances where the products might lead to harm to our customers?
• Do we provide adequate training to our sales professionals to enable them to make decisions guided by our human rights responsibilities?
• How might our salespeople, or the professionals they influence, be incentivized to act otherwise than in accordance with our policies?
• Do we have sufficient oversight over our salespeoples’ activities? How do we internally/ externally audit our practices?
• What grievance mechanisms do we have, who can access them and how do we act on results?

Sales targets and predatory sales behavior

• Who are our most vulnerable potential customers? How can our products/ services potentially be connected to negative impacts on people?
• Do our salespeople exercise discretion in evaluating the appropriateness of a product for customer? How is this guided or constrained?
• How can we track any increases in sales to potentially vulnerable people?
• In practice, how do our salespeople experience the relative pressures to both deliver on sales targets and protect vulnerable people from potential impacts associated with our products/services? Do they find the two to be in tension and do they know how to address those tensions in practice?
• Do our salespeople have the ability to access/modify private customer information? What protections/ oversight is in place?

Profit-based incentives and access to medicine

• How do we incentivize our sales teams across geographies in which we operate? Do our incentive structures reward for profits on products (as opposed to revenue)?
• Could our incentives structures be playing a role in high/ rising drug prices?
• If so, do we whether higher prices could exacerbate existing vulnerabilities among potential consumers and limit access to essential medicines?
• Can we find a way to decouple sales agents’ incentives from sales targets?

Sales incentives and over-prescription in pharmaceuticals

• Do we offer sales bonuses based on sales volume in the context of drugs prone to over-prescription?
• Could we avoid deploying sales agents for such medicines, or decouple sales bonuses from volumes?

*Mitigation examples are current or historical examples for reference, but do not offer insight into their relative maturity or effectiveness.

Avoiding sales agents altogether: Johnson & Johnson, Otsuka and Teva do not deploy sales agents for at least some antibacterial and antifungal medicines.

• Sales Incentives and Over Prescription: The Access to Medicine Foundation’s Antimicrobial resistance benchmark “evaluates how 30 pharmaceutical companies are responding to the global threat of antimicrobial resistance” including their sales promotion practices.
• Profit-based Incentives and Access to Medicine: Information on pharmaceutical companies’ performance on “Market Influence,” including sales incentives, can be found in the Access to Medicine Index.
• Financial Services Misconduct: e.g., Submission of Dr. Kym Sheehan and Prof. David Kinley of Sydney Law School to the Australian Royal Commission into Misconduct in the Banking and Financial Services Sector.
• Misleading marketing practices of infant formula in developing countries: OHCHR (2015) Breastfeeding a matter of human rights, say UN experts, urging action on formula milk.

The replacement of people with robots is estimated to displace 400 million workers and automate 15% of worked hours across all sectors between 2016 and 2030. While very few jobs are fully replaceable with robots, research shows that many jobs have a significant percentage of automatable activities. Automation’s greatest impact is forecast to be on jobs that consist of routine activities in predictable environments.

Automation of processes through robots can have a number of positive impacts.

In the short term, it can:

• Remove unsafe jobs: in mining, robots can help remove people from dangerous underground jobs, for instance, in Resolute’s Syama mine in Mali.
• Help people with restricted physical ability work.
• Make jobs more accessible for local workers: in mining, robots can provide a simpler visual interface which makes it easier for companies to train local workers, rather than rely on highly- skilled workers from outside the area.
• Increase the number of jobs: in fulfilment centers, robots can increase throughput thus enabling the center to hire more workers to deliver more orders.
• Help manage labor shortages: for example, labor shortages exacerbated by Covid-19 are incentivizing investment in agricultural robots.

In the long term, the history of labor market shifts shows that the overall effects of roboticization can be positive, as the new jobs created outpace the jobs lost and create greater economic prosperity. McKinsey estimates that  automation could create between 555 and 980 million jobs by 2030, primarily by virtue of raising incomes through higher productivity, higher wages and lower consumer costs.

At the same time, McKinsey estimates that by 2030, 400 million workers will be displaced by automation and 75 million will need to change occupational category. This shift will put enormous pressure on workers around the world.

Automation will more negatively affect people who are already vulnerable: low paid and precarious workers and minorities that are over-represented in automatable jobs or under-represented in sectors that are likely to experience job growth. For example:

• In the US, African American and Latino workers are projected to be disproportionately affected by automation because they are over-represented in sectors such as transportation, food service and office clerks.
• In Bangladesh, automation in the ready-made garment (RMG) industry is forecast to disproportionately affect women, who comprise 80% of the workforce in the sector.

The negative impacts of automation on people are a result of the way in which companies introduce and use robots. The common denominator in cases of roboticization going wrong (where workers are dehumanized and seen as another input or cost in the production process) is lack of empathy: the ability to put oneself in someone else’s shoes.

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

Technological progress is crucial to the fulfillment of the SDGs. However, to be true to the purpose of the SDGs, the use of technology needs to be underpinned by an understanding of how the loss of jobs due to automation can affect people’s basic dignity and rights.

The introduction of robots with empathy and with support for workers to re-train or upskill can help companies fulfill the following SDGs:

While the scale of automation’s impacts on people is undeniable, the nature and gravity of those impacts will depend on the way in which companies apply technology. This includes the due diligence companies carry out to identify and address negative impacts on people. Important questions to consider are:

• Does the company have a culture of empathy that looks not just at the benefits but also the human impacts of automation?
  • Do we seek to understand what workers expect from their jobs in terms of progression and development?
  • Do we ask how workers feel about the technology that surrounds them at work?
  • Do workers have alternative employment options? (Are we the only significant employer in the local area?)
  • How robust is the social safety net for workers who are displaced from their jobs?
  • Does the business have in place processes to minimize the harm to workers of introducing and using robots?
  • Do we have a process to assess impacts on people of new technology or automation in our operations?
  • Do we look for unintended negative consequences from technology meant to make work “faster and easier”?
  • Do we provide workers with opportunities for continuous learning? Do we recognize and reward that learning?
  • Are our governance and internal processes and controls able to manage the additional complexity that comes with automation and technology?
• How do we engage with other stakeholders – including governments and trade unions – to identify ways to prepare workers for a changing landscape of work?

*Mitigation examples are current or historical examples for reference, but do not offer insight into their relative maturity or effectiveness.

Alternative models are examples of companies that retain workers instead of replacing them with robots. This does not mean the companies are not automating. It means they are integrating robots with their existing workforce in ways that benefit both workers and the business.

• One emerging trend is to have robots and workers collaborating side-by-side. Research in the automotive sector shows that assembly lines where workers and robots (“co-bots”) worked together were more efficient than lines where workers or robots worked alone.
• Another trend is using automation as an opportunity to provide workers with new skills, particularly to workers who are generally disempowered such as women or ethnic minorities.

General:

• OECD (2019) OECD Employment Outlook 2019: The Future of Work.
• International Labour Office (2019) Work for a brighter future: Global Commission on the Future of Work.

Sector specific Examples:

• ILO, David Kucera and Fernanda Bárcia de Mattos (2020) Automation, employment and reshoring: Case studies of the apparel and electronics industries: a study of automation in the apparel and electronics industries.

• Some business models support commercial viability by externalizing the risks associated with changing levels of consumer demand on suppliers, rather than absorbing it in the business model.
• Companies may do this by way of:
  • Making last minute demands, changes or cancellation of orders;
  • Using contracts by which the supplier assumes the cost and risk of the product until delivered;
  • Avoiding warehousing goods by utilizing a “just in time” inventory/sourcing model.
• As a result:
  • When demand spikes, and the purchasing company places large volume orders with short lead times, suppliers may see no alternative but to demand excessive overtime. (Right to just and favorable conditions of work; Right to a family life; Right to Health).
    • A joint ETI/ILO survey on purchasing practices in 2017, to which responses were received from over 1,400 suppliers in 87 countries, found that only 17% of suppliers surveyed considered their orders to have enough lead time.
  • When demand drops, the purchasing company may cancel orders on short notice and/or refuse to take responsibility for goods that have already been produced. IndustriALL has noted that such cancellations leave factories holding the goods, unable to sell them to the customer that ordered them, and in many cases unable to pay the wages of the workers who made them.
• Purchasing practices such as this may, without appropriate mitigation measures, place heavy pressure on suppliers working on narrow margins. Risk and its associated costs are pushed up the supply chain and absorbed by the most vulnerable people – such as factory workers, including migrant workers, women workers, producers and small-holder farmers – affecting their livelihoods and those of their families. Suppliers under excessive pressure may not pay wages or overtime, or not provide safe working conditions; they may pregnancy test workers pursuant to a view that pregnant workers are not financially viable. Risks are exacerbated when the purchasing company(ies) provide little or no commitment to long-term sourcing, disincentivizing investment in improving working conditions (Right to just and favorable conditions of work; Right to Health).

• Operational Risks:
  • Purchasing practices that situate inventory risk with suppliers can leave suppliers with cash flow challenges and unpredictability that disincentivizes them from investing in compliance with codes of conduct. Such practices can also cause suppliers to outsource (including illegally) to subcontractors, increasing the complexity of the supply chain and reducing visibility and control on the part of the buying company.
  • Where the company does not keep an inventory of its products and relies on a small number of suppliers, it can be vulnerable to inventory shortages: in 2019, German-based Adidas’s sales growth declined due to “supply chain shortages” when “the company’s suppliers—nearly all of whom are based outside Germany—did not keep up with customer demand.”
  • The Covid-19 situation in 2020 further demonstrated the risks to the company of relying on, inter alia, just in time models and the detrimental impact of this practice on supply chain resilience.
• Reputational and Financial Risks:
  • Companies with purchasing practices that lag behind leading practices may receive poor results in the Better Buying review, a growing online platform that allows suppliers to anonymously rank the buying practices of brands and retailers.
  • During the 2020 Covid-19 pandemic, companies leaving overseas suppliers with excess inventory received negative publicity, including through Workers’ Rights Consortium’s “Brand Tracker” which listed apparel labels and retailers that were and were not paying their suppliers for orders in production or completed. From an investment perspective, research on the link between public sentiment on corporate responses to the pandemic and financial flows found that companies with labor and supply chain practices that were seen as taking action to secure their supply chain experienced higher institutional money flows and less negative returns.

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

Addressing risks to people associated with this red flag indicator can contribute to, inter alia:

• Do we have sufficient budget allocated to warehousing products? If not, how are we ensuring that factories can produce in advance and keep overtime within acceptable limits?
• Do buyers have sufficient knowledge, incentives and support to assess how and when their decisions will place human rights at risk, and to know from whom to seek assistance when they do?
• How do we know whether our buyers follow our processes, rules or guidelines in practice when engaging or contracting with suppliers?
• Do we engage with our suppliers in ways that help us understand how far they can go to meet our demands while still respecting the rights of their workers? Do we work with suppliers in countries of production to increase worker protections?
• Do we take a short term, transactional approach to supply chains or do we develop supply chain partnerships? For example, do we see high turnover among suppliers?

*Mitigation examples are current or historical examples for reference, but do not offer insight into their relative maturity or effectiveness.

Spanish fashion company Alohas’ “business model revolve[s] around an on-demand production process.” The company previews upcoming designs to customers early in the season and makes them available at a discount rate. Once it calculates how many units of each new style should be produced it commences manufacturing. Alohas notes that “on-demand reverts the sales cycle by applying a discount for early purchases and offering the product at full price only once stock has been made available. Meaning we don’t adhere to the traditional sales calendar anymore.”

• ACT (Action, Collaboration, Transformation), including the ACT Global Purchasing Practices Commitments.
• ILO (2017) Purchasing practices and working conditions in global supply chains: Global Survey results: provides the results of an ILO/ETI global survey on purchasing practices and working conditions, to which over 1,400 suppliers from 87 countries responded, with the sample covering nearly 1.5 million workers.
• ETI (2017) Guide to Buying Responsibly: The guide includes best practice examples and outlines the five key business practices that influence wages and working conditions.
• Better Buying has created a tool for suppliers to anonymously rate their buyers against 7 purchasing practices, developed through consultation with suppliers. Buttle (2018) Can there be fair rules for the ‘purchasing practices’ game?: a ETI blog post from ETI’s Apparel and Textiles Lead summarizes standards for company purchasing practices and offers recommendations for improvements in practice.

• Workers’ Rights Consortium’s “Brand Tracker” lists apparel labels and retailers that were and were not paying their suppliers for orders in production or completed during the 2020 Covid-19 pandemic.
• A. Triponel and C Bader (2020) Coronavirus is shining the spotlight on unhealthy supply chains: cleaning them up will help both business resilience and worker wellbeing.
• A. Triponel and J. F. Sherman (2020) Moral bankruptcy during times of crisis: H&M just thought twice before triggering force majeure clauses with suppliers, and here’s why you should too.

• Of the estimated 500 million small-holder farmers worldwide, 200 million are producing food within global supply chains. Fifty percent of the world’s undernourished people are smallholders and their families.
• Farmers and smallholders have limited influence in negotiating terms of trade and receive an ever-diminishing share of the fruits of their labor.
• A range of structural barriers underlie this disadvantage, at the levels of the supply chain, commodity sector and public policy. ETI notes that business models intersect with these barriers in many ways, including:
  • Consolidation of the market into a limited number of food retailers with substantial market power, that is often used to drive down prices and leave farmers unable to negotiate higher pricing.
  • The effect of lowest cost or “discounter models” in the food retail sector, driving price competition and increased pressure on prices in the supply chain.
• Price squeezes on suppliers increase the risk of human and labor rights violations in food and farming supply chains, often affecting the most vulnerable in rural communities, including small-holder farmers, particularly women and migrant workers. The inability of a farmer to provide for his or her family leads to a considerable loss of dignity in some rural communities, increasing marginalization and compounding the risk of human rights impacts.
• With respect to some commodities, farmers and their families find themselves in a poverty trap: without funds or investment to grow high-quality produce or plan ahead, they face low prices and/or harvest early, reinforcing the poverty cycle. Farmers also face theft and are increasingly vulnerable to extreme weather events.
• 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 also Red Flag 14]
• Poverty erodes or nullifies economic and social rights such as Right to health, adequate housing, food and safe water, and the Right to education (OHCHR).

Business Continuity Risks:

• Extreme price pressure on farmers can undermine availability of product and stability of supply in the near term and lead to an exodus from farming over time.

Reputational Risks:

• Undue price pressure on supply chains in certain geographies can lead to civil society exposés, resulting in damage and damage to reputation, brand and customer loyalty.

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.

*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, inter alia:

• Are our purchasing practices designed to drive down pricing, or do they have the effect of doing so? How do we know?
• Are the length of our supply chain commitments/ contracts helping or hindering our ability to use our leverage to secure better prices for farmers?
• Have we explored increasing dialogue with, or forming partnerships with, farmers in our supply chain? Have we sought to understand the real costs associated with production of the commodity, based on their experience?
• Are we engaging in multi-stakeholder initiatives (MSIs) aimed at addressing human rights impacts with respect to the commodity on which we rely? Where a relevant MSI doesn’t exist, can we learn from analogous efforts and explore opportunities to create one?
• Have we explored how to engage and educate our customers if they must absorb some price increase to protect farmer living standards?
• Are we prepared to experiment – and learn from failures or missteps – in tackling the difficult challenge of livelihoods in supply chains? Can we explore opportunities to promote and facilitate the growth of new forms of business in our supply chain that can channel more resources to farmers (e.g. cooperatives, women- owned enterprises, social enterprises)?

*Mitigation examples are current or historical examples for reference, but do not offer insight into their relative maturity or effectiveness

• Oxfam has highlighted several examples of alternative models, including:
  • UK company Sainsbury’s Dairy Development Group: farmers have full membership within the group and equal votes in decision making on milk price. In 2012, Sainsbury’s “removed itself from this volatile milk market and introduced a Cost of Production (COP) model which was voted in by the farmers themselves.”
  • Private company Apicultura Lilian, in Honduras: the company has a sourcing strategy focused on establishing a direct link with honey producers; it distributes 10% of its profits to supplier network and provides technical support and inputs to increase yields.
• Some initiatives appear to aim at “de-commoditization”: 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%).
• Research in Progress: The Farmer Income Lab is conducting research and stakeholder dialogue to identify, inter alia, “models that unlock opportunities for women and lead to increased business value, as well as how to integrate these models into business strategies and measure progress in doing so.”

• Oxfam (2018) A Living Income for Small-Scale Farmers: Tackling unequal risks and market power discusses the barriers to raising small- scale former incomes and entry points for change.
• Oxfam (2018) Fair value: Case studies of business structures for a more equitable distribution of value in food supply chains explores 12 case studies to demonstrate that equitable business structures, such as farmer-owned cooperatives, and business arrangements including long-term and transparent contracts, profit sharing and producer participation in pricing committees, can result in farmers receiving a greater share of the value of the food they produce.
• FAO (2015) Inclusive Business Models Guidelines for improving linkages between producer groups and buyers of agricultural produce. FAO has developed guidelines that contain, inter alia, useful methodologies for buyers seeking to organize farmers into suppliers, which includes contract farming or outgrower schemes.
• 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.”
• On cocoa specifically, Peter Stanbury and Toby Webb’s How to deliver real sustainability in the cocoa sector? Collaborative development governance puts the case for cross-cutting, long-term action.

• People are the core business of employment and recruitment agencies. As such, labor providers can positively or negatively impact the direct hire employees they recruit for client companies and the agency workers they place, as well as their families, and local communities in the migrant worker’s home state.
• Negative impacts can occur at all stages of the recruitment and employment process and affect workers’ rights, including their freedom from all forms of forced or compulsory labor; their right to just and favorable conditions of work; their right to privacy, women’s and migrant workers’ rights; the right to non-discrimination; the right to form and join a trade union and the right to collective bargaining; and the right to an adequate standard of living.
• Cross-border recruitment of migrant workers intersects with heightened vulnerability where individuals experiencing extreme poverty may feel their choices are limited and/or lack knowledge about their rights in the host state. Moreover, regulation that ties a worker’s immigration status to a particular employer (who acts as a sponsor), or which requires the worker to gain employer permission to exit the country, places the worker in a position of particular vulnerability: if the worker experiences abuse or exploitation, or sees his/her personal documents retained, it can be difficult to seek redress out of fear of losing a job and immigration status.

Operational, Reputational and Financial Risks: Companies are increasingly subject to scrutiny for their own labor practices and practices in their supply chains, including around fair recruitment. For example:

• Europe’s largest hotel group, Accor, has been the subject of reports linking it to the plight of its workers in the United Arab Emirates during the COVID-19 pandemic. While the group notes that it respects all local laws by continuing to provide workers with food and accommodation during furlough, it was reported that migrant workers are “trapped” in the country with no pay, making it impossible for them to reimburse the money owed to cover recruitment fees.
• UK apparel brands ASOS and John Lewis were criticized after a supplier factory closed down in Mauritius, leaving the Bangladeshi migrant workers stranded, with no severance pay, or proper accommodation and food after the factory cut their supplies and electricity. ASOS had to intervene by working with the local government to restore basic necessities, and with a local labor union to facilitate wage payouts.

Legal and Regulatory Risks: Companies sourcing low-paid labor from labor providers in circumstances in which they do not have oversight over treatment of workers may also expose themselves to lawsuits and formal complaints. For example:

• Criminal groups behind recruitment agencies in the UK supplying Sports Direct and major supermarkets were convicted of modern slavery after exploiting Polish migrant workers. The individuals convicted had sent migrants to work through agencies to pack shoes and clothes in warehouses, while they retained over half of their weekly wages.
• Woolworths in Australia agreed to conduct independent audits of cleaning contractors on an annual basis and rectify underpayment of cleaners after a Fair Work Ombudsman investigation uncovered rampant exploitation referred to as workers being “systematically ripped off.” The company accepted that “in the past” its governance of contract cleaning had not “fully prevented an environment where employees have been vulnerable to exploitation.” The company has committed to ensuring contract prices going forward are sufficient to meet minimum employee entitlements.

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

Addressing impacts to people associated with this red flag can contribute to, inter alia:

• How does the company ensure protection of workers’ rights for outsourced labor? To what extent do policies and protections apply to temporary/agency workers?
• Have we reviewed the labor provider’s Code of Conduct and other relevant policies to check whether they include commitments not to charge recruitment fees to workers and not to retain their identity documents? Are there any “red flags” present, e.g. where the labor provider is unwilling to provide details about their processes or where there are historical complaints or negative findings against the provider?
• Is the labor provider offering “too good to be true” rates that would not allow it to meet minimum total wage costs. (including sick pay and statutory holidays), business overheads, management costs, etc.?
• Do we have a clear service agreement with the labor provider, including clauses on social compliance (no recruitment fees, no unlawful retention of documents and valuables) as well as detailed charge rates, a confirmation that workers will be paid, a clear agreement to ensure the health and safety of all workers as a shared responsibility between the labor user and provider?
• Do we conduct checks or audits of our labor provider to check that proper recruitment and contractual arrangements are in place; wages paid are correct, on time and without improper deductions; there is no debt bondage, harsh treatment or intimidation; workers’ accommodation is of an acceptable standard, etc.?Are the auditors and our staff equipped to detect the potentially complex pressures, abuses and exploitation of workers by labor providers?
• Are the workers on our site who work for labor providers aware of who to report problems to and are they likely to feel safe doing so? Are we sending the message that we take these issues seriously and are available to the workers who would want to raise issues? What is our process to handle any concerns or problems raised?

*Mitigation examples are current or historical examples for reference, but do not offer insight into their relative maturity or effectiveness.

Alternative models generally involve avoiding third party labor providers in circumstances of higher risk, in favor of direct employment relationships, to ensure greater visibility and control over hiring practices and working conditions.

• In response to reports of forced labor linked to migrant recruitment practices in the electronics industry supply chain in Malaysia, HP released its Foreign Migrant Worker Standard in 2014. The standard goes beyond general industry practice in addressing forced labor – which primarily focuses on implementing policies banning recruitment fees – to require that the company’s suppliers directly employ any foreign migrant workers in their workforce. See Shift’s analysis here.
• One example of producer-led practices aimed at tackling forced labor in the form of Sumangali schemes in Southern India, is Penguin Apparel’s Program. The garment manufacturer has eliminated labor brokers and recruitment fees from its hiring processes, ensures local language translation of employment documents, provides training to workers on their rights, conducts audits of its own suppliers and contractors in the search for Sumangali schemes and educates its partners on social management systems. See Shift’s analysis here.
• Unilever is continuing to review the employment of temporary workers within its operations and extended supply chain. Through the Joint Commitment on Sustainable Employment in Unilever Factories with the International Union of Food, Agricultural,
  Hotel, Restaurant, Catering, Tobacco and Allied Workers’ Associations (IUF), the company agreed to strictly limit the use of non- permanent manufacturing employment to non-recurring tasks. Moreover, the use of “zero-hours contracts” is excluded. The rights- based commitment affirms that “temporary contracts and third-party agency employment relationships can potentially deprive workers of the protections and worker rights outlined in the ILO’s Declaration on Fundamental Principles and Rights at Work and the OECD Guidelines for Multinational Enterprise.”

• Employment & Recruitment Agencies: Sector Guide on Implementing the UN Guiding Principles on Business and Human Rights, published by European Commission, developed by Shift and Institute for Human Rights and Business (2013).
• Responsible Recruitment Gateway.
• Responsible Labor Initiative of the Responsible Labor Alliance.
• Vérité, Fair Hiring Tool.
• Temporary agency work in the electronics sector: SOMO (2012) Discriminatory practices against agency workers.
• Business and Human Rights Resource Center (2019) Inhospitable: How hotels in Qatar & the UAE are failing migrant workers.
• Löning (2018) How Companies can deal with Labour Exploitation in the Agricultural Sector.
• Dhaka Principles for Migration with Dignity.
• International Labour Organization (2016) Regulating International Labour Recruitment in the Domestic Work Sector: A Review of key issues, challenges and opportunities.

Gig economy

According to McKinsey, 20-30% of the workforce in the US and EU-15 countries is involved in the gig economy (although estimates vary).

Classifying an employee as an independent contractor can reduce costs to the company – like payroll taxes and premiums for workers’ compensation – by as much as 30%.

Non-traditional employment can have benefits for some workers, allowing them flexibility in choosing where, when and for whom they work.

However, where these relationships are exploited, it can exacerbate the vulnerability of already vulnerable individuals by shifting costs and risk to workers (without commensurate increase in financial compensation).

Some groups have referred to excessive use of non-traditional employment relationships as a “misclassification business model,” whereby the company “engages the people who actually carry out the core business, and over whose work significant control is exerted, as independent contractors instead of employees.”

When used inappropriately or in geographies without regulatory protections for non-traditional workers, the structure can deny workers access to the benefits that are tied by domestic law to a traditional employment relationship, including:

Financial risks

In December 2019, it was reported that,“venture capitalists are pulling back from [gig economy] start-ups … as the companies face pushback from workers and policymakers critical of their business models.” The Covid-19 outbreak of 2020 exposed inequalities experienced by those in non-employed positions and “moved the issue to the top of the agenda.” In April 2020 the FT noted that Jim Chanos, the US investor, had warned in March that “he was shorting the stock of companies that relied on “gig workers,” on the basis that the crisis would change social and political attitudes to businesses relying on this precarious workforce.”

Operational risks

Commentators have noted that notwithstanding business advantages, some companies also consider “major drawbacks” related to the gig economy, particularly “for employers who need a reliable, collaborative work force.” Moreover, the structure can make it difficult for companies to undertake interventions to increase hourly compensation of workers: research by economists employed by Uber found that when Uber raised the rates drivers are paid, the higher prices to riders led to a drop in demand for rides and therefore left hourly earnings little changed.

Staff recruitment/ Retention risks

Organizations that rely heavily on unpaid or temporary labor, especially where it replaces entry-level jobs, face risks associated with lack of retention of staff with progressively increasing knowledge/skills. Further, the may miss opportunities associated with a more diverse workforce (age, family responsibilities, socio- economic status) by only drawing on a pool of talent with the means to remain unpaid for the period of work.

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

SGD 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all, in particular Target 8.8 Protect labour rights and promote safe and secure working environments for all workers, including migrant workers, in particular women migrants, and those in precarious employment.

• Do we or our supply chain partner(s) use substantial numbers of non-employed workers (e.g. gig workers, contract workers)?
• Does we have clear guidance to managers on the appropriate use of non-employed workers?
• Do contract workers have the same protections under the law and regulations as our own employees?
  • Consider: Access to anti-harassment and discrimination protections, Minimum wage and overtime protections, Access to unemployment insurance and workers’ compensation
• If not, do we apply its policies to contract workers in order to bridge this gap?
• Do contract workers have the same opportunities to organize as our own employees?
• Do we or a supplier have a deliberate strategy to use contract laborers in order to limit union organization?
• Do we use paid or unpaid interns?
• Can the primary beneficiary of the internship be considered to be the intern? Or is it rather is it us?
• Are interns undertaking similar work to paid employees?

*Moreover, some examples listed below are proposals for mitigating actions that have come from data science and engineering research institutes.

In a groundbreaking step for the gig economy, logistics provider Hermes Parcelnet engaged in a recognition deal with GMB Union under which self-employed workers can choose to become “self-employed plus” and receive benefits such as holiday pay, negotiated pay rates and union representation. In exchange, workers agreed to follow delivery routes specified by Hermes Parcelnet rather than delivering parcels in any order. (See IHRB 2019 for more information).

On gig workers

• Business and Human Rights Resource Centre (2019), “The Future of Work: Litigating Labour Relationships in the Gig Economy”, Corporate Legal Accountability Annual Briefing 2019: Briefing focuses on the “misclassification of workers as “independent contractors” in the gig economy – and the resulting erosion of labour rights.”
• Gig Workers Collective (a non-profit organization of gig worker activists).

On internships

• Fair Internship Initiative.

On contract workers

• Shift/Mondiaal’s “Respecting Trade Union Rights in Global Value Chains: Practical Approaches for Business” (2019) contains diagnostic questions on outsourcing and contract Labor.
• Company example: Oxfam reports on Unilever operations in Viet Nam analyzed Unilever’s efforts to address precarious labor in Unilever’s operations and supply chain in 2013 and again in 2016.
• ITUC Report: Living with economic insecurity: women in precarious work also references submissions by IMF and IUF to SRSG John Ruggie on precarious work.

There are a range of reasons why companies in diverse sectors are collecting and holding data. For example, private hospitals and pharmaceutical companies may do so to improve diagnoses, improve treatment plans and develop medicines; banks may use personal and transaction data to identify fraud; and autonomous vehicle companies may seek to monetize data about customer driving habits to enable individuals to improve insurance premiums. Even so, in order to fully realize these benefits for businesses and people, the following risks must be managed.

• Right to Privacy: Where a company collects, holds or provides third parties with access to data about customers or users, there are inherent and widespread privacy risks. Examples include:
  • Where information about an individual is collected, sold or shared without their consent. This includes when data are used for purposes beyond those originally consented to by a “data subject.”
  • Where data breaches result in individuals’ personal financial or health data being publicly accessible.
  • Breaches of sensitive personal information, such as racial or ethnic origin, political opinions, religious or other beliefs, trade union membership, sex, gender identity or sexual orientation, genetic data, biometric data, or data concerning health.
• Freedom from Arbitrary Attacks on Reputation and Right to an Adequate Standard of Living: Where the personal data becomes accessible to the public, this data can be used to threaten individuals or tarnish their reputations, which can in turn impact victims’ mental health, job prospects and livelihoods.

• Regulatory Risks and Fines: Failure to protect user or customer privacy can lead to investigations, scrutiny and sanction, and many jurisdictions around the world are debating and enacting stricter laws to govern privacy, affecting multinational companies domiciled all over the world. The most notable of these are the EU’s General Data Protection Regulation which governs how personal data must be collected, processes and erased, and sets two-levels of fines.
  • In 2020, British Airways was fined €22 million when their website diverted users’ traffic to a hacker website, impacting the data of over 400,000 customers.
  • In 2019 Marriot International was fined €110 million related to a cyber-attack through which personal data from over 339 million guest records were exposed.
  • In 2019, Google was fined €50 million due to a lack of meaningful consent about how data was being collected and used for the purposes of targeted advertising.
  • In the United States, individual states have also put in place privacy regulations that apply to all industries. One such example is California’s Consumer Privacy Act.
• Legal Risk and Financial Settlements or Penalties: An increasing number of companies have been subject to lawsuits over inadequate action to address risks to people throughout the data lifecycle. Examples include:
  • Facebook paying $550 million to settle a class action lawsuit from Illinois Facebook users accusing the company of violating an Illinois biometric privacy law.
  • An £18 billion class action claim against Easy Jet in which the data of 9 million customers was accessed by third parties in a cyber-attack.
  • Equifax, the US consumer credit score company, paying $425 million following a data breach affecting 147 million people in 2017, some of whom suffered identify theft, fraud and related legal or other costs.

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

Data about individuals can be used to advance a number of SDGs such as those listed below. Addressing impacts to people associated with this red flag can contribute to ensuring that this is done in ways that do not simultaneously increase discrimination, or erode the privacy, reputation and well-being of vulnerable communities.

• Do we have policies, processes and practices that follow the principle of data minimization such that we only collect or purchase data to the degree that is absolutely necessary to accomplish specific tasks we have in mind?
• Have we conducted an assessment, and where necessary put in place mitigation plans, for privacy and other risks to people that may arise across the data life cycle including generation, collection, processing, storage, management, analysis and interpretation?
  • Have we done this for all stakeholder groups that may be at risk including employees, contract workers, prospective employees, customers and users?
  • Are we engaging expert groups and potentially affected groups to ensure we understand the risks they perceive or experience?
  • Do we assess whether and how our terms of service or policies for gathering and sharing customer data might increase human rights risks?
• Do we ensure that customers or users consent to how we gather and use their data, and that their consent is free and informed, including that they:
  • Know that we gather and are in control of data about them.
  • Are informed about how the data will be obtained and held, and for how long.
  • Understand the operations that will be carried out on their data.

*Mitigation examples are current or historical examples for reference, but do not offer insight into their relative maturity or effectiveness.

• Consumer Products and Services: A number of companies have launched privacy-oriented alternatives such as:
  • Messaging App Signal: One of the only apps that has its privacy-preserving technology always enabled and ensures that there is never a risk of sharing moments or sending messages to a non-intended recipient. For more on messaging apps see this article.
  • Search Engine Swisscows: Swisscows does not collect any of their visitors’ personal information such as an IP address, browser information, or device information. They do not record or analyze search terms. The only data that Swisscows records is the total number of search requests it receives each day.
• Enterprise Solutions: A 2020 World Economic Briefing, A New Paradigm for the Business of Data, profiles a small number of Enterprise and consumer solutions that place privacy, user consent and data security at the core. These include:
  • Hewlett Packard Enterprise (HPE) and Continental: HPE and Continental have created the Data Exchange Platform as a marketplace for mobility data. “It provides a secure, transparent, decentralized architecture for trusted vehicle sensor data sharing and payment, based on blockchain technology and smart contracts. It offers data sovereignty and includes a consent- management system for drivers.”
  • Inrupt: “Instead of a company storing siloed snippets of personal data on their servers, users store it in interoperable online data stores giving them unprecedented choices over how their data is shared and used. They can, for example, share their fitness data with their health insurance company, or allow sharing between their thermostat and air conditioner. They can set time limits on sharing and change their choices at any time.”

• Ranking Digital Rights Investor Outlook (2021) Geopolitical risks are rising—and regulation is coming.
• Institute for Human Rights and Business, Data Brokers and Human Rights.
• Global Network Initiative resources:
  • Implementation Guidelines.
  • 2018/19 Report on Independent Assessments of GNI Members.
• Harvard Data Science Review, Jeanette Wing, The Data Life Cycle.
• Human Rights and Big Data Project, Developing an Online consent manifesto based on human rights.
• Information is Beautiful, Map of Data Breaches/Hacks: An interactive tool showing the world’s largest data breaches and hacks since 2009 up until the present. The map includes examples from 15 industry sectors and multiple well-known corporations including.
• Data Guise, Data Minimization in the GDPR: A Primer.
• UN Secretary-General’s Roadmap for Digital Cooperation.