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Supply chain human rights issues a huge challenge for CEOs

Author: ICAEW Insights

Published: 08 Aug 2023

Mid-market corporates’ concerns lead the field, posing broader implications for global trade, says latest Supply Chain Barometer from procurement specialists Proxima.

Almost seven in 10 UK and US CEOs are worried about the potential for human rights abuses and labour exploitation to occur in their companies’ supply chains, prompting calls for businesses to work together to set standards and find solutions.

According to a poll of 2,000 chief executives of UK and US businesses with at least 50 employees by procurement consultancy Proxima, 69% expressed concerns over the scope for human and labour rights issues to arise within their supplier networks. The figure rises to 79% among retail bosses, a finding that Proxima says is understandable given the increased scrutiny that has fallen on the fashion industry.

Ethical challenge

By business size, mid-market corporates lead the field, with more than three-quarters (76%) of CEOs concerned about the ethical condition of their businesses’ supply chains. Given the increasing interconnectedness of business, there are potentially significant implications for international trade as a whole, Proxima warns.

“These companies are likely to be the supply chain partners of larger firms, so concerns should be shared across the global business community. Such is the interconnectedness of supply chains, we should be looking to all businesses to act more collectively and collaboratively to set standards and find resolutions,” the consultancy says.

In the last few years, allegations of human rights violations and labour rights issues have rocked a number of high-profile brands in sectors such as consumer packaged goods and automotive; 78% of automotive sector CEOs said they have concerns.

The survey findings follow a surge of regulation on matters linked to human and labour rights, with countries introducing laws to tighten corporate compliance requirements. That trend is particularly prevalent in Europe, with recent legislation aimed both at companies within the region and those selling goods into EU nations at scale.

Proxima Executive Vice President and Chief Procurement Officer Simon Geale said that addressing human rights issues across the supply chain is a “huge challenge” for businesses and is high on the agenda for CEOs.

“We’ve seen a number of businesses fall victim to human rights issues,” he noted, “and as we see increased scrutiny from customers and regulators, supply chain transparency is going to become increasingly critical. This is the emerging priority for CEOs at a time when business leaders are spending more time than ever tackling supply chain issues.”

Fundamental shift

Reflecting on the role that finance professionals can play in tackling the challenge, Geale pointed out that CEOs plan to spend more time on supply chain issues this year than last, with risk, decarbonisation, and right-shoring all front of mind as well as human rights.

“A key concern is poor transparency of organisational supply chains, which is hampering progress on these topics – and many CEOs bemoan their inability to make informed decisions and manage risks based upon supply chain data available today,” Geale says.

That complexity together with the technology- and cost-related barriers to achieving greater transparency should make finance teams sit up and take note: “This represents a fundamental shift in what organisations will know about themselves – and, therefore, how they operate.” 

“Alongside procurement, finance teams will need to be at the heart of working out how to find the funds for transformation. This is unlikely to come from marginal job cuts or a few percentage points here and there. Pioneers are looking at much greater structural cost reform, to reap the benefits three to five years down the track,” Geale adds.

ICAEW Director, Corporate Governance and Stewardship, Peter van Veen says: “Our members understand that high-quality data sits at the heart of running a successful, sustainable and responsible business. Ensuring supply chain transparency – and quantifying the associated risks – is very much a part of that. 

Van Veen says there are many solution providers on hand and their offerings are becoming more and more sophisticated, with tools available for all budgets. At the same time, a number of industry-based initiatives are underway to boost the protection of human rights in supply chains. 

“We would encourage our members to seek these out,” Van Veen says. “Their insights will help to improve a company’s understanding of these issues, where abuses occur and what can be done about them. Collective action initiatives are often the only way to resolve structural human rights issues.”

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