This blog post was authored by Dan Viederman, managing director of the Working Capital Fund, an early-stage venture fund that invests in scalable innovations to make global supply chains more transparent and ethical.
New approaches are urgently needed if the private sector is to grapple effectively with the persistent and widespread problem of forced labor in global supply chains. Disruptive technology can create better outcomes for businesses and workers.
The risk of forced labor in global supply chains remains tragically high. In 2020 alone there have been reports of forced labor in the production of medical rubber gloves, apparel, electronics, and fish. The U.S. government has concluded that 155 goods from seventy-seven countries are made with child or forced labor; indeed, no multinational corporation in the world can credibly claim to be free of the risk of forced labor in its supply chain. And while multinationals collectively spend hundreds of millions of dollars to ensure “responsible” supply chains, these activities lead neither to significant improvements for workers nor to an elimination in reputational or regulatory risk for companies. The “supply chain responsibility” space is ripe for disruption through financial and technological innovation that will lead to greater protection for vulnerable workers while benefitting brands and employers.
Labor exploitation persists in supply chains in large part because of governance gaps in producing countries and weaknesses in multinational sourcing practices. Inadequate regulatory enforcement, oppression of trade unions and human rights defenders, and extensive poverty help create conditions ripe for exploitation. Multinationals put pressure on the suppliers that operate in these geographies to produce more at ever-lower costs—creating a burden that lands most heavily on workers. Products come to market, from raw material on up, through a network of sub-tier businesses that are often small, poorly managed, and unknown to multinationals. The result is a web of invisibility and vulnerability that is complicated to unravel.
Into this problematic ecosystem comes disruptive innovation, much of it technological. Emerging technologies enable unprecedented visibility into opaque supply chains. Mobile technology achieves the promise of scaled outreach to vulnerable workers so that they can take steps to protect themselves. Innovative finance provides the necessary incentives and flexibility for these emerging technologies to find their place in the market.
Blockchain technology increases visibility in supply chains, with as many as a dozen start-ups using its immutable record, which captures transactions along the supply chain, as a way to trace products. Some of these companies are helping brands understand, track and share validated information about social and environmental claims from source to shelf, providing the stories and accountability that increase shopper engagement and loyalty.
DNA tracing is increasingly used to identify where products are made. The natural attributes of a commodity or product—including stable isotopes and the DNA of the dust that lands on a product—can provide a reliable way of identifying the product’s source and the stops it made along its supply chain journey. This means a multinational need not rely on the word of a supplier nor undertake a costly chain-of-custody audit to be certain of the provenance of the things it sells. In 2020, for example, such certainty could help apparel companies avoid association with rampant human rights abuses in cotton and apparel sourcing in Northwest China.
Artificial intelligence (AI) and machine learning (ML) also offer untapped promise in the fight to illuminate hidden suppliers and the labor risks they harbor. Risk analysis platforms incorporate AI and ML to find signals in vast sets of data, providing a real-time perspective on a range of risks across an entire supply chain, while also offering a granular view into individual workplaces. Such information can be used by corporate procurement and legal staff, as well as those tasked with corporate responsibility, to help them avoid risky business partners and offer preference to those suppliers that act responsibly. Initiatives from the non-profits Verité and WikiRate, for example, demonstrate the potential of using these new technologies to identify and address forced labor, leveraging social audits and other sources of data.
Technology can also help highly vulnerable labor migrants take steps to protect themselves, and at a scale that would be impossible through traditional non-tech solutions. Some initiatives, in partnership with the International Organization for Migration, are helping workers avoid risks through pre-departure and on-the-job training: for example, hundreds of thousands of workers per year now have access to high quality “edutainment” about labor rights and ways that workers can protect themselves. Other initiatives reach migrant workers through mobile phones on site at their destination workplaces, offering them a way to share their experiences and express grievances about workplace treatment. Start-ups are producing wearables that alert workers and site managers to track heat stress—which can be disabling and even fatal. For migrants in dangerous construction jobs like those in Qatar, sensors and “smart personal protective equipment (PPEs)” can provide a lifeline, and can assist employers, who are incumbent to protect workers, in taking more timely action. Workers can especially benefit when tech is used within a business or legal context that requires accountability. The application of these worker-facing technologies means that buyers in multinational companies are no longer constrained by the limitations of the social audit model and that workers are increasingly able to find opportunity and empowerment at scale.
Resource-constrained buyers and suppliers who are constantly under price pressure have difficulty taking the time to test new, potentially effective approaches. Funders and impact investors should ensure that patient capital, in the form of grants and impact-aligned investment, is available to de-risk these innovations and enable them to find implementation at scale. The technology exists that will allow multinationals and employers to reduce the risk for workers and improve their compliance with laws and consumer expectations. Innovators are finding commercial traction. Innovative finance can give it a path to succeed.