Food Supply Chains in the United States Present ESG Risk, According to Moody’s

Food Supply Chains in the United States Present ESG Risk, According to Moody’s

The global business landscape is constantly evolving, and few issues have been affecting more change recently than those under the umbrella of environmental, social, and governance (ESG). New regulations and guidelines that have come out in recent years have forced companies to address sustainability risks, accountability, and transparency and this is potentially truer in no other sector than that of supply chain. One of the greatest issues of concern in the realm of ESG is that of forced labor, especially when it comes to supply chains. Food systems across the globe have been particularly at risk for as long as the industry has existed, and a recent report published by Moody’s has shed light on the susceptibility of food supply chains today, particularly the presence of risk in US food supply chains.

Forced Labor

Founded in 1839, Anti-Slavery International is the oldest human rights organization in the world and it defines modern slavery as “when an individual is exploited by others, for personal or commercial gain. Whether tricked, coerced, or forced, they lose their freedom." This includes but is not limited to human trafficking, forced labor and debt bondage.” Back in 2022 the International Labor Organization (ILO) reported that in 2021 50 million people worldwide were in modern slavery: 22 million in forced marriage and 28 million in forced labor which ILO defines as "all work or service which is exacted from any person under the threat of a penalty and for which the person has not offered himself or herself voluntarily."

The 50 million people reported for 2021 marked an increase of 10 million people living in modern slavery from 2016. Only 14% of forced labor cases are state imposed, leaving 86% of cases, an overwhelming majority, that occur within the private sector. Of all cases, 23% are a form of commercial sexual exploitation, a form of exploitation within which four out of every five people are women or girls, and 63% occur within sectors other than commercial sexual exploitation. Globally, 3.3 million children are exploited in forced labor making up nearly one out of every eight people living in forced labor, more than half of those children being in a form of commercial sexual exploitation. Moody’s also stated in their report that after performing a keyword search focused on forced and child labor globally over the last ten years in Grid, Moody’s Analytics own comprehensive risk database of adverse media, sanctions, watchlists, and PEPs, it revealed a continuous growth in Grid’s human trafficking risk code.

Research increasingly has shown that migrant workers are especially vulnerable to exploitation in forced labor, with ILO estimating that they are three times more likely to be in forced labor than non-migrant adult workers. Labor migration has proven to have a very positive impact on individuals, households, and communities in some cases, but often this vulnerability may be a result of poorly regulated migration or unfair and unethical recruitment practices.

Inherent Risk in Food Supply Chains

According to the 2023 KnowTheChain Food & Beverage Benchmark, food systems make up a majority of all jobs, roughly two-thirds worldwide. As a result of the nature of the work in different steps of the food supply chain (i.e. sourcing, processing, packaging) being manual labor intensive, this makes it an especially risk-laden economic sector, even more staggering when considering the number of individuals impacted.

KnowTheChain is a partnership consisting of the Business & Human Rights Resource Centre, philanthropic organization Humanity United, ESG and CSR ratings organization Sustainalytics, and non-profit human rights group Verité. The Benchmark takes a look at performance and disclosure of the world’s 60 largest food & beverage companies in regard to addressing forced labor in their supply chains and gives each a score out of a possible 100 points. The 2023 Benchmark used an updated methodology which prioritizes:

·      Measurement of policy implementation

·      Stakeholder engagement

·      Remedying outcomes for workers to assess whether companies’ actions to address forced labor risks in supply chains impact positive change for work

The results point out that the food sector is far from reaching an acceptable level of protecting against forced labor in their own supply chains. Out of 100 only 50% of the companies assessed had a score higher than 10. The average score among all companies was 16/100, a 40-point deficit from Woolworths Group who score the highest with 56/100. Greater than a third of the 60 companies assessed (37%) have failed to provide a plan to carry out human rights risk assessment in their own supply chains. Companies on average scored particularly poorly in these areas:

·      9/100 on supporting freedom of association and collective bargaining

·      6/100 on remedy efforts such as fee repayments and remediating harm to workers

·      13/100 on addressing exploitative recruitment practices

Notable companies who scored particularly low include Hormel (9/100), JBS (4/100), Tyson (3/100), and FEMSA who bottles for Coca-Cola (3/100).

In addition to the alarming numbers put forth in the 2023 KnowTheChain Benchmark, CBS News reported last year that they had found evidence that major candy manufacturer Mars had been using cocoa sourced through child labor in West Africa. Per the report, Mars had failed to follow up with child laborers who had been enrolled in schools, and many of the children enrolled in schools in the area never attend and continue to work harvesting in the cocoa fields. Some of the names of children on lists of child laborers in cocoa fields are sheer fabrications; a field supervisor even admitted to information on the lists being inaccurate and confessed to also making up lists himself. In some instances, children as young as five years old were found working in cocoa fields.

As an additional resource the US Bureau of International Labor Affairs keeps record of a list of goods believed to be produced using forced and child labor, many of which can be readily found in US stores.

Domestic Food Systems also at Risk

A team of researchers from the University of Nottingham Rights Lab and the Friedman School of Nutrition Science and Policy at Tufts University published a study in July 2023 in Nature which attempted to compute forced labor risk in all areas of the US food supply, with the exception of seafood. According to the study, “Transformation of countries’ food systems is critical to achieving the United Nations' Sustainable Development Goals (SDGs)”, and SDG 8.7 directly addresses the issue of eliminating forced labor. Their objective was to firstly, expand their forced labor risk scoring method to accommodate new data sources and the processing stages of food supply chains. Secondly, to estimate the risk of forced labor embedded in the diverse foods that compose a country’s food supply, using the US as a case study. And thirdly, identify forced labor risk hotspots within and across food categories.

The study was the first which tried to show the relationship between social performance to specific food commodities at a countrywide scale. The point of this focus is to ensure coherence in policies to achieve these SDGs. Results show that there is significant risk within the US itself:

·        A large portion of labor risk was embedded within animal products, fruits and vegetables, and other, more indulgent food products labeled as discretionary foods - Disproportionately high levels of risk in meat products produced in the US

·        More than half (62%) of the forced labor risk that was found in the consumption within the US could be attributed to domestic production or processing - Largely a result of ingrained, long-standing risk in food systems and the fact that a large percentage of US consumption is produced or processed in the US

According to this study as well, as mentioned previously, migrant workers are at a particularly high level of risk. This issue tends to particularly rear its ugly head in high income countries, in part as a result of the fact that a majority of exploitation comes as a result of either undocumented status or an inherent issue within the immigration program itself.

Though seafood was excluded from the study, due to a lack of available data, it suggests that further research in that sector should be conducted in the future. Fishing has some of the highest risks of forced labor in any sector of the food industry, and many of the factors that contribute to that same risk in agriculture also exist within seafood production processes.

Increased and Developing Regulatory Landscape

As more legislation such as the UK’s Modern Slavery Act and Mexico’s Forced Labor Regulation are put into action, supply chains across the globe will begin to come under further scrutiny. The European Union also has a proposal to ban any products that are produced through forced labor from being sold within their respective market. Concern and awareness of how products are being made is increasing everywhere as more information is available than ever before. As a result, companies must begin, if they haven’t already, monitoring and evolving their supply chains to limit and eliminate the involvement of both human trafficking and forced labor in their supply chains to avoid repetitional and financial repercussions.

Though forced labor and modern slavery seem like a thing of the past, it is unfortunately still alive and alarmingly well today. The numbers and threat appear to be growing in today’s economy even as regulations to slow its progress arise across the globe. If the startling ethical implications across supply chains are not enough to cause companies to bring change to their own supply chains, then surely the legal, financial, and reputational ramifications will. Corporations must adapt as more information comes to light, awareness arises, and regulations come into play.

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