5 priority social risks for meeting ESG requirements

Regulatory pressures and stakeholder expectations are increasing the focus on social risks in supply chains as part of environment, social and governance (ESG) risk management and reporting requirements.

Whether you already have an established risk assessment process or are just starting out, understanding and prioritising social risks can be a daunting task – and the right tools and data are essential. We’ve set out five of the most significant risks, based on their likely relevance across many supply chains (to varying degrees), and the potential severity of impacts on people if they occur.

 

The benefits of addressing social risks in your supply chain:

  • Drive positive impacts for workers and communities
  • Build resilience in your supply chain by supporting a healthy, stable workforce
  • Meet legislation on modern slavery, health and safety, and human rights due diligence
  • Improve your reputation with investors, consumers and other stakeholders through demonstrating a commitment to socially responsible business practices and effective risk management.

 

Data to inform risk assessments

Data is a powerful tool for managing social risks. Information on the countries and industries in your supply chain is crucial for identifying high-risk countries and sectors, and using a tool like Sedex’s Radar can help prioritise where your company focuses its next steps. Gathering additional information on the people and practices at work sites enables more accurate risk assessments that reflect the differences between work sites.

 

Five social risks to focus on

1. Forced labour

Forced labour has been in the spotlight in recent years due to the intense focus on modern slavery, including in widespread legislation. However, forced labour is generally hidden due to its illegality (and is therefore hard to identify), so identifying it relies on using indicators of extreme vulnerability or exploitative behaviours. Key sectors at risk for this issue include agriculture, construction, service providers, and some forms of manufacturing.

Capture data on: Factors driving forced labour which are linked to vulnerability, such as:

  • The nature of the employment relationship (e.g. informal/formal, or temporary)
  • How workers are recruited (given the significant risk of exploitation by intermediary labour recruiters)
  • The social and economic status of workers (e.g. migrants and women being at higher risk)
  • Worker isolation
  • Dependence on employer for travel or accommodation
  • Fragile governance in the country of recruitment and/or of employment.

 

2. Child labour

Child labour is more visible than forced labour and probably more pervasive. Despite global efforts to eradicate child labour, over 160 million children were estimated to be in child labour at the beginning of 2020[i] and this is increasing. In supply chains, child labour is most common in upstream production, such as agriculture (especially smallholders producing cash crops), outsourced production or homeworking, mining (especially artisanal mining), and informal activities such as waste picking.

Capture data on: The countries your suppliers operate in, at all tiers of your supply chain. Child labour is driven significantly by poverty and lack of access to adequate, affordable schooling – suppliers in countries and sectors with higher poverty and underdeveloped education systems may have increased risks of child labour.

The Radar tool shows that the risk of child labour is higher in the agricultural sector (6.2) than the mining sector (5.7).[ii]

 

3. Discrimination

‘Discrimination’ in this context is the risk that individuals from a specific group (e.g. women, ethnic or religious minorities, people with disabilities, younger or older workers, people who identify as lesbian, gay, bisexual or transgender) receive negative treatment from co-workers or managers. In more severe cases, they may experience harassment or violence.

Although there is often a strong focus on gender-specific risks, it is important to identify discrimination risks for all potentially vulnerable groups, as these often combine with other social and economic vulnerabilities. Gender-based discrimination is a risk in all sectors and countries, while other forms of discrimination usually depend on the presence of minority groups, cultural norms, or inadequate management practices.

Capture data on: Where workers from a specific group fill most lower-skilled or lower-status positions, or form a small minority of the workforce and are more likely to be isolated.

Analysing grievances, including by different worker characteristics such as gender or ethnicity, is also important. This can highlight either hidden issues or common concerns among members of the same specific group.

The apparel manufacturing sector is high-risk (6.6) for gender discrimination (Radar).

 

4. Freedom of association

‘Freedom of association’ refers to workers’ ability to unionise or to form worker representative organisations to negotiate employment terms and conditions. Employers may forbid or attempt to suppress independent worker organisations or trade unions, or discriminate again union members.

In addition to being a fundamental worker right[iii], respecting freedom of association is important in helping businesses build worker engagement to attract and retain skilled, experienced employees. The risk of anti-union attitudes and activity by employers is present across most sectors and countries, but is highest in countries that do not allow independent trade unions, or in sectors where there is little history of worker organisations.

Capture data on: Work sites in countries with restrictive laws on independent unions or with poor records of protecting union rights. Also gather data on work sites where there are no methods of worker engagement, such as worker committees or adequate grievance mechanisms.

Mining and quarrying is one of the highest-risk sectors globally for freedom of association (Radar).

 

5. Health, safety and hygiene

We can expect even greater attention on health and safety in future, as this issue has just been recognised by the ILO as the fifth fundamental principle and right at work. Alongside the expectation for businesses to prevent workplace accidents, injuries and disease, there is an increasing expectation for companies to also support workers’ mental health.

While many countries have laws on workplace health and safety, in reality risks are ever-present. Occupational health and safety hazards are especially prominent in sectors where dangerous equipment or machinery is used, such as construction, engineering, and manufacturing. The risk is also particularly high where legal enforcement is poor, work is more informal, or where workers are generally not provided with appropriate safety equipment or training. Health and safety risks typically increase where there is excessive overtime.

Capture data on: The number of accidents, injuries and near misses that take place at work sites in your supply chain, and the health and safety processes and management systems suppliers have in place.

Follow up with on-site audits to verify this information, spot health and safety risks, and work with suppliers to help them address these. In 2021 alone, Sedex members resolved over 190,000 health, safety and hygiene issues identified in on-site audits.[iv]

 

Considering broader risks

There are many more social issues that business activities can affect. Other risks at work sites include excessive working hours and insufficient wages, while community-related risks such as land rights and access to water resources can be particularly significant in certain industries or regions.

To conduct a thorough assessment, it is important to take a holistic perspective and consider the social risks both within a workplace and beyond.

 

How to begin assessing social risks

Risk assessment isn’t a ‘one-size-fits-all’ process. Risks vary significantly by country, by sector and by business. A step-by–step approach can start with:

  • Mapping your supply chain
  • Identifying the risks most relevant to the people and industries in your supply chain
  • Assessing the likelihood and potential severity of these risks in the countries within your supply chains.

Sedex’s Radar tool is a great resource to use to identify, compare and prioritise social risks. We also have a useful ‘how-to’ guide to risk assessment to get you started.

 

About Ergon Associates

Ergon Associates is a global advisor promoting respect for labour standards and human rights through supply chains and investment relationships. They provide strategic advisory services and innovative research, and have supported the development of Sedex’s risk tool.

[i] Source: the International Labour Organization

[ii] All Radar insights are based on sectors’ global average risk scores

[iii] Source: the International Labour Organization

[iv] Sedex analysis of SMETA audit findings

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