Western countries are high risk supply chain locations due to forced labour and ESG violations

Western countries are now high-risk supplier markets, with forced labour a key contributor to the increased threats.

Countries including the UK and USA are seeing higher exposure to critical violations – in part due to a rise in the exploitation of foreign migrant workers, according to ELEVATE’S Supply Chain ESG Risk Ratings report.

This means these countries are more likely to experience risk events that stand in violation of supply chain ESG governance frameworks, including local and international law.

These could range from finding evidence of environmental degradation to the use of child labour.

The report is grounded in 20,000 global supplier audits conducted annually, with 45+ million data points derived from on-the-ground site visits.

Its data demonstrates that nearly half of sourcing countries are now considered ‘high risk’.

”States such as Texas, Florida and New York now have a higher degree of exposure to forced labour risk than Pakistan, India, Thailand and Indonesia.”

The United States exhibited a decrease in every key labour index, maintaining a ‘high risk’ classification in the forced labour index in particular.

States such as Texas, Florida and New York now have a higher degree of exposure to forced labour risk than Pakistan, India, Thailand and Indonesia.

For supply chain ESG violations associated with several of the most critical forms of ESG violations – forced labour, child labour, freedom of association, and wage-related violations – the United Kingdom, Germany, Portugal, and Italy are now ranked as ‘high risk’ as well.

The UK saw its Forced Labor Index decrease by 58% over the last year, which coincided with the country welcoming refugees, particularly from Ukraine, who can be more susceptible to forced labour.

What does this mean for risk managers?

The current geopolitical, economic and legislative climate has made it increasingly difficult for businesses across the globe to be confident about ESG risk in their supply chains

Kevin Franklin, Managing Director – Advisory at ELEVATE, an LRQA company, commented: “Even historically lower-risk Western markets have started to slip. It is now clear that simply homeshoring or nearshoring manufacturing in countries previously thought to be ‘safe’ from egregious ESG risks is not enough.

“Systematic and proactive supply chain risk assessment, monitoring and management should be applied in all sourcing locations to avoid negative business impacts and trade disruption.”

”Simply homeshoring or nearshoring manufacturing in countries previously thought to be ‘safe’ from egregious ESG risks is not enough”

Adding to the increased risk of sourcing is a decline in audit transparency.

Countries such as Vietnam, Thailand, Indonesia, India, China and even Italy have all become less transparent since the pandemic, with auditors being unable to access accurate information and make conclusions from site visits.

This decline in transparency relative to pre-pandemic levels has complicated the ability of companies to govern higher risk levels, with suppliers in 50 sourcing geographies less transparent than in the previous year.

”To build resilient supply chains, being able to see, manage and mitigate risk exposure is essential.”

JP Stevenson, director, customer success, ESG analytics at LRQA , commented: “Transparency is key for supply chain audits. Deception and sharing of falsified data not only render risk assessments ineffective but also means that serious violations can go unidentified.

“To build resilient supply chains, being able to see, manage and mitigate risk exposure is essential.

”Through responsible sourcing programs and insightful data, businesses can partner with suppliers that can meet the sourcing requirements that include critical ESG performance.”