Earlier this month, news that workers’ rights campaigners were protesting Shein’s potential FTSE listing hit headlines.
Mathias Bolton, head of commerce at UNI Global Union, told the Guardian: “Shein shouldn’t be rewarded with the credibility of being listed in the City, or anywhere else, given the lack of transparency in their supply chain and shocking reports of severe labour violations.”
This highlights the significant risks facing organisations that are perceived to have ESG violations, even deep within global supply chains.
But now, LRQA’s bi-annual risk repor shows that in spite of recent US, and EU ESG legislation and regulation:
- More than a third of sourcing regions have seen a worsening overall ESG risk score, including large and advanced economies such as Australia, the Netherlands, the United Kingdom and the United States
- Labour risk worsened (forced labour, child labour, inhumane treatment) in 53 countries
- More than 90 regions showed high or extreme risk for health and safety violations
- At least 75 regions showed worsening audit transparency scores
The report is grounded in 25,000+ global supplier audits conducted annually, with 75+ million data points derived from on-the-ground site visits.
At least 40 key sourcing markets for supply chains showed higher risk in the forced labour index including Australia, China, India, Netherlands, United Kingdom and the United States.
What does it mean for risk managers?
Following the introduction of new legislation and regulation intended to stamp out forced labour practices, companies sourcing from these territories will need to ensure greater due diligence measures going forward, to avoid violating ESG governance frameworks, local and international laws.
Multiple factors are thought to be affecting supply chain labour risk.
For example, global conflict is impacting risk for foreign migrant workers, while there is also a growing relationship between environment risks and human rights risks.
In addition, while well intentioned, evolving due diligence regulations may also be driving lower transparency as suppliers try to hide potential risks within their operations from those further up the supply chain.
Further compounding supply chain risk, at least 75 regions showed worsening transparency scores in 2024. This means that risk levels could be even higher than reported, as auditors have not been able to access the information, or sites, required to draw accurate conclusions.
If suppliers are engaging in falsifying or concealing data, the likelihood of a business unwittingly engaging suppliers with high-risk practices increases significantly. Common audit violations that have increased over the past 12 months include coaching worker responses in advance of an audit and attempts at bribery.
Kevin Franklin, chief growth officer for LRQA, said: “There must be a renewed sense of urgency to address the critical risks outlined in this report. The health and safety of workers is at stake, not to mention the impact supply chain operations can have on the environment.
“There are so many examples of what can happen when these risks are overlooked, including tragedies like the 2013 Rana Plaza disaster in Bangladesh and ongoing worker strikes across the globe due to unfair working conditions. The continued need for these fundamental protections should be what drives regulators and business to improve responsible sourcing and due diligence.”
Ding Dingxiaozi, product and analytics director at LRQA explains, “Transparency is essential for gathering credible data and gaining true visibility over supply chain operations. This is different but closely connected to the need for improved traceability solutions, as new regulations require a deeper and more trusted view of risk in multi-tier supply networks.
“But it’s not just down to the suppliers. If audit deception is increasing, we need to know why. There’s an ever-increasing pressure on suppliers to deliver more at a lower price and with shorter turnaround times, and this is becoming increasingly difficult to do while adhering to stringent standards and social compliance policies.
“In many cases, the requirements to deliver a product on time can be in direct conflict with social compliance intentions so businesses need to carefully consider the timeframes and prices they are imposing on their suppliers.”
How to tackle the threats
Where transparency is a challenge, the report reveals how worker surveys and grievance mechanisms are an essential tool for helping identify and address labour issues in the supply chain.
LRQA’s grievance channels, including telephone helplines which serve workers across Bangladesh, Malaysia, Indonesia, Pakistan, and India, showed harassment and abuse issues were one of the top grievances reported across every geography in the past year.
These lines of feedback enable individual workers to raise complaints to a third-party, while providing a crucial avenue for companies and suppliers to uncover risk ‘blind spots’ that audits, self-assessment questionnaires (SAQs) and other risk monitoring tools are not able to view.
The mechanism also supports businesses to meet domestic and international obligations and aligns with global sustainability standards, including the United Nations Guiding Principles (UNGP).
Beyond audits and grievance mechanisms, media monitoring can help companies to identify risks. For example, more than 90 regions showed high or extreme risk for health and safety violations in 2024, with health and safety violations making up nearly half of all non-conformances detected during audits.
However, fire incidents and fatal injuries are rarely reported through standard audits. LRQA’s adverse media monitoring tool, Sentinel, detected reports of more than 300 fire incidents across 34 countries in 2023 and 2024, some fatal.
LRQA’s Kevin Franklin concluded, “In today’s fast-changing, technology-driven operating context, supply chains need to achieve transparency, compliance and operational efficiency like never before. This means embracing not only auditing but information from various sources including workers, the media and social media to gain a more rounded view that will enable issues to be identified and addressed more effectively.
“Every supply chain has its own unique risks. There is no ‘one-size-fits-all’ method to identify or address supply chain risk. The solution lies in gaining a better understanding of the individual needs and priorities of networks and using credible, verified data to conduct a deeper diagnostic of risks.
“This provides a clearer view of the risks so that businesses can implement the right tools and technologies to mitigate and deploy the appropriate corrective measures. Embracing the concept of continuous assurance will better enable organisations to future proof their operations and protect their reputations, their suppliers and their workers in real-time.”
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