Growing concerns about the prevalence of child labour and other forms of modern slavery are increasingly altering global supply chains, says Fitch Ratings.
A report from the rating agency said that a number of consumer sectors — including the retail, food production, and electric vehicle and battery industries — deal in goods that contain parts from industries and regions with a high incidence of modern forms of slavery.
Increasingly, companies are being held to account for the labour practices of their suppliers, Fitch said.
“There is proposed or pending legislation on modern slavery and general supply chain sustainability in the Netherlands, Canada, Germany, and the EU,” the report said.
Already, the U.S., the UK, and Australia require large companies to report on their risk management efforts involving possible slavery in their supply chains, it noted.
“This presents challenges as typically retailers and distributors of finished goods have limited visibility into the operational practices of suppliers,” the report said.
As a result, Fitch expects companies to increasingly look to source inputs from markets closer to home that are easier to scrutinize, instead of relying on the cheapest emerging market option.
“We also expect growth in responsible or ethical sourcing, driven by both regulation and consumer preference,” it said.
“In light of other geopolitical risks, such as the coronavirus pandemic and bilateral trade wars, corporates may find that shifting some purchasing from regions with high modern slavery risk contributes to other operational or financial objectives,” Fitch said.