A group of nine companies is testing newly developed Key Performance Indicators (KPIs) designed to assess reputational risks and operational shortcomings associated with labor and human rights factors in corporate supply chains.
Developed as part of the Fair Labor Association (FLA) and Harvard Law School?s Pension and Capital Stewardship Project and with funding from the Investor Responsibility Research Center (IRRC) Institute, this KPI initiative is the first effort of its kind to create a standardized method to assess such risks.
The nine companies involved collectively source from 1,755 factories that employ about 1.8 million workers in 62 countries. They are testing KPIs in the following areas, with a host of detailed underlying information for each category:
Code of Conduct (issues such as child labor, freedom of association, health and safety)
Supplier and Managers Training on Code of Conduct
Corporate Commitment to Code of Conduct
Suppliers with Confidential Reporting Channels for Worker Grievances
Suppliers Monitored At Least Annually for Code Compliance
Suppliers Subject to Independent Verification by External Monitors
Sourcing Countries in Which Company Consults with Civil Society Groups
Percentage of Successful Remediations of Code Violations
These KPIs were developed using an extensive process involving more than 100 entities, including non-governmental organizations, universities, corporations and investors, among them signatories to the United Nations Principles for Responsible Investment Initiative.
Ultimately, the goal is to provide a common framework to monitor and access supplier risks associated with labor and human rights, a capability that is becoming increasingly important for companies wanting to maintain competitiveness in today's global marketplace.
"The testing of the KPI is critical milestone," concluded Aaron Bernstein, senior research fellow with the Harvard Project. "The testing demonstrates commitment by major companies to measure and make any needed improvements related to their labor and human rights supply chain practices. When the final KPIs emerge, companies, investors and others will have a much-needed common yardstick to monitor key performance areas from labor and human rights standards, to grievance and confidential reporting procedures, to development of remediation plans. This is an important next step toward providing consumers with an added level of confidence that their purchases are manufactured in facilities using improved labor and human rights metrics."
For more information see the summary report.