Recent events show need for transparency in combating historic issue.
If you try to find a seafood producer that is publicly-listed in the US, you’ll be hard pressed. And yet, while many of the world’s largest seafood companies are privately held, U.S. investors are nonetheless exposed to abhorrent acts occurring in seafood supply chains. In recent months several of America’s largest listed companies have come under fire with claims that slavery and severe human rights abuse is occurring in their seafood supply chains.
Many of these allegations first surfaced in 2015, when the Associated Press exposed rampant slavery in the Thai seafood industry. In subsequent months the EU issued a “yellow card” threatening to ban the import of Thai seafood and the U.S. “blacklisted” Thailand. While the U.S. has since removed Thailand from its “blacklist,” the EU continues to threaten an outright ban of Thai seafood. What’s more, in early 2016 the U.S. closed a loop-hole on goods produced through forced labor, effectively banning slave labor in the supply chain.
Investors need to take note
Why, you may ask, is it important for investors to understand the issue of slavery in seafood? Although U.S. listed companies may not directly control the operations that involve slave labor, they are exposed to significant risks. To begin with, there is the risk of lawsuits. Federal and state laws such as the California Transparency in Supply Chains Act, have created a legal risk for companies that do not disclose known instances of slavery in the supply chain. These suits may not just result in fines and expensive legal fees but can also diminish brand value.
Of course, there are other risks as well. Legislation on importing slave-produced goods is increasingly strict, and the threat of import bans on seafood that employs slave labor is very real. As a result, companies face potential supply disruptions if seafood suppliers do not address the issue. Tackling this pervasive problem should be top of mind for companies and investors alike, as 91 percent of seafood consumed in the U.S. is imported.
Addressing slavery in the seafood supply chain isn’t just a risk mitigation activity. Indeed, sourcing certified sustainable seafood (i.e. seafood that does not employ slave labor) provides attractive growth opportunities as well. Research shows that sales of certified sustainable seafood have outpaced conventional seafood by a factor of 10. With increasing attention being paid to the atrocities prevalent in the seafood supply chain, it is likely household penetration of certified products will surge. Companies that gain market share in this growing segment stand to reap the bounty. To measure corporate performance in this area SASB standards call for disclosure on the “percentage of food ingredients sourced that are certified to third-party environmental and/or social standards, by certification scheme.”
How to take note
Doubtless, U.S. listed firms condemn these atrocities and will seek to distance themselves from the perpetrators but the problem, if not addressed, will ultimately remain. Forward looking companies should acknowledge the importance of proactively addressing social impacts of supply chains. This will help to ensure a reliable flow of imports. The reasonable and prudent investor would be wise to push for transparent disclosure on supply chain management. Doing so will allow investors to hold management accountable for the continued success of their organization. Calling for disclosure on SASB standards such as “CN0401-20: Discussion of strategy to manage environmental and social risks within the supply chain” can facilitate this process.
SASB standards are designed to provide investors with insight into a company’s management of business risks and opportunities. This insight should foster discussion. In opening up dialogue, investors and companies can improve the economic and social sustainability of the firm.