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No Requirement to Share Responsibility

⚠ Reputational risk ⚠ Operational risk ⚠ Legal risk

What this means

Why investors should care

What to look for

Power imbalances between companies, suppliers, and the communities in which they operate create information voids that undermine the reliability of sustainability assurance. When communities lack the standing to engage on equal footing or suppliers bear disproportionate compliance costs, violations are concealed, concerns go unheard, and the social license on which operations depend quietly erodes. The result is a system that cannot produce the information it would need to accurately assess, prevent, or mitigate risk. Reducing these power imbalances is among the most direct ways to surface the risks that certification schemes are designed to prevent.

Ensuring that affected communities can engage with companies on equal footing is part of what can make sustainability assurance credible. That is why schemes should require both harm prevention as well as tangible benefits that create the conditions for genuine participation. Without an equal focus on benefit, an extractive dynamic will take hold that is itself a driver of conflict and operational risk. For example, companies rated poorly on Indigenous rights have been found to face between 3 and 66 times the rate of halted operations, enforcement actions, and legal issues as those with good ratings.¹ Community benefit sharing, whether through formal benefit plans, local procurement and employment commitments, or co-ownership arrangements, is what leads to credible and long-lasting social license to operate.

Power imbalances also skew incentive structures between buyers and suppliers. When buyers make last-minute changes to orders, change payment terms, demand short turnaround times, set prices below production costs, or take other measures to keep costs low (see Responsible Contracting), they set in motion a dynamic that can lead to unpaid wages, poor working conditions, and forced or child labor.² Moreover, in such situations buyers often do not share the financial burden of implementing effective measures to protect human rights and the environment. This creates a powerful incentive for suppliers to conceal violations rather than surface them, keeping the underlying problems invisible to the buyer and unaddressed.

To combat the power and market dynamics that lead suppliers to conceal violations, buyers need to share responsibility with suppliers for minimizing human rights risks. According to the Responsible Contracting Project, shared responsibility entails “responsible allocation of risks and responsibilities” between buyers and suppliers and “a joint commitment to cooperate in carrying out human rights and environmental due diligence (HREDD).”³ Communication between buyers and suppliers about compliance expectations and results is essential. To avoid merely shifting responsibilities, setting buyer-supplier contract terms that lock in responsible purchasing practices, such as ensuring fair pricing and reasonable lead times, may be needed. Moreover, both parties should be held accountable for failures in meeting safety and labor standards, ensuring that the burden of providing remedy is shared.⁴

Shared responsibility with suppliers — in the form of responsible contracting — and communities — in the form of benefit-sharing agreements — is not yet commonplace and still absent from many initiatives’ standards. Yet, their omission can have material consequences. The Rana Plaza factory collapse in Bangladesh, which killed over 1,100 garment workers, mostly young women and girls, on April 24, 2013, is an example of the problems that can occur with a model where responsibility for upholding workplace standards is placed solely on the factories.¹ Despite the glaringly visible structural cracks in the Rana Plaza building and the closure of the shops and bank on the ground level, factory managers pressured reluctant workers to work that day. A 2019 study on the tragedy by New York University’s Stern Center for Business and Human Rights found that low profit margins (in the single digits) worsened a tendency among the suppliers to compromise on safety measures.² Ultimately, 29 brands were publicly exposed for having open contracts with garment factories within Rana Plaza, including Benetton, Mango, and Primark, among others.³ Similarly the absence of community benefit agreements in land-based investments can threaten the social license to operate.

Most initiatives certify suppliers, not buyers, and focus on how suppliers manage their own operations rather than how buyers manage their supply chain relationships. Even fewer address companies’ responsibilities to the communities affected by their operations. Investors can look for two things: whether the initiative holds buyers accountable for their sourcing practices as a condition of membership, and whether it requires companies to deliver tangible benefits to affected communities, not just prevent harm.

Some initiatives contain measures that acknowledge buyer power and responsibility. For example:

➔ Rainforest Alliance’s updated Sustainable Agriculture Standard (2020) mandates that sustainability efforts of participating producers are priced into the cost as a premium. Calling for a “fundamental transformation of the operating principles of the supply chain,” the scheme has implemented two buyer requirements:

Sustainability Differential, a mandatory monetary payment paid to producers on top of the market price for the sale of certified crops.
Sustainability Investments, whereby market actors contribute to the resourcing necessary for the producer to make changes that will drive sustainability progress.¹

➔ The Initiative for Responsible Mining Assurance (IRMA) requires companies to develop a community benefit plan in collaboration with affected communities, including measures aimed at improving social and economic wellbeing, local procurement and employment commitments, and self-sustaining mechanisms designed to outlast the life of the operation.

➔ Fair Wear conducts performance checks on member companies, as part of its “unique shared responsibility approach to improving working conditions.”² This includes a criterion that members share responsibility with suppliers, emphasizing that “factory conditions cannot be separated from the purchasing practices of brands.”³

➔ International Accord for Health and Safety in the Textile and Garment Industry is a legally binding framework agreement between garment brands and trade unions to ensure the safety and health of workers in the textile and garment industry. It requires brands to contribute to the cost of operating the program and to financially support factories when remediation is necessary.⁴

➔ Fair Labor Association’s member companies are evaluated according to their responsible purchasing practices, policies, and implementation. Principle 2 of its Principles of Fair Labor and Responsible Sourcing states:

Principles of Fair Labor and Responsible Sourcing

Responsible Purchasing Practices: Commitment to align planning and purchasing practices with workplace standards.⁵

The Responsible Contracting Project and the Interfaith Center on Corporate Responsibility developed Investor Guidance on Responsible Contracting to help investors integrate shared responsibility principles into their commercial contracts. The tool, available on this site, comprises sample questions that investors can use in conversations with companies, shareholder resolution templates, investor engagement letter templates, and sample responses to push back from companies.

Checklist for Red Flag 3

Does the scheme require the member brand or lead company takes responsibility for impacts occurring throughout its operations?

Good practices include, but are not limited to:

Conducting ongoing due diligence that is participatory, transparent, and timely
Practicing responsible purchasing that enables all suppliers in the value chain to fully respect the rights of workers
Sharing responsibility for remediating harms
Including in the standard a provision for evaluating a company’s sourcing strategies

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Red Flags in Sustainability Initiatives

No Requirement to Share Responsibility