Advisory Partners

The FT Moral Money Forum is supported by its advisory partners, High Meadows Institute, Vontobel and White & Case. They help to fund the reports.

The partners share their business perspective on the forum advisory board. They discuss topics that the forum should cover but the final decision rests with the editorial director. The reports are written by a Financial Times journalist and are editorially independent.

Our partners feature in the following pages. Each profiles their business and offers a view on supply chains. Partners’ views stand alone. They are separate from each other, the FT and the FT Moral Money Forum.

Why corporate leadership is critical to progress on sustainable supply chain management

Chris Pinney, President, High Meadows Institute

There is no question that a global framework of strong laws and regulations would be the best way to ensure sustainable supply chain practices. In a fractured global economy, however, with few worldwide or enforced sustainable supply chain standards, progress on better practices will continue to require corporate leadership backed by consumers and the public.

In the past few decades – in response to pressure from investors, consumers and, in some jurisdictions, regulators – most large firms have started to report on supply-chain sustainability. Challenges arise because the issues can be complex and interrelated.

Take, for instance, rare earth minerals. On the environmental side, concern centres on how mining can contaminate the environment and disrupt ecosystems. Wastewater ponds can fill with acids, heavy metals and radioactive material, which may pollute groundwater or poison workers. On the ethical labour front, such resources are often mined in conflict zones or in regions where there are significant human rights abuses and poor environmental protections for workers, such as the Democratic Republic of the Congo and China. 

Another example is the fashion industry, where the production of commodities such as cotton, as well as the manufacturing process and its use of chemicals, are just a few of the environmental supply chain issues. Ethical labour practices are also of great concern, ranging from the use of child and forced labour to sweatshops and unsafe working conditions that kill thousands of people a year.

To effectively attend to the environmental issues in both examples, one has to consider how change will affect those who are currently employed. The target must be a just transition for all. 

Addressing these issues comprehensively is beyond the capabilities of most individual companies. In the absence of effective regulation, businesses must work with their peers and other stakeholders to create “soft law” and self-regulatory standards and guidelines so that complex issues can be managed in an integrated way.

A good example in the rare earth minerals industry is the Responsible Minerals Initiative. Founded in 2008, its participants include more than 400 companies from 10 industries. RMI sets standards and offers reporting templates that cover a range of environmental and labour practices within supply chains, while also providing independent third-party assessment of smelter/refinery systems and sourcing practices.

In the footwear and textile industry, the Sustainable Apparel Coalition is the leading alliance for sustainable production. Its goal is to empower fashion companies to make improvements that defend the welfare of factory workers, communities and the environment. The coalition has developed the Higg Index, a suite of tools that industry participants use to assess their environmental and social impacts.

These types of industry and civil society collaborations and “soft law” initiatives will play an increasingly important role in advancing sustainable supply chain management.

* High Meadows Institute’s views are separate from other advisory partners, the FT and the FT Moral Money Forum

Knowing your supply chain is crucial for investing in a new era

Christel Rendu de Lint, Head of Investments and Member of the Global Executive Board, Vontobel

For a single company, supply chain oversight can be complex. For professional investors with multiple companies in their portfolios, this task can be massive. Complexity, however, is not something to hide behind. As capital allocators, investment firms have a fiduciary duty to act in the best interests of investors. In the context of ESG expectations, regulations and best practice, this includes assessing and monitoring the supply chain activities of the companies in which they invest.

Can data be the game-changer? 

Data and new technology are delivering new opportunities for increased visibility around ESG red flags, and we welcome them. One area where this is set to make a huge impact is the confirmation of on-site human rights audits. Here, regulatory and legislative trends play a crucial role in pushing things in the right direction. If regulators can compel companies to provide accurate and accessible data, a start can be made in eliminating the thorns in the “know your supply chain” process. 

At the macroeconomic level, data-driven clarity over which companies adhere to requirements for ethical compliance, coupled with penalties for those that do not, should start to create an ecosystem that naturally promotes an ESG-compliant approach. This assumes even-handedness, however. If legislation and compliance requirements are not globally comparable, or universally applied, then those companies that undercut on price with cheap labour, for example, can skirt the pressure to change. In such instances, and from an economic theory point of view, where the cost of reputational risk does not exceed the benefits of cheaper inputs, intervention is needed. Where would this responsibility fall? 

Who sets the rules for a new era? 

While investors cannot be expected to do the job of regulators and law enforcement agencies, we can ask the tough questions and take the “vote with your wallet” concept to new heights. Our clients care about their legacies and the effects that their investments have on society. While it is not our job to tell clients what their legacies should be or what better futures they could help build, we have a fiduciary duty to incorporate all value drivers, including those for ESG, when advising them about opportunities and risks. Vontobel is committed to being a responsible citizen and we have four overarching ESG investment principles that we use in our actively managed investment processes to develop solutions that meet clients’ needs.

Last year, I contributed a piece to this report where we tackled the topic of sustainability in emerging markets. A similar question arose: should investment houses stop engaging with companies and marketplaces that are not yet up to the desired standards? Or is the greater good derived from continued investment that is contingent on clearly communicated ESG expectations, producing a dynamic in which highly experienced companies pass on their expertise? 

We live with these questions day to day in our boutiques. In our sustainable equities boutique, for example, our focus is on emerging markets, where ethical consumerism can lag significantly in comparison with the situation in developed markets. It is, however, gathering momentum in some places quite quickly, especially when aligned with a focus on quality and consumer safety. Our experience shows that companies domiciled in emerging markets are often very receptive to hearing our perspective on where they can improve on ESG matters and their disclosure of them. They are also open to our sharing of information on ESG market trends and their regulatory drivers. 

Opportunity amid duty

A focus on improving supply chain management brings benefits on many fronts. This is immediately apparent for those involved in the supply chain itself, as the example of compliance requirements regarding human rights audits makes clear. It also brings opportunities for new products and services. Consider those that use the Fairtrade label: data shows that many consumers will pay the higher price this induces. 

At Vontobel, we view responsible consumption as a strong trend that we seek to capture as part of our approach to impact investing. Indeed, our entire investment approach is governed by the belief that, over time, consideration of ESG in investing best enables our clients to achieve their investment objectives. This applies to all six boutiques that constitute our multi-boutique set-up.

Returning to the fiduciary duty of capital allocators to act in the best interest of investors, ESG has fundamentally changed the way we invest for our clients. At an industry level, where investors have multiple companies in their portfolios, supply chains are in the spotlight. The era of clear delineation of ownership of “problems” is over (whether it ever existed is a topic for debate). 

In the same way that “know your client” has become part of the banking furniture, it seems “know your supply chain” will follow suit.

* Vontobel’s views are separate from other advisory partners, the FT and the FT Moral Money Forum

White & Case ESG team

The fragility of supply chains is at the forefront of business thinking: heightened by disruption caused by global events and natural disasters exacerbated by climate-change. But responsible supply chain management is driven not only by an ethical imperative that warrants a place at the top of boards’ agendas. There are legal and commercial risks for companies that fail to implement adequate due diligence processes. 

According to the 2020 European Commission’s “Study on due diligence requirements through the supply chain,” the three primary incentives for businesses to take due diligence seriously are: “reputational risks; investors requiring a high standard; and consumers requiring a high standard.” 

From a legal and commercial perspective, these risks and pressures are reshaping the landscape for corporate governance and M&A, including private equity transactions.  Buyers and investors are increasingly seeking that target companies provide detailed supply chain management and human rights impact assessments not only across a target’s own business operations, but across the operations of its entire value chain, and to report on environmental impacts and modern slavery risk (regardless of whether such reporting is mandatory under applicable regulations).  

In recent years, high-profile firms have been caught up in supply-chain related misconduct, across all sectors, ranging from fast fashion to household appliances, mining to supermarket chains, financial institutions and retail services. These companies have suffered reputational damage and financial loss when such scandals made the headlines; and in some cases led to major shareholders dumping stocks, auditors stepping down over reputational concerns, or boards of directors buying shares to stabilise the market price. 

Consumer boycotts and grassroots action also present a significant risk. By way of example, in a victory for campaigners in March 2020, Mexico terminated construction permits held by a global beverage producer, which caused the company’s stock to plummet by 11 per cent. The company had been granted access to the town of Mexicali’s drinking-water supply for its planned $1.5bn brewery. This would have seen the company use up to 20mn cubic metres of water a year (20 per cent of the city’s annual supply), but the scheme was defeated in a referendum.  In a similar manner, consumer pressure is likely to grow against UK tea brands following the BBC Panorama documentary in February 2023 “Sex for Work: the True Cost of Our Tea.”

Shareholder activists are increasing efforts to address supply chain-related risk by: 

• Filing shareholder proposals. One example is the 15 proposals filed by Investor Alliance in January 2023 at three Big Tech companies. These relate to human rights risks in the tech sector and will be voted on by shareholders at the companies’ annual meetings.

• Writing open letters to boards. In March 2023, Tulipshare, the activist investment platform, condemned a sports apparel giant for failing to act upon shareholders’ concerns over potential human rights abuses in its supply chain.

Critically, regulatory and enforcement risk is also accelerating. According to the same 2020 Commission study, only 37 per cent of businesses conduct environmental and human rights due diligence based on voluntary international standards, and only 16 per cent cover the entire supply chain. For more than a decade, the UN Guiding Principles and the OECD Guidelines have informed the efforts of states and businesses to adopt best practices for effectively managing human rights/environmental risks in supply chains. While some governments are opting for voluntary instruments (for example, Japan’s 2022 guidance on Respecting Human Rights in Responsible Supply Chains), the direction of travel points sharply towards mandatory obligations in corporate supply chains. 

While global legislative initiatives vary in their scope, operation and goals, they fall within three camps: 

• Disclosure requirements (for instance, the EU’s Corporate Sustainability Reporting Directive, and the UK’s Modern Slavery Act 2015 (a strengthened bill was announced in the Queen’s Speech 2022)). 

• Due diligence obligations (for example, the German Supply Chain Due Diligence Act (LkSG) and the European Commission’s proposed Corporate Sustainability Due Diligence Directive (CSDDD)). 

• Import bans (for instance, the US Uyghur Forced Labor Prevention Act and the Commission’s proposal for a regulation prohibiting goods made with forced labour).

Legislative measures co-exist on a sector-specific basis. Notable examples at the EU-level include the Conflict Minerals Regulation, the Deforestation Regulation and the Batteries Regulation. The proposed Critical Raw Materials Act seeks to promote responsible sourcing, requiring large companies to audit their supply chains and enhance strategies to prepare for supply disruptions. The UK’s Critical Minerals Strategy has similar goals. 

In terms of litigation risk, as these laws are new or still working their way through the legislative process, little jurisprudence is available to clarify how they will be interpreted and applied. Judgments will be instructive in the early legal actions filed. In February 2023, two cases were brought by NGOs against a financial institution before the French courts. These claims relate to alleged violations under the French Duty of Vigilance Law for failing to carry out adequate due diligence before agreeing to finance global corporations (such as beef producers or oil and gas companies) that contribute to human rights abuses and/or environmental harms. Claims have also been brought in the UK, US, EU and Canada on a range of grounds, including misleading consumer advertising and parent company duty of care. 

Boards must stay tuned on pending decisions in these “world-first” cases, to evaluate the litigation risk they could face in connection with their supply chain responsibilities, alongside the growing regulatory pressures.

* White & Case’s views are separate from other advisory partners, the FT and the FT Moral Money Forum