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Corporate Social Responsibility and Child Labour

Jan NoterdaemeSenior Advisor on Strategy, EU and Stakeholder Relations

on behalf of The European C'homme'Pany for CSR Europe

Public Hearing on Child Labour in Developing Countries27th of April 2010

Who We Are – Corporate Members

Who We Are – National Partner Network

Agenda

1. Equip practitioners through European / international CSR Laboratories• Responsible Supply Chain Portal (EU-China)• New business models at the base of the pyramid (BoP)• see also other reference initiatives:

• Business & Human Rights Resource Centre• The Human Rights Matrix

2. Engage in EC Initiatives→ EC Research on „Legal Framework on Human Rights and the Environment applicable to European enterprises operating outside the European Union“→ ESG Disclosure Initiative from EC with Stakeholders (Sept. 09 – Feb. 10) (high expectation on business to disclose information in time on local activities or planned investments that could impact local communities regarding HR.)

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Child labour/forced or bonded labour (I)

For the International Labour Organization (ILO):

Child labour is often defined as work that deprives children of their childhood, their potential, their schooling and their dignity, and that is harmful to their physical and mental development (like heavy, nightly or dangerous work). A child at work is younger than 15, or 14 in developing countries

Bonded or indentured labour occurs when workers are obliged to keep on working to reimburse a debt to the employer of a credit facilitator, often because they are subject to penalties or deductions in the context of their work.

Forced labour occurs in cases of seizure of personal documents (passports, permits, etc.), debt towards the employer, forced overtime or extremely low wages, threat of penalty or of harsh and inhumane treatment

Child labour/forced or bonded labour (II)

Bad forms of labour in buyer-supplier relationships can have many reasons:

• Poverty and Economics: in regions where poverty is a major issue, people will be ready or even demanding any kind of job to feed their family. Buyers may take this fact as an opportunity to get cheap prices.

• Overload: in situations where orders exceed production capacity, suppliers may fall back on higher internal work or subcontracting. In both cases, urgency may have as consequence to be less regarding on working conditions

• Complicity: in some cases, local authorities propose to employers to use prisoners as workers. This often amounts to free labour with corrupt retribution of officials.

Child labour/forced or bonded labour (III)

What can companies do to address forced, bonded and child labourissues in the supply chain, either directly or through third party audits of suppliers and their subcontractors?

• Make sure the workers have chosen their employment freely, in full knowledge of its conditions (schedules, wages, accommodation, supervision, etc.).

• In case of employment of young workers below the age of 18, check if it occurs in non hazardous work and when young workers are above a country’s legal age for employment or the age established for completing compulsory education

• In the case of very low wages, make sure they guarantee minimum living wages to lower the recourse to overtime by workers to earn a decent living.

• Reconsider delays in production and delivery if they can contribute to indecent working times.

• Temporary or seasonal workers: if they are contracted through agents, ask the agents the conditions under which workers are hired, treated and compensated.

• Remediation

What actions should businesses take? (IV)

• Make sure that company policy is based, at the very least, on the international conventions against child labour – and complies with national and local legislation if their standards exceed those of the international conventions.

• Make explicit in the company’s formal policy or code of conduct that all forms of child labour prohibited by the two ILO Conventions (C 138 and C 182) will be pro-actively prevented and, if nevertheless found, be combated and eliminated.

• Make sure that young people aged 15 to 18, who are allowed to work according to international agreements, are not engaged in the worst forms of child labour as specified in ILO Convention 182. At least comply with agreements - required by the Convention - between governments, labour unions and industry umbrella associations on hazardous, dangerous work.

• Make explicit in the contracts with the company’s suppliers that they must eradicate child labour and realize labour rights across all sub-contracted operations.

• Ensure that children hitherto employed at the company’s own plants, plantations or service operations, and/or in out-sourced or sub-contracted operations across the entire supply chain, are transferred to free, full-time regular education.

What actions should businesses take? (V)

• Involve the company’s staff and its suppliers in combating child labour: inform them and involve them in the company’s action plan against child labour

• Collaborate and team up with other segments of society, for example local and/or national governments, to achieve full-time schooling for former child labourers up to the age at which they are allowed to work under Convention 138 or national law.

• Make a special effort where needed to address the specific challenges faced by children from groups suffering discrimination and other marginalized groups so that they too can make the transition from work to school

• Verify the authenticity of birth certificates and lobby jointly with other parties for the establishment of reliable birth registration systems in areas where these are absent.

• Combating child labour must always go hand in hand with compliance with the ILO’s other core labour standards and other broadly agreed workers’ rights.

What actions should businesses take? (VI)

• Work with trade unions both to tackle child labour and to make sure that labour rights are implemented.

• Pay view to implementing your company’s ‘no child labour’ policy and ensuring that fundamental workers’ rights are complied with.

• Whenever possible, try to transfer the job hitherto done by children to their parents or other close relatives, or offer the parents alternative suitable employment

• Create, independently or working with others, facilities such as crèches and daycare centres for employees, to help them keep their children out of the child labour market.

• Invest in a credible management system to combat child labour. This includes: pro-active investigations into child labour in the supply chain, a solid self-monitoring system and com-plaints mechanism, reporting and transparency on policy and practice, third-party monitoring and verification, and involving those directly concerned and/or affected.

«Company X Letterhead» «Supplier»«Address»

A l’attention de «Title» «Name»

Exigences du groupe L’Oréal en matière de conditions sociales de travail

Cher «Title»,

Dans le cadre de l’engagement de L’Oréal pour le développement durable, nous souhaitons nous assurer que notre supply chain est conforme auxdroits et principes fondamentaux du travail et des lois applicables.En tant que fournisseur de l’Oréal, il vous appartient d’être en conformitéavec les lois locales concernant toutes les obligations de travail incluant les heures de travail et les salaires et respecter les points suivants :

- Vos employés doivent être âgés de 16 ans ou plus.- Vous ne pourrez en aucun cas avoir recours au travail forcé,dissimulé, dangereux ou pénitentiaire (excepté le travail des prisonniers libres de choisir de travailler et d’être payés au salaire du marché).- Vous devez offrir à vos employés des conditions de travail et de vie décentes et sûres.

Companies responsesL’Oreal letter of engagement for suppliers

• HP and its suppliers operate as collaborators when working on joint assessments and improvement planning

• HP believe that its sourcing needs should not require nonconformances such as excessive working hours or violations of the law, and that higher labor and environmental standards ultimately lead to higher quality products

• Systemic change requires time however, as suppliers must first build their management capability and, in some cases, challenge the prevailing culture.

• HP frequently collaborates with local non-governmental organizations (NGOs) and other organizations to gain insight and expertise and to deliver capability-building initiatives to its suppliers

Companies responsesHP’s Proactive Collaboration

Acceptable timelines for major and minor nonconformance corrective actions:• All major nonconformances should be corrected within 30 to 90 days of acceptance of

their Corrective Action Plan by HP.

• All minor nonconformances should be corrected within 30-360 days. Those minor nonconformances that the auditors requested the suppliers give priority to in the audit report should be corrected within 30-180 days.

NOTE: If a follow-up audit indicates that the supplier has made limited or no attempt to correct any nonconformances from a previous audit, we suggest the following:

If the supplier has demonstrated previously that submission of the CA Plan will not actually ensure they will make the necessary corrections and fix the nonconformances before the next audit, work with the SRM and supplier to set up a meeting every two months specifically to drive corrective actions and review the progress of the closure of nonconformances with the supplier leading up to the next follow-up audit.

Companies responsesExtracts from HP’s Guidance for Lead Auditors

Successful BOP Projects

Other Initiatives

• Business & Human Rights Resource Centre – tracking the positive and negative impacts of over 5100 companies worldwide– They “seek responses from companies to allegations of misconduct: thus ensuring

that their coverage is balanced and encouraging companies to address concerns raised by civil society.”

– The website covers over 4000 companies, over 180 countries - over 1.5 million hits per month.

– Topics include discrimination, environment, poverty & development, labour, access to medicines, health & safety, security, trade.

http://www.business-humanrights.org/Home

• The Human Rights Matrix which is a self-assessment and learning tool that enables a company to begin to understand and address its human rights performance– It serves as a starting point for more focused and rigorous inquiry. It is business friendly

with built-in human rights expertise and knowledge.http://www.humanrights-matrix.net/

Agenda

1. Equip practitioners through European / international CSR Laboratories• Responsible Supply Chain Portal (EU-China)• New business models at the base of the pyramid (BoP)• see also other reference initiatives

• Business & Human Rights Resource Centre• The Human Rights Matrix

2. Engage in EC Initiatives→ EC Research on „Legal Framework on Human Rights and the Environment applicable to European enterprises operating outside the European Union“→ ESG Disclosure Initiative from EC with Stakeholders (Sept. 09 – Feb. 10) (high expectation on business to disclose information in time on local activities or planned investments that could impact local communities regarding HR.)

Current EU Initatives

Study on the „Legal Framework for Human Rights and the Environment applicableto European Enterprises operating outside the EU“:

• European Commission Work Programme 2010 specifies that “emerging issue is that of business and human rights in the light of the recent UN developments”.

• On this topic, the European Commission together with a Steering Committee including CSR Europe is supervising a study which aims to analyze the existing “Legal Framework on Human Rights and the Environment applicable to European Enterprises operating outside the European Union.” It is conducted to further implement the “Prospect, Respect, Remedy” framework developed by Professor John Ruggie.

• The study will be finalized in May/June and it will include recommendations inspiring the Commission’s communication on CSR.

• CSR Europe is preparing an input paper presenting Human Rights Impact Assessments to give an overview how the business community itself is moving along human rights compliance in their operations.

One expert nominated by each member of the CSR Forum Coordination Committee:

– CSR Europe– BUSSINESSEUROPE– UEAPME– EUROCHAMBRES– European Trade Union Confederation– EUROCADRES– European Coalition for Corporate Justice– European Sustainable Investment Forum– EABIS– European Consumers‘ Organisation– European Savings bank Group– Cooperatives Europe 4

Representatives from organisations or initiatives that are a reference in this field:

– Global Reporting Initiative– UN Global Compact– Federation of European Accountants– CSR Alliance Laboratory on Market

Valuation of Financial and Non-financial Performance

– European Federation of Financial Analysts Societies

– Secretariat of the UN Principles for Responsible Investment

– International Corporate GovernanceNetwork

– World Intellectual Capital Initiative– World Business Council for Sustainable

Development 20

Current EU Initatives

ESG Disclosure Initiative – Organisations involved:

Current EU Initatives

ESG Disclosure – Outcomes NGOs:

• Many NGOs are dissatisfied with current disclosure practices as no common indicators are used and the focus is too much on good news

• The focus of ESG disclosure should be on information not communication

• No access in time to information of companies investments and/or activities that can impact human rights

ESG Disclosure – Outcomes Final Session:

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Current EU Initatives

Scenario: Non-regulatory Regulatory

1. No change EC continues to support dialogue and exchange of good practice on ESG disclosure

No change to regulation at European level

2. European transparency benchmark, and new requirement on stock -exchanges

EC finances the development of an online rating system for the quality of ESG disclosure (based on the Netherlands model)

Company participation is voluntary

Criteria for assessment are established through a multistakeholder process

System to be used to reward companies for good CSR performance

Requirements of the Accounts Modernisation Directive (2003/51/EC) remain unchanged

New European directive:

EU Member States should oblige stock-exchanges to make the listing of companies conditional on ESG disclosure

Scenario: Non-regulatory Regulatory

3. Voluntary European standard for ESG disclosure covering process and KPIs, and new mandatory disclosure requirement on investment funds

EU mandates CEN to develop a voluntary European standard for ESG disclosure, covering content as well as process

Training institute on valuation of non-financial information – co-financed by the EU

No change to regulation at European level

New European directive:

Investment funds are required to disclose if they have a policy on taking account of ESG criteria in their investment decisions

4. Strengthened mandatory principles at EU level, and two sets of internationally recognised KPIs

Two sets of non-financial KPIs:

•to assess the company value and therefore meet the needs of economic and capital market stakeholders

•„social-license-to-operate“indicators – to meet the expectations of society

Reviewing European accounting directives (comply or explain basis):

•Identifying the most material ESG risks and opportunities

•Describe the risks faced and policies implemented

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ESG Disclosure – Outcomes Final Session:

Current EU Initatives

Scenario: Non-regulatory Regulatory

5. Principles, KPIs and right-to-know set in EU regulation, and international framework covering process and KPIs

International process result in a widely accepted framework for integrated financial and non-financial reporting

Formal recommendation of making ESG data compatible with XBRL

New European directive: all entities are required to:

•explain how their operations impact on society, environment and economy (annual report)

• identify the most material ESG risk and opportunities

•Disclose past ESG performance against 15 core non-financial KPIs

•Disclose specific ESG information

(EU Member States can chose either to exempt small and micro-entities)

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ESG Disclosure – Outcomes Final Session:

Current EU Initatives