A Losing Battle – Commodity Trading Firms Fight Supply Chain Transparency

In a world where every worker owns a cell phone and international NGOs can launch campaigns in a matter of hours, corporations can no longer hide business practices that are perceived as unacceptable.

Public Eye, a Swiss NGO, recently launched a campaign against commodity trading houses that sell so-called “African quality” diesel to African countries. This type of diesel contains sulfur levels up to 500 times higher than the standard currently allowed in the EU. The pollution that results from the use of low-quality diesel has been linked to an increase of respiratory diseases in African countries. The campaigners urge Swiss trading companies “to stop abusing Africa’s low fuel quality standards.”

Some may say that this demand is far-fetched. After all, trading houses are sitting in the middle of a long supply chain. They connect extraction companies with clients that are in the market for raw materials. In this specific instance, traders provide diesel specifications in line with national standards. However, almost 20,000 people signed the Public Eye campaign because they consider the business practices of these trading houses unfair. Whether this is justified or not is a different debate. The fact is that parts of the supply chain are moving into the spotlight that in the past have not yet been the focus of public scrutiny. For example companies like Trafigura or Vitol are no longer unknown entities - they have become targets of public criticism.

This trend of increasing supply chain transparency has already been evident in other industries. In the garment sector, for example, H&M was in 2012 linked to forced child labor in Uzbekistan’s cotton farming. A ranking of fashion brands published in 2012 assessed not only how brands monitor labor standards at facilities that cut, make and trim, but also at facilities that produce the textiles as well as the raw materials. The Center’s work on the apparel industry in Bangladesh has shown that subcontracting is endemic in the garment industry and human rights risks are greatest in deeper layers of the supply chain.

In our most recent research on migrant labor in the construction industry in Gulf States, we are exploring the role of recruitment firms whose business practices contribute to the precarious situation of foreign workers in the Gulf. This link in the supply chain of labor has, until now, not been studied closely.

For brands, full transparency over the entire supply chain is a critical precondition for understanding and managing business risks. For the trading industry, it is the banks that provide capital who are increasingly cautious in their lending practices; some going so far as to demand social risk assessments. However, the role of companies in the middle of the supply chain, like traders or recruitment agents, has yet to be defined. These companies cannot change the business practices that drive the supply chain on their own; nevertheless, they arguably have a share of responsibility to contribute to change.

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Corporate practitioners in the trading sector are, however, at this point defensive in accepting a share of responsibility (see, for example Trafigura’s public response to the Public Eye campaign). In a business ethics class that I taught for executives of the Swiss trading industry at the University of Geneva this month, participants were pointing out that they are neither willing to write the laws for other countries, nor do they own the ships that transport their goods. This means that if human rights violations occur on the High Seas (like this series in the New York Times revealed), traders would point to the shipping companies.

Whether this line of argument will be able to garner back trust with the general public and appease the increasingly nervous Swiss regulators is questionable. Even if traders disagree, some civil society organizations see the business practices of commodity traders as part of human rights problems upstream. Reacting like deer in the headlights will not help the industry. The trend of greater supply chain transparency works against them.