FTSE Group’s Environmental, Social and Governance group (ESG) has released the results of its recent research into supply chain management risks and the efforts companies are making to minimise those risks.
The research reveals that over a third of companies evaluated show no evidence of any action to minimise the risks inherent in their supply chain labour arrangements. This is particularly true of companies domiciled in Asia and of companies making electrical components and equipment.
The research is based on evaluation of data from the 456 companies in the FTSE Developed Index which have been identified as high or medium risk, primarily because they focus on clothing, footwear, accessories, toys, food products or consumer electronics. Other criteria also apply and are described in the report.
Institutional investors who have signed up to the UN Principles of Responsible Investment have identified labour standards within the supply chain as one of the greatest social concerns in their portfolio management process. The report is designed to highlight how investors can identify companies facing these risks. Investors can use this information to devise investment strategies which manage those risks at a portfolio level. The information can also be used to support investment decisions and active ownership approaches such as voting and corporate engagement.
The danger to investors is that, in addition to practical issues related to global supply chains, activist campaigns are spreading to a wider range of products including high technology electronic goods. These campaigns can cause reputational and brand damage, which may impact the company’s valuation.
The FTSE4Good Index uses the same supply chain labour management criteria and engages with companies identified as failing to meet its standards in order to help them make changes which will keep or raise them into the FTSE4Good index.
FTSE recently increased the scope of its supply chain criteria evaluation for the FTSE4Good Index, more than doubling the number of companies globally for which supply chain labour standards criteria apply, from 164 to almost 400. It is also rolling out the criteria to several new industries in the consumer sector, including:
- consumer and office electronics; televisions, computers, music systems, mobiles, printers and photocopiers
- home products; furniture, towels, and bed linen
- other consumer products; jewellery, watches.
Those companies currently included in the FTSE4Good indices which do not meet these criteria will need to make changes to meet them in order to remain included.