An investigation by the Financial Times has claimed that an audit of a factory in China run by a joint venture involving German automotive manufacturer, Volkswagen (VW), has fallen short of international standards. Originally a report commissioned by VW concluded that the factory in Xinjiang had found no evidence of abuse of workers. However, it now seems that there were issues with the audit which were not originally declared.
The province has been the centre of complaints about the treatment of Muslim Uyghurs by the Chinese government. As a result of VW’s earlier assessment of the audit, the rating agency, MSCI, lifted a ‘red flag’ on ESG investments in the auto maker. The Inter-Parliamentary Alliance on China (IPAC), an international group of lawmakers, has called for the sanction to be re-imposed, a measure which would compromise VW’s credibility as a ‘sustainable’ investment opportunity. “The Inter-Parliamentary Alliance on China is dismayed by the contents of a leaked audit of Volkswagen’s investment project in Xinjiang,” it said to German media organisation, ZDFheute.
The dispute is an example of what is being called ‘value-washing’ – efforts by corporations to gloss over problems in their supply chains relating to the treatment of their suppliers’ workers. Modern slavery, and supply chain ethics more broadly, are becoming important considerations for manufacturers and retailers which have production facilities or source goods from China and emerging markets.
VW is by no means the first global corporation to be implicated in the alleged abuses in Xinjiang. German chemical company, BASF, is in the process of withdrawing from the region, partly as a result of allegations related to its joint venture partner which were ‘inconsistent with its values’, despite asserting that there was no evidence employees at its joint ventures were involved in human rights violations. It has to be very careful not to upset the Chinese authorities. When Nike and H&M promised to remove materials produced in the province from their supply chains they faced state-orchestrated boycotts by Chinese consumers.
VW, as well as Jaguar Land Rover (JLR) and BMW, have all recently fallen foul of US supply chain legislation, the ‘Uyghur Forced Labor Prevention Act (UFLPA)’, which bans the use of parts made in the region. In 2024, thousands of vehicles were held by US Customs authorities until a part which was identified as being made by a proscribed supplier with links to Xinjiang was replaced. According to a BBC report, JLR said that it would identify and destroy any stock that included the component saying, ‘[it] takes human rights and forced labour issues seriously and has an active ongoing programme of human rights protection and anti-slavery measures’.
Global manufacturers and retailers are in an unenviable position as they attempt to navigate a path through the political tensions which have arisen between Western and emerging market governments. There can be a clash of cultures resulting in disagreements over what is considered acceptable treatment of workers. Moreover, legislation passed in the West, such as the European Supply Chain Act or the UK’s Modern Slavery Act, is regarded by some emerging markets as an unwelcome projection of Western ‘soft power’. As the Chinese Foreign Ministry has commented, “The so-called Uyghur Forced Labor Prevention Act by the US is not about forced labour but about creating unemployment. It does not protect human rights but, under the guise of human rights, harms the survival and employment rights of the people in Xinjiang’.
At the same time, Western manufacturers need to please increasingly ethically (and environmentally) aware consumers; comply with ethical supply chain regulations whilst still delivering economic value to shareholders. Trying to achieve these competing strategic goals brings the risk of compromising sustainability credentials, losing markets and could even result in substantial fines. ‘Value washing’ – projecting a set of ethical values whilst operating in a very different manner – is a short term and ultimately flawed approach to addressing deep-rooted supply chain challenges.
Pre-order John Manners-Bell’s new book, The Good Supply Chain, publishing on 6th December 2024, here.
Source: Ti Insight
Author: John Manners-Bell
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Pre-order John Manners-Bell’s new book, The Good Supply Chain, publishing on 6th December 2024, here.
Co-authored with Julia Swales and published with Sea Pen Books, this practical book includes a guide to implementing a successful corporate and social responsibility plan and showcases best practice through case studies of industry-leading companies. It pinpoints key UK, EU and global legislation and offers readers a comprehensive picture of how to embrace ethical supply chain management.