Examples of international ESG issues
The below examples showcase how ESG issues are global in nature and affect different industries and geographies across supply chains:
1. Modern slavery in supply chains
The Xinjiang Province is a region in China where many global manufacturing supply chains start from. The region supplies cotton as well as other materials crucial to many industries. In a large number of publications, this province is known for use of forced labour. When customers buy the end product, they are usually unaware of the source material’s origin. However, the use of forced labour in their supply chains is something companies should know about and take action to avoid. For example, the United States has recently enacted legislation (the Uyghur Forced Labor Prevention Act) which obligates companies to proactively prove that for any products or services sourced from Xinjiang Province, forced labour was not used1.
This example illustrates that global supply chains tend to be complex, and that it may be challenging for companies to trace materials back to the initial manufacturing facilities.
2. Legalised cannabis and environmental and drug violations
The legalisation of cannabis in Canada in 2019 has led to investor interest in the industry. There are now two co-existing markets – the legal market and the illegal ‘black’ market. It is increasingly difficult to establish if the product is sourced from a legal or illegal supplier due to the markets being interconnected. Thus, when entering this market, investors risk investing in ‘black’ market cannabis, which is often associated with other criminal activities and harder drugs. Even where the cannabis is from a legal source, there are frequent damaging environmental violations related to its production, particularly related to the disposal of hazardous waste.
This example illustrates that unless you know the market incredibly well, it can be hard to avoid inadvertently becoming involved in illegal or unethical practices when entering a new market.
3. Gold mining’s associations with environmental breaches and displacement of indigenous communities
Gold is a highly valuable commodity, sought after all the more in times of economic uncertainty, including the global Covid-19 pandemic. Gold mines are often found in emerging economies subject to political turmoil where the rule of law is weak. Mining operations in such countries often involve unethical practices such as deforestation and displacement of indigenous peoples, as well as the use of hazardous chemicals such as cyanide and mercury2. These chemicals are not only dangerous to the miners themselves, but they also enter the river systems and cause catastrophic damage to the environment and communities downstream. When illegally mined gold is melted and combined with legal sources, you cannot trace its origin.