Manufacturing

FIs should develop specific policies and procedures to address the most salient human rights risks in relation to Manufacturing.

Manufacturing policies and procedures should include a recognition of the corporate responsibility to respect human rights as set out in the UNGPs, including implementing human rights due diligence which reflects sector-specific risks. It should also include a commitment to human rights standards based on the International Bill of Human Rights and the ILO Fundamental Conventions.

Policies and procedures may also contain specific requirements for particular manufacturing sub-sectors or geographies, for example requiring electronics companies to comply with REACH regulations, or requiring that clients / investees with production facilities in Bangladesh are signatories to the Bangladesh Accord on Fire and Building Safety. Policies can also reference good practice voluntary initiatives such as the ETI Base Code, FLA Code of Conduct or SA8000. The ISO standards most relevant to manufacturing are ISO 45001 (Occupational Health and Safety Management Systems) and ISO 14001 (Environmental Management Systems).

Any commitments by FIs to these standards, or any concrete expectations for clients/investee based on these standards, should be accompanied by an explanation of how the human rights-related expectations embedded in these standards will be implemented.

FI’s manufacturing policies should set clear expectations and requirements of how to address human rights risks associated with portfolio clients / investees and throughout the value chain. This can include setting out minimum human rights criteria for the provision of financial services, such as:

• Requiring that clients / investees identify key environmental, human rights and health and safety impacts in their value chain and apply selection criteria based on these impacts for the screening of their suppliers, service providers and contractors.
• Requesting specific documents to address specific human rights risks on issues such as: occupational safety and health (including building and fire safety).

For further information, see ‘Taking Action – Strengthen human rights in FI policies’.

See also ‘Policy commitments and human rights’ for practical guidance on how to develop policy commitments which are consistent with the UNGPs, and how to integrate relevant human rights commitments in other policies and procedures.

Human rights screening and risk assessment should include contractors and sub-contractors, as well as other key entities in the value chain, for example clients’ / investees’ business partners.

For considerations in relation to upstream and raw materials value chains (supply chains), please refer to the sector overviews for:

• Agribusiness – supply chains to garments, FMCG, paper products and others
• Minerals and metals extraction – supply chains to automotive and EV, electronics and semiconductors, battery manufacture and FMCG
• Retail and consumer services – which includes transport and logistics and employment agencies.

FIs should screen their manufacturing portfolio to map and identity salient human rights risks , whether their clients’ / investees’ activities in the sector are likely to impact on vulnerable groups (workers, communities and consumers), and to evaluate the systems that their clients have in place to mitigate and prevent these impacts

FIs can seek to ensure that screening and risk assessments reflect key contextual risk factors in the manufacturing sector:

• Operational and geographical context: Particular attention should be paid to investees in high-risk countries (such as conflict-affected or occupied areas), or manufacturing which is likely to involve hazardous activities (for example, working with chemicals); manufacturing processes that rely heavily on manual labour (for example garment manufacturing) may be more susceptible to labour rights abuses; labour rights abuses are particularly likely in contexts where statutory minimum wages are not adequately or regularly revised, where labour governance is weak and where insecure employment arrangements predominate.
• Type of business relationship: Consideration should also be given to clients / investees that have large and complex value chains, or where outsourcing may be likely.
• Client specific risk factors: Identify if the client / investee has any documented track record of causing, contributing to or being linked with human rights harms, including any reports of significant accidents or incidents at manufacturing facilities.
• Presence of vulnerable groups: Migrant workforces in manufacturing contexts are particularly vulnerable. Workforces including a concentration of women workers managed by male supervisors (as may commonly be the case in apparel manufacturing sectors), and male dominated workforces with a small number of women workers is associated with GBVH risks.

See ‘Taking Action – Strengthen FI risk management systems and processes’. See also ‘Human Rights Screening and Risk Assessment’ for practical guidance on developing risk screening and assessment systems and processes.

Effective client engagement helps to build a common understanding of risks, gaps, and required actions. This ensures that measures can be adequately appropriated and implemented.

Throughout the financial cycle, FIs should gather information on how clients / investees are managing specific human rights risks and impacts relevant to manufacturing and, if relevant, propose actions to prevent, reduce and mitigate the risks. This could include requiring clients / investees to provide information on:

• Labour and occupational safety and health incidents and/or worker complaints, as well as the mitigation/ prevention measures taken. For example, this can seek to understand whether production planning systems support reasonable working hours; whether root causes of excessive overtime have been identified and mitigated.
• Own workforce – understanding the workforce, including % of women in the workforce and the % of migrant workers, will help understand key workforce challenges.
• Value chain workforce – what are the measures taken to know whether and how your financial activities may connect clients/investee to human rights impacts.
• Consultation with potentially affected groups and other relevant stakeholders, including processes, participants, findings and outcomes.
• Procurement practices, describe the process of procurement, including lists of suppliers (and length of business relationship), and whether human rights due diligence is undertaken with new suppliers before placing orders; how clients / investees ensure that child / forced labour does not occur in the upstream value chain.

FIs can also engage directly with manufacturing  clients / investees and use or build leverage to require, facilitate, and incentivize respect for human rights throughout the financing cycle. This might include a focus on the following areas:

• Promoting client / investee HRDD along the value chain: Upstream value chains in these sectors tend to be long with multiple layers of intermediaries, including traders. Equally, human rights challenges tend to be concentrated in the primary phases of the upstream value chain, at production level.
• Increasing client / investee value chain visibility and transparency: FIs can encourage companies to create a comprehensive mapping of their value chains. By mapping their (upstream) value chains, businesses are able to begin to understand the possible human rights-related risks to which they are exposed, based on the countries where different commodities are sourced. Having visibility over the length and complexity of the value chain will also help clients / investees prioritise the actions needed to help identify, prevent and mitigate human rights risks.
• Certification: Certification is useful in improving upstream value chain transparency and understanding human rights risk, but does not remove the requirement for (ongoing) HRDD. See ‘Minerals and metals extraction’ and ‘Agriculture, forestry and fisheries‘.
• Purchasing practices: Clients and investees can adopt changes to their purchasing practices, as they often form the basis for negative human rights impacts within upstream value chains. Short-term planning, last minute order changes, inaccurate forecasting, pricing below production cost and late payments can all lead to issues related to excessive overtime, low wages for workers and excessive use of temporary labour. Investing time and resources into reviewing and improving purchasing practices (for example, through stable, long-term sourcing agreements, collaborative planning and fair payment terms) can play an important role in addressing these issues. 

See also ‘Taking Action – Client / Investee Engagement’.

Contractual requirements are also a common tool to build leverage, and FIs should consider integrating human rights considerations into contractual clauses based on organisational human rights policies and commitments.

Examples of relevant contractual provisions may include:

• Requiring compliance with all national and international laws and regulations applicable to them (e.g. REACH) and requiring client / investee to provide evidence of all requisite permits and licences, and ensure continuous compliance with them.
• Obligation to require suppliers and contractors – including labour providers – to adhere to and cascade requirements on human rights. Specific considerations for manufacturing clients/investees may include: establishing and communicating a code of conduct for suppliers and (sub-)contractors that requires good practice in relation to labour rights, land rights, GBVH and community health and safety, information disclosure, non-retaliation, access to grievance and stakeholder engagement. Where possible, these requirements can be supported through contracting requirements and ongoing risk-based due diligence on key human rights risk areas.
• Ensuring appropriate occupational health and safety protections: this can include requirements on implementation, monitoring and reporting on provision of preventive training, disclosure of OSHA information and workforce engagement on OSHA, provision of and training on use of PPE, monitoring of working hours and break patterns.

See also ‘Taking Action – Contractual provisions’.

To require and incentivise clients / investees to integrate human rights considerations in their policies, processes and risk management systems, FIs can support clients / investees in the development of mitigation plans, agree on timelines and specific actions.

FIs working with clients / investees in manufacturing can focus efforts in all the following areas:

• Workforce: Labour abuses are a key risk issue in many manufacturing sub-sectors. There is scope to work with clients / investees to put in place effective measures to ensure adequate working conditions. Specific attention can be given to GBVH, this may include conducting regular gender-sensitive safety audits of worksites and worker accommodation; adapting the grievance mechanism to provide for anonymous complaints.
• Focus on downstream value chain and consumers: FIs can also encourage clients in identifying downstream supply chain risks, in addition to engaging customers and assessing leverage with end users and end of life disposal (particularly relevant for users of plastics, garments and electronics). For example, the end-users of products (such as heavy machinery, vehicles, or equipment) may be negatively impacted by the products if they cause accidents or health issues. Customers can use equipment in (legal or illegal) forestry, mining, construction, or other operations that negatively impact property rights, livelihoods, or the health of local communities. Risks may be heightened in conflict-affected or occupied areas.

For more general information, see ‘Taking Action – Action Plans and Specific Mitigations’.

In relation to manufacturing, this could include ensuring that time and cost conditions on project implementation do not negatively impact on the rights of workers. In many manufacturing sub-sectors – including apparel, ICT and automotives – demand fluctuations and pressures to meet deadlines are associated with excessive working hours.

See ‘Taking Action – Avoid actions and omissions that facilitate or incentivise human rights abuses’.

FIs should work collaboratively with relevant stakeholders to inform their policies, identify risks, improve monitoring systems and grievance mechanisms, as well as to address entrenched human rights challenges in the manufacturing sector. This should involve meaningful consultation with potentially affected groups and other relevant stakeholders, as appropriate to the nature and context of the operation.

The relevant stakeholders for FIs with investment portfolios in the manufacturing sector, would include: other banks and investors with similar portfolios, industry associations, regulators (such as Ministries/Secretaries of industry), NGOs working on human rights issues linked to the sector, trade unions, industry associations and rightsholders affected or potentially affected by client / investee activities (for example communities located in the vicinity of manufacturing sites) and their legitimate representatives.

FIs working in the sector can note that there are several active multi-stakeholder initiatives that promote human rights principles and standards in key manufacturing sub-sectors – see ‘Sectoral initiatives and partnerships’.

FIs should ensure that clients / investees in the manufacturing sector engage with community stakeholders – including local communities in the vicinity of manufacturing sites. This is particularly relevant where manufacturing facilities are located close to residential areas, as accidents and emergencies can put local communities’ rights to health and a healthy environment at significant risk. Affected communities should have a right to participate in decisions which affect them, as well as access relevant information, including in relation to any environmental and health risks.

See ‘Taking Action – Stakeholder engagement and collaboration’. See also ‘Stakeholder engagement’ for guidance on collaborating, engaging and pursuing collective action.

FIs can enhance transparency and disclosure practices by providing stakeholders with access to sufficient, relevant and frequent information about finance and investments, including potential human rights impacts, mitigation measures, and grievance mechanisms. FIs can also develop and publish reports against clear indicators reflecting a human rights perspective, including salient issues, measures, and results.

Benchmarking plays an important role in promoting more sustainable practices towards human rights issues across several manufacturing sub-sectors. FIs could support this by providing information about how their finance and investments in the sector have performed in relation to key indicators.

FIs should also encourage manufacturing companies to improve disclosure in relation to their human rights practices and impacts. While specific areas of disclosure will vary between manufacturing sub-sectors, it may include mapping and disclosing information on value chains (including sourcing locations); information related to the workforce (for example wages, working hours, recruitment fees and health and safety).

See also ‘Taking Action – Transparency and disclosure’.

In relation to manufacturing, FIs can provide training and capacity building for FI staff on key human rights issues the identification, prevention, and mitigation of human rights abuses. Training and capacity building should reflect the portfolio of the FI, taking into consideration that key human rights issues differ between manufacturing sub-sectors. A number of MSIs provide resources which can support capacity building (see Key Resources).

FIs can also offer guidance and resources to clients to help them improve their human rights practices, and offer technical assistance and support to a client/investee in building the capacity for staff and suppliers on how to implement human rights due diligence management systems and integrating sustainability KPIs into supplier contracts or engaging with suppliers and peers to build leverage.

FIs should also ensure that clients / investees have sufficient technical, financial and logistical resources available, including an interdisciplinary team that includes qualified with human rights expertise and knowledge on the local context. For example, it is important that procurement professionals are aware of salient human rights issues to improve screening and monitoring of supplier practices.

See also ‘Taking Action – Capacity building and training’.

FIs can work with clients / investees to establish robust monitoring and evaluation mechanisms to track the effectiveness of measures taken to prevent and mitigate human rights abuses at the portfolio level. This should focus on mechanisms which allow for continuous feedback and improvement, ensuring that the FI’s human rights practices evolve based on sector and region-specific lessons learned and emerging best practices. The complaints received through the grievance mechanism should also be used as input to evaluate the effectiveness of the measures implemented. At the operational level, FIs can support clients / investees to adopt monitoring mechanisms that are appropriate to the level of risk, and led by teams with relevant skills and expertise. In relation to relation to garment manufacturers, FIs could require periodic monitoring focusing on gender discrimination and GBVH. FIs should ensure that clients / investees have appropriate procedures in place to cascade monitoring through the  value chain. Such measures include, improved grievance mechanisms, dialogue with worker committees / unions, KPIs to track potential negative impacts. 

See ‘Taking Action – Monitoring and evaluation’ for practical guidance on monitoring and evaluation processes to track human rights risks and impacts associated with business activities

FIs should ensure that accessible and effective grievance mechanisms are in place to enable affected stakeholders to raise concerns and seek redress for any alleged human rights abuses related to their investment or lending activities in manufacturing transactions and investments. This includes requiring clients/investees to have in place or to participate in a grievance mechanism aligned with Principle 31 of the UNGPs.

FIs can set up their own grievance mechanisms, participate in one or more grievance mechanisms established together with other FIs, or participate systematically in clients’ / investees’ grievance mechanisms.

Regarding abuse in some manufacturing sub-sectors, FIs should encourage clients / investees to participate in established shared grievance mechanisms. For example, in global garment supply chains, brands are likely to source from the same suppliers and/or factories – taking a collaborative approach creates additional leverage and resources, facilitating more effective access to remedy.

In relation to workers, note that grievance mechanisms established by existing industrial relations systems and collective bargaining agreements can constitute effective and credible mechanisms to respect labour rights.

The deployment of worker voice technologies can also play an important role in supporting grievance mechanisms. For example, the ILO, in collaboration with three trade unions, recently launched a grievance mechanism app for garment workers in Indonesia, see here for further details.

See ‘Taking Action – Improve and support the effectiveness of grievance mechanisms to ensure and enable remedy’.