At Working Capital Fund (WCF), we invest in innovators. Our partners pioneer ways to disrupt complex supply chains that enable the exploitation of vulnerable workers, in accordance with our Fund’s Theory of Change (ToC).
We invest in companies which disrupt supply chain exploitation with the following tools:
- Transparency and Traceability,
- Ethical Sourcing Platforms,
- Worker Engagement,
- Responsible Recruitment, and
- Risk Assessment.
We’re highlighting a few of these tools of change’ to showcase our approach and the portfolio companies that exemplify how these tools of change can deliver impact.
We’re starting with Transparency.
An apparel retailer most likely knows from which factory the finished garment came from, but may not know which suppliers provided the fabric or buttons, much less where the cotton was grown. A smallholder farmer is unlikely to know what happens to her oil palm harvest after it leaves her farm, which is an obstacle as she tries to derive more value from her harvest. This is the starting point for our Fund’s approach to building transparency in supply chains.
The Key Questions we address are as follows:
- What function do transparency and risk assessment tools play for businesses?
- How can they be compared to one another?
- And, most importantly, how can the use of transparency and risk assessment tools improve the lives of workers? Here’s how we’re currently thinking about these tools.
Transparency is essential for upholding fair standards of labor, especially in sectors that widely employ vulnerable workforces. Where opaque supply chains persist, workers can be exploited with impunity.
The disclosure of key information such as the location, ownership, and working conditions that prevail at suppliers’ facilities is the basis for a transparent supply chain. With regular access to this information, business partners, regulators, and labor advocates can monitor companies’ employment practices and act when they suspect exploitation.
Transparency requirements –like disclosure and human rights due diligence legislation – not only expose exploitative practices but incentivize companies to avoid those practices in the first place. When suppliers and brands comply with labor standards, they benefit from increased trust and credibility. As more companies comply, industry standards slowly adapt to a higher bar.
Transparency: It’s about what you know
While key information about supply chain actors is a good place to start, deeper and more complex information leads to greater impact. More impactful transparency schemes go beyond mere identification of business partners to generate information including:
- Perspectives and data from rights-holders like vulnerable workers;
- Externally verified data like certifications from credible third parties (as opposed to self-disclosed data);
- Publicly available data (rather than publishing in a narrower more private distribution);
- Data that is differentiated on the basis of the strength of an intervention or characteristic (e.g. GoodWeave certification is more rigorous than a standard social audit regime);
- Data that is correlated or linked with other risk factors (like counterfeiting or illegal activity like corruption).
Depending on the content they present, transparency schemes can:
- Disclose the location and identity of a lower-tier supply chain actor (even linking with verified external ‘identities’ like those which will be presented in the Open Apparel Registry);
- Enable the identification of shared suppliers for multiple buyers, facilitating shared remediation (an example is SupplyShift, a WCF investee);
- Enable the identification of risky suppliers, either due to sharing across supply chains (as with Verité’s Cumulus) or through an overlay of information (like the Global Slavery Index);
- Share information with producers and less powerful actors, so it can be used to enable less powerful actors to exert influence over business decision-making.
WCF investee Provenance does just that.
Provenance leverages technology to illuminate insight hidden in siloed data for FMCG companies. The company presents information to consumers, allowing them to understand the sustainability impact of a product.
Phylagen is another WCF investee shaping the way that technology can enhance supply chain transparency. Phylagen uses the unique composition of the microbiome of a person or environment to identify the origin of the product. The data generated by Phylagen’s unique identification process is more reliable than some self-reported data about product origin. Phylagen’s unique technology enables companies to verify compliance and authenticity of the lower-end of their supply chains, empowering them to make data-driven decisions about supply chain actors.
How does transparency catalyze real change?
As information becomes available, corporate and government entities become compelled to use that information to make better decisions and adjustments. Working Capital considers a transparency scheme to be impactful if the information generated by a transparency scheme inspires and informs action on the corporate level, or if it enables workers or producers to take steps that benefit them. Impactful decisions may be ‘positive’ like capacity building, or ‘negative’ like cutting a poor-performing supplier. Both can result in improved conditions for workers.
Transparency has impact when it informs a decision that enhances working conditions.
The quality of those actions is based on the organization’s commitment to change—including voluntary will and regulatory or ethical obligation—for the benefit of workers. We accept that there is a possibility that the Transparency & Traceability information provided in the scheme might be ignored by the client or user, in which case the opportunity for impact might be lost.
Transparency tools can be distinguished from one another by design and use characteristics. Tools that incorporate more granular and more credible information have greater potential to effectively deliver impact for users. But ultimately, any transparency scheme’s level of success is determined by users – multinational buyers, employers, and others – as they employ this new information to make informed decisions that lead to improved lives and livelihoods for vulnerable and disadvantaged workers.