If your business is like many, your board may require that you devote more effort to environmental, social and governance issues, which are known by the now ubiquitous acronym “ESG”. These demands do not come out of nowhere: consumers demand transparency and social responsibility. In particular, if your business operates internationally, regulators are focusing more than ever on international social justice issues (such as the use of forced labor).
For companies engaged in international trade, there are many dilemmas to face in implementing your ESG agenda. Not least is how some parts of this agenda may be in tension with your business’s growth and revenue goals. For example, how to increase export revenues while doing your part to protect the environment. Or how far to go in auditing the import supply chain to comply with growing bans on products made with forced labor. Yet there is very little advice on how to deal with these dilemmas.
In our opinion, a main step is to return to the core values of the company. If you can identify your core values, you can better weigh competing interests. Additionally, pairing international trade policy with core institutional values can help the company better connect with employees, which can improve performance and compliance. It can also help keep the company away from enforcement action and protect the company’s reputation.
Go out with the old one
In the past, US trade regulations focused more on foreign policy, national security, and economic security than on the environment, social justice, or governance. For example, many US sanctions programs aim to isolate foreign adversaries such as Iran and North Korea. Another example is anti-dumping and countervailing duties, which are imposed to protect the US manufacturing sector from unfair foreign competition. Likewise, US export regulations are designed to protect the technological and military superiority of the United States.
In response, most international companies have rightly designed their trade compliance policies to mitigate the risk of regulatory violations. Manuals and training, supported by a corporate culture of compliance, push employees to move the business forward while complying with applicable regulations, which helps advance U.S. national security and foreign policy. .
In the new
More recently, US international trade regulations target ESG objectives. The biggest example is the recent increase in regulations addressing the use of forced labor in foreign supply chains. Recent examples abound. There has been a rapid increase in U.S. Customs and Border Protection (CBP) enforcement measures to prevent the entry of imports made using forced labor. The Ministry of Labor has published a list of foreign products that may be manufactured with forced or contract labor of children. The US-Mexico-Canada agreement (which replaced NAFTA last year) redefined the principles of labor with access to a rapid response panel for labor to allow for better enforcement of labor protections. workers abroad. Last year, the Commerce Ministry issued regulations proposing additional export controls on facial recognition technology and associated surveillance tools used against Uyghurs, Kazakhs and other members of Muslim minority groups in the Xinjiang region in China. The Ministry of Commerce also added more than 40 Chinese entities to the list of entities for reasons of human rights violations against Uyghur Muslims in the Xinjiang regions.
As a result of these regulatory trends, environmental, social and governance objectives must now be part of international trade compliance efforts. It is a daunting task, and it requires us to take a fresh look at compliance. But it also gives us a unique opportunity to review our corporate values and update our policies to align them with corporate values.
Design trade policies to support the values of the company
To extend ESG practices to your supply chain, here are some steps companies can consider:
- Remember the core values of your business. Many companies have started to spend time and effort digging to identify their values. If you’ve ever conducted a values survey or identified a set of common beliefs and goals that define the true core values of the company, now is a good time to understand this process. With a little hard work, you can use these results as a basis for implementing ESG goals into your international trade compliance policy. If your business hasn’t run a values project, maybe it’s time to dig deep as an organization and identify your core business values.
- Determine the intersection with your international business. Identify the intersection between your company’s corporate values and your international business policies.
- Set internal goals. Set internal goals to prioritize and achieve all goals at the intersection of values and business policy. And don’t forget to find a way to provide sufficient resources to achieve those goals.
- Understand the risks in your supply chain. Consider conducting a formal review of your supply chain to identify not only listed entities to avoid, but also entities with strong ESG support and reputation. Consider working with ESG-focused vendors to host industry training seminars or publish publications.
- Fighting forced labor. Implement a sub-program focused on the identification of forced labor. This could include a forced labor audit, reviews of company procurement policies, supplier code of conduct, training, on-site inspections, self-assessment questionnaires and rankings for suppliers. Monitor your suppliers with regular due diligence. Update your training for employees with key roles in identifying forced labor.
- Check third parties. Decide who you want to work with by asking ESG questions. For an exporter this could be if customers are tracking greenhouse gas emissions, or for an importer it could be if suppliers source from indigenous peoples.
- Formalize supply chain commitments. Consider formulating a supplier code of conduct or ethical purchasing code. Consider additional contracts such as sustainable sourcing, support for renewable energies, or other ESG objectives that are factored into your company’s values.
Ultimately, this new perspective on compliance could allow businesses to not only stay ahead of potential enforcement actions and reputational threats. It can also help you identify ways to conduct sustainable and profitable businesses, as consumers, regulators, and employees reward companies for their ESG performance.