Inclusive Compliance: The New Playing Field for Inclusive Business Innovations
Most people agree that the poor want and should take ownership for their own development. Companies sourcing from less developed regions play a role for personal and economic development in origin countries, and should also consider these fundamental factors in their monitoring activities. But this is the exception, not the rule, when it comes to multinational companies that are sourcing from low-income populations and economies.
Not all supply chains are the same, and not all of them are limited to structured factories or facilities. Consider for a moment the difficulties that arise when monitoring labor standards in informal sectors, such as evaluating environmental or social standards across thousands of small farms or checking standards in thousands of households where women do their work for a nearby company at home.
These informal work settings pose specific challenges for comprehensive monitoring, which includes risk assessments, definition of priorities, training and sensitization, remediation, and impact assessments. It is impossible for a company to monitor every single actor in the supply chain. Therefore, measures should be taken to make monitoring systems as efficient and effective as possible. Because standards often leave quite some room for interpretation by local communities, standards should be approached from their perspectives. In fact, the target groups of workers should be empowered to define their own standards.
This was the driving force behind the Fair Labor Association’s Sustainable Compliance methodology (SCI). This new approach to monitoring and remediation includes and targeting the root causes of labor code violations. It also can be extended and complement the concept of inclusive compliance, where the target group, (in this case workers, farmers, small informal businesses), plays a bigger role.
Inclusive compliance consists of two elements:
1. Integration of the target group into programs that monitor compliance to certain standards; and
2. Fostering inclusive business innovations to combat root causes.
Overcoming some of the challenges above can be accomplished by integrating the target group into the whole monitoring process. For example, creating village committees to receive complaints from farm workers and assist in solving the issues raised. Additionally, these committees may serve as a link between home workers and the nearby company. Local youth can be trained in good agricultural practices and then transfer their knowledge to the farmers and their families in town. A slowly established mutual understanding between community members about what certain standards mean may also result in peer pressure to follow the standards.
These processes can be supported and fostered by sourcing companies. Nestlé, for example, is building up a community-based child labor monitoring system in their cocoa supply chain in Côte d’Ivoire, which involves actors from every level of the supply chain, including ‘community liaison people” in the villages and camps where the cocoa farmers live. Hence, additional external monitoring will then mainly have to focus on verification, if the local monitoring systems were functioning independently. (Read FLA’s assessment of Nestlé’s cocoa supply chain in the Ivory Coast here).
Despite this work, persistent challenges such as government failures and poverty prevent individuals from adhering to a set of standards within their own means and using their own resources. For example, how would a community go about preventing child labor when the lack of basic infrastructure for schools encourages it? How can farmers be expected to use personal protective equipment when applying pesticides if they cannot afford it?
Inclusive business innovations can address many of these underlying root causes or systemic issues. Companies have taken first steps to tackle this market by offering extension services such as low-cost irrigation systems, single-serve fertilizer sachets, weather insurances, or mobile information services for farmers, and micro credits to home workers for the expansion of their capacity (e.g. with a sawing machine to mechanize processes). In Côte d’Ivoire, cocoa farmers receive new and more productive cocoa plantlets. Farmers and workers are able to increase volume, income, and finally to improve their livelihood in the mid- and long-term, if products and services offered are environmentally sustainable. Inclusive business innovators can profit from and hook up to existing local networks established by companies with supply chain relationships. Nestlé, to supply pesticides and fertilizers to cocoa farmers, for example, involved Syngenta.
Local economic development can be fostered when local businesses take the lead in (parts of) the value generation from these products, such as in the distribution process or if production can be established locally, with local resources. Many of these activities target the root causes of non-compliance with environmental and social standards, and foster a long-lasting process of change, which is owned by the workers themselves.