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Commentary: COVID-19 heightens supply chain vulnerabilities and demonstrates need for better human capital management

COVID-19 demonstrates the need to address ESG risks in supply chains, 7 April 2020

…The widespread impact of the coronavirus pandemic is revealing a significant vulnerability in corporate supply chains — the potential for disruptions and delays born of employer-controlled working and living conditions that contribute to the spread of the virus…

Once deemed reputational and regulatory risks, sub-standard labour conditions are now also manifesting as operational ones. Understanding how labour vulnerabilities and working conditions in lower-tier supply chains can impact operations will become core to investor assessments of supply chain management and business continuity…

COVID-19 is a crisis with global but uneven repercussions, driven by varying access to preventative measures and resources as well as differing levels of risk exposure. Business models with complex supply chains relying on cheap, unorganised workers in conditions with close proximity and repeated or extended interactions with others are vulnerable to disruptions in workforce continuity… 

Nearly 25 million workers may lose their jobs globally… according to ILO estimates... Cramped living conditions for workers in corporate supply chains in other sectors have already led to an increase in COVID-19 infections, and have the potential to shut down entire factories.  In the coming weeks, more closures and disruptions from COVID-19 are likely. Countries have banned large gatherings, but still have migrant workers living in cramped conditions, including those building facilities for the next World Cup. Again, the density of employer-provided housing and transportation further increase the risk of spreading coronavirus and disrupting business continuity.

Current working conditions incentivise actions that heighten the spread of an infectious virus like COVID-19. Having little or no job security, time off, or sick pay drives workers to continue to work regardless of potential negative health impacts. This labour vulnerability is also a current risk for companies’ dependent on ‘gig workers’ – those who are ostensibly ‘self-employed’ and without normal worker protections…

The absence of deep corporate intelligence of worker conditions increases the potential for COVID-19 to create supply chain disruptions. Many large global companies only have a surface-level understanding of where their supply chains are located, associated risks, and how to address them – especially in lower tiers...