Sedex Briefing Latin America January 2014

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Latin America briengJanuary 2014

Executive summary

Drawing on data from Sedex and other leading supply

chain risks experts, this briefing identifies top line

trends, challenges and opportunities in Latin America

with a focus on risk and performance management.

In this briefing:

● The key challenges and risks affecting supply chains

in Latin America include the impact of industry and

agriculture on the environment, inadequate labour

conditions despite the emergence of democratic

political systems.

● Insights from Sedex on the most common supply

chain issues in Latin America. These include a lack

of proper health and safety management, as well as

environmental issues relating to a lack of compliance

to local and international laws and inadequate

environmental management systems.

● Contextual information to help companies working in

Latin America to understand, monitor and manage

their supply chains risks and improve standards.

This report provides a generalised introduction into

the diverse region of Latin America, which offers many

opportunities but also poses significant challenges.

Key Risks

● Supply chain risks particularly high in the major

economies of Mexico, Brazil, Colombia and Peru.

● With major countries enjoying democratic political

systems, limits on freedom of association are less of a

challenge than in the past.

● Instead, inadequate working conditions,

discrimination, and prevalence of forced and child

labour are the key risks.

● Institutions for labour rights enforcement and

monitoring have failed to keep pace with economic

growth, and are particularly weak outside capital

cities.

● Legislation in key countries is shifting towards greater

investor liability for subcontractor infringements of

labour standards. Therefore, there are political risks

for foreign companies who invest or operate in the

region.

● Highest-risk sectors are mining, agrocommodities,

manufacturing and construction.

Supply Chain Complicity 2013

Extreme risk Medium risk

>0.00 - 1.25 >5.00 - 6.25

>1.25 - 2.50 >6.25 - 7.50

High Risk Low risk>2.50 - 3.75 >7.50 - 8.75

>3.75 - 5.00 >8.75 - 10.00

Data source: Maplecroft: 2013

Environmental risks

● Impact of industry and agriculture on availability of water,

biodiversity and ecosystem services have become

central political and reputational risk issue for companies

operating in Latin America.

● Growth of civil society and greater digital inclusion means

communities are increasingly willing and able to mobilise

against projects with adverse local impacts.

● Environmental regulations increasingly sophisticated, but

enforcement is uneven and often politicised; end users

typically liable for breaches.

● For extractive industries as well as some other sectors

(e.g. aerospace), local content or offset requirements can

increase companies’ exposure to non-compliant local/

national suppliers.

● Supplier adherence to certification regimes increasing

but varies nationally and subnationally; foreign investors

have little control.

Global Risk Perspective

http://www.sedexglobal.com/





Latin America

Population, total (millions) 594

Population growth (annual %) 1.1

GDP (current US$) (trillions) 5.666

GDP per capita (current US$) 7,872

GDP growth (annual %) 5

Life expectancy at birth, total (years) 74.5

Mortality rate, infant (per 1,000 live births) 18.3

Prevalence of HIV, total (% population ages 15-24) 0.5

Source: World Development Indicators, The World Bank, 2011.

Latin America opportunities:

● Latin America holds 17% of the world’s known

oil reserves and will be a critical provider of

natural resources, including minerals and

agrocommodities, for decades to come.

● Leading economies are stable democracies

committed to fostering competitive business

environments and cultivating value-added

industries to boost societal development.

● Rapidly expanding middle class – set to reach

approximately 313m people by 2030 – means

that consumer markets have favourable long-term

growth prospects, even though Latin America’s

share of the global middle class will likely fall due to

rapid Asian expansion.

● No longer just about natural resources: the region is

becoming a critical location in global manufacturing

supply chains (e.g. aerospace in Mexico).

● Growth in intra-regional trade boosting rapid growth

of Latin American brands and ‘multilatinas’ which

invest across borders.

Sedex global statistics:

● >33,000 members

● >150 countries

● >25 industry sectors based on the UNSPSC (United

Nations Standard Products and Services Code) listings

● >44,300 sites of employment

● >19,600 audits

Sedex Latin America statistics:

● Sites from Latin America represent 10% of the total sites

on the Sedex system.

● Sedex members are present in 21 of the 24 nations in

Latin America, with 4,264 sites registered.

● 48% of sites are in manufacturing.

● 18% are intermediaries or agents, and 17% are large

agriculture sites.

● Latin American members represent a total of 4,324,736

workers (including permanent, temporary, agency, sub-

contracted and homeworkers), 45% of which are female.

● By industry, the highest proportion of sites on Sedex are

associated with the Produce (20.9%), Chemicals (10.1%)

and Grocery (9.2%) industries.

Latin America overview & key

statistics

● Countries: Antigua and Barbuda, Argentina, Belize,

Bolivia, Brazil, Chile, Colombia, Costa Rica,

Cuba, Dominica, Dominican Republic, Ecuador,

El Salvador, Grenada, Guatelmala, Guyana, Haiti,

Honduras, Jamaica, Mexico, Nicaragua, Panama,

Paraguay, Peru, St. Lucia, St. Vincent and the

Grenedines, Suriname, Uruguay, and Venezuela.

● Represents approx. 8.6% of the world’s population

in 2011.

● Region covers over 21 million km2.






It is interesting to note that although the top 3 non-

compliances (NCs) for Latin America are seemingly

small percentages, they rank significantly higher

when compared to the global incidence

Some of the issues that are associated globally

as being of significance in Latin America, such

as Freedom of Association, Forced Labour and

Corruption, do not yet show themselves in our audit

data as statistically relevant individual issues.

This may be due to the sectors that Sedex

members represent in the region, which may not be

of as high risk for these types of issues compared

with sectors such as mining and construction.

In addition, issues such as corruption and forced

labour are by their very nature subversive activities

and therefore less easy to uncover.

Top 10 supply chain issues - Latin America

Category Non-Compliance (NCs) Issue title % of all

issues

in Latin

America

Global

incidence of

the issue

ManagementSystems

A lack of proper code and systemimplementation to meet local law, ETIBase Code and customer requirements

7.8% 3.8%

Health, Safety& Hygiene

Health and Safety Management A lack of or inadequate Health and Safetyinspections

4.6% 1.3%


Chemicals Inadequate storage facilities, labelling,training, containment or spill kits forhazardous chemicals or lapses in their use

3% 2.7%

Environment Compliance of the site with local andinternational environmental laws andregulations

2.2% 2%

WorkingHours

Level of Overtime Hours Worked Daily working hours/ overtime hoursexceeded the legal maximum

2.1% 0.9%


Chemicals Absence of provision for safe handling/storage/ disposal of hazardous chemicals

1.7% 1%

Environment Environmental Management Systems Environment Management Systemsinappropriate to the site’s operations

1.6% 0.6%


Hygiene Facilities Inadequate hygiene facilities - toilets,drinking water, canteen, food storage etc.

1.5% 0.4%


Building/ Site Maintenance Failure to comply with requirements forelectrical safety inspections

1.4% 0.7%

WorkingHours

Weekly rest day(s)No rest day for each 7 days worked

1.4% 1.7%

● 5% of audits are fromLatin American sites,and those audits contain7% of NCs globally.

● Latin America

represents 7% of

overdue NCs globally.

● On average NCs fromthis region are closedoff 52% faster than theglobal average.

1 By category, Health,

Safety & Hygiene issues

collectively result as highest

occuring Non-Compliances

(NCs) at 58.7% of all issues

raised.

2 The second highest group is

Labour Standards, which

forms 23.7% of all the NCs

raised in Latin America.

3 A lack of, or improper

implementation of,

management codes or

systems are recorded as

the highest occurring NC,

at 7.8% of all single issues

recorded.

Latin America

issues in the Sedex

system - Key points:

Sample size: 19,653 audits

Sites

Audits

Workers

Rest of world

82%

18%

10%

Rest of world

90%

Rest of world

95%

5%

A NC becomes overdue if the site’s Corrective Actions are not completed and signed off by

an auditor within the Corrective Action timeframe.

*

*

Sedex system - Latin

America comparisonwith rest of world






“It is important that international buyers who are

operating in Latin America know that we definitely

see a trend towards more and more legislation by

governments, national but also local governments,

who want to be the forefront of sustainability and

see that they have to do it through legislation.

”“

We interviewed over 3200 business executivesand consumers in 2011 from 17 countries in the

region, to ask which countries are more advanced

in terms of CSR. There is a belief that higher

standards are coming from abroad, 62% think that

multinationals are bringing higher standards to the

region. However, they also believe the national

companies are catching up very quickly.

”Fabrice Hansé, Executive Director, Forum

Empresa

Rio de Janeiro, Ryan M Bevan

“ Another key change we are seeing is the

growth and spread of “multilatinas”, firms

within Latin America or head quartered in a

Latin American country who invest across

the continent into other countries in the

region and in some cases - as with Brazilianconstruction and mining companies - actually

outside the region as well, so you can see

Brazilian investment inward into areas of

Africa becoming very important. All this

means that the region is set to become more

and more important in terms of global supply

chains.

”James Lockhart-Smith, Principal

Analyst, Latin America, Maplecroft





sedexglobal.com

Europe

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North America

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Responsible sourcing insights briefng

About this brieng:

This business briefing is the latest in a series of films, publications,

resources, webinars and in-person events by Sedex Global and partners.

These focus on a range of topics including; key emerging trends for

sustainable supply chains by region and emerging CSR topics, risk

and performance management in global supply chains, highlighting

companies’ achievements of good practice and best practice, impact,

collaboration and convergence in responsible business.

See http://www.sedexglobal.com/resources/publications/

About the partner author

organisations:

Sedex Global (www.sedexglobal.com)

Our mission is to drive collaboration,

increase transparency and build the

capacity that’s needed to raise standards

across all tiers of the supply chain. We offer

the world’s largest collaborative platform for

managing and sharing ethical supply chain

data, along with leading-edge services

which multi-national companies use to

understand, monitor and manage supply

chains risks and improve standards.

Sedex works to drive engagement upand down the supply chain, encouraging

follow up corrective actions on audits and

facilitating dialogue to address challenges

‘on the ground’. We collaborate with a

range of stakeholders to share insights

and promote best practice on responsible

supply chain issues.

Sedex offers a range of services to

enable effective responsible supply chain

management. See http://www.sedexglobal.

com/member-services/

Maplecroft (maplecroft.com)

Maplecroft is a leading risk analytics,

research and strategic forecasting

company. We offer an unparalleled portfolio

of risk indices, interactive maps, expert

country risk analysis, risk calculators,

scorecards and dashboards. These

technological solutions identify emerging

trends, business opportunities and risks to

investments and supply chains worldwide.

© Sedex 2014

All texts, contents and pictures on thispublication are protected by copyright or

by the law on trademarks. The publication

is subject to the copyright of Sedex

Information Exchange Ltd. Reproduction

is authorised, except for commercial

purposes, provided that Sedex Global

is mentioned and acknowledged as the

source. Copyright of third-party material

found in this publication must be respected.

Sedex offers services, initiatives and resources that help companies

source responsibly, to fast-track transparency, and to demonstrate

the business case for supply chain sustainability. These include:

Sedex Global Platform: we provide the world’s largest

collaborative platform for sharing responsible supply chain data and

monitoring and managing risk.

SMETA (Sedex Members Ethical Trade Audit): an audit

methodology that engages supply chain monitors, buyers and

suppliers in one common audit approach, thereby reducing

duplication and increasing convergence.

Responsible Sourcing Insights: six short films featuring

interviews with leading multinationals, suppliers, trade bodies,

NGOs and other experts at the sharp end of tackling responsible

supply chain challenges.

Associate Auditors Group (AAG): a group of auditing companies,

Sedex members, NGOs and other ethical auditing experts that work

together to drive convergence in ethical trade/social auditing, based

on, and helping to shape, best practice.

Sedex Supplier Workbook: an in-depth guide offering practical

guidance, case studies and good practice to help suppliers around

the world drive ethical improvements in their businesses.

R E S O U R C E S

Disclaimer:

Data covers October 2011 to October 2013. All data correct as of 8th

December 2013.



http://www.sedexglobal.com/member-services/






Documents

Sedex Briefing Latin America January 2014