Responsible Sourcing Forced Labor Risks. Costco Case Study

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1 Title Sponsor

2 Responsible Sourcing Forced Labor Risks Costco Case Study

3 Jim Thomas VP, Sustainability, Safety, Environment, Risk, Compliance & Ethics Petco

4 Modern Slavery Slavery in the World Today Slavery Definition human trafficking, forced labor, debt bondage, sex trafficking, forced marriages and other slave-like exploitations The most recent estimate by the 2016 Global Slavery Index is that nearly 46 million people are enslaved Challenge for companies is have visibility to their supply chains all the way back to all ingredients/components Major key is traceability which can be very hard when there may be 1000 s of suppliers involved in one product

5 Milestones in the Fight Against Slavery 2000: The United Nations passes the Protocol to Prevent, Suppress, and Punish Trafficking in Persons - the first global legally binding treaty with an internationally agreed definition of trafficking in persons. 2002: The International Cocoa Initiative is established as a joint effort of anti-slavery groups and major chocolate companies to protect children and contribute to the elimination of child labor. 2004: Brazil launches National Pact for the Eradication of Slave Labour. It also includes a provision to create a "dirty list" if companies are found selling products produced by slaves. 2004: The United Nations appoints a Special Rapporteur on Human Trafficking. 2005: The International Labour Organization's (ILO) first Global Report on Forced Labour puts the number of slaves worldwide at 12.3 million. A 2012 update increases the number to 20.9 million. 2008: The Council of Europe Convention on Action against Trafficking in Human Beings comes into force - first international law to define trafficking as a violation of human rights, and it guarantees minimum standards of protection to victims. 2011: The ILO adopts a convention laying down basic rights of domestic workers. 2011: California enacts the California Transparency in Supply Chains Act. It requires major manufacturing and retail firms to disclose what efforts they are making to eliminate forced labor and human trafficking from their supply chains.

6 Milestones in the Fight Against Slavery 2012: The U.S. Securities and Exchange Commission passes the Conflict Minerals Rule, requiring major publicly held corporations to disclose if their products contain certain metals mined in areas of conflict in eastern Congo or neighboring countries and if payment for these minerals supports armed conflict. 2013: The first Global Slavery Index released by the Walk Free Foundation estimates that there are 29.8 million slaves globally. The 2014 index increases that to 35.8 million, and the 2016 index to 45.8 million. 2014: The ILO adopts a protocol on forced labor, bringing its 1930 Convention on Forced Labour into the modern era to address practices such as human trafficking. 2015: Britain's Modern Slavery Act comes into force. It requires businesses to disclose what action they have taken to ensure their supply chains are free of slave labour. It also increases the maximum jail sentence for traffickers to life from 14 years, and allows authorities to force traffickers to pay compensation to their victims. 2015: The United Nations adopts 17 Sustainable Development Goals, including a target of ending slavery and eradicating forced labour and human trafficking. 2015: US Customs and Border Protection agency's "Trade Enforcement and Trade Facilitation Act of 2015". The law repeals the "consumptive demand" exception that existed previously. The exception had allowed imported goods produced with forced labor, if those goods were not produced in such quantities in the US to meet the consumptive demands of the US. 2016: In April, businesses in Britain have to start reporting steps they are taking to tackle slavery in their supply chains, to comply with the Modern Slavery Act.

7 Case Study: A fishing company in Indonesia is part of a large-scale ring of illegal fishing and labor crime with branches extending out to the global food supply chain. From: PIRATE FISHING, SLAVERY AND THIRD PARTY RISK by Valerie Farabee: Thomson Reuters Regulatory Intelligence 19 January 2016

8 2016 Global Slavery Index In 2016, the country with the highest estimated proportion of modern slavery by population is North Korea. Pervasive evidence exists that citizens are subjected to state-sanctioned forced labor, including through forced labor as political prisoners and as workers on overseas contracts. Uzbekistan has the second highest estimated proportion of prevalence of modern slavery by population. The Uzbek government continues to subject its citizens to forced labor in the cotton harvest each year. In 2016, Cambodia has the third highest estimated prevalence of modern slavery. In Cambodia, extensive literature details the prevalence of commercial sexual exploitation and forced begging. Our survey data highlight the existence of modern slavery in manufacturing, farming, construction and domestic work. In 2016, we estimate 18.3 million people are in some form of modern slavery in India. Survey data suggest that domestic work, construction, farming, fishing, manual labor and the sex industry remain sectors of concern. The ten countries with the largest estimated absolute numbers of people in modern slavery include some of the world s most populous countries: India, China, Pakistan, Bangladesh, Uzbekistan, North Korea, Russia, Nigeria, the Democratic Republic of the Congo, and Indonesia. Several of these countries provide the low cost labor that produces consumer goods for markets in Western Europe, Japan, North America and Australia.

9 Preston Witt Manager, Supplier Code of Conduct Compliance Costco Wholesale

10 Costco Wholesale Responsible Sourcing Supplier Code of Conduct established in 2001 Mission Statement: Costco is committed to protecting the working rights and safety of the people who produce the items we sell, while recognizing and respecting the cultural and legal differences found throughout the world.

11 Supply Chain Susceptibility to Forced Labor Hazardous/undesirable work Seasonal/short-term production cycles Abundance of recruitment channels via contractors, recruiters, and labor brokers/agents

12 THAILAND: Tier 2 Watch List Trafficking in the fishing industry remains a significant concern. Thai, Burmese, Cambodian, and Indonesian men are subject to forced labor on Thai and foreign-owned fishing boats. Some remain at sea for several years, are paid very little or irregularly, work as much as 18 to 20 hours per day for seven days a week, or are reportedly threatened, physically beaten, drugged to work longer, and even killed for becoming ill, attempting to escape, or disobeying orders. Some trafficking victims in the fishing sector had difficulty returning home due to isolated workplaces, unpaid wages, and the lack of legitimate identity documents or safe means to travel. Source: Trafficking in Person Report June 2016 US Department of State

13 Beyond 1st Tier Suppliers Examples Equitable Food Initiative and Fair Trade USA Alliance for Bangladesh Worker Safety Responsible Sourcing Network Cotton Pledge Against Forced Labor in Uzbekistan Shrimp Sustainable Supply Chain Task Force

14 Shrimp Task Force: Chronology Costco alerted by The Guardian Immediately partnered with Thai suppliers Broadened effort to sub-tier suppliers, governments, NGO s and other retailers/buyers Established 3 main objectives: Traceability, Codes of Conduct and Fishery Improvement Projects

15 Tonette A Lim Manager, Operations UL

16 Shrimp Sustainable Supply Chain Task Force 22 formal Business Member Organisations already joined 16 Leading NGO / Advisory Organisations expressed interest in joining more formal ESA 10 current expressions of interest from leading US and EU Retailers Shrimp Sustainable Supply Chain Task Force, Inc All rights reserved.

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21 Introducing a Code of Conduct