Ethical labeling and corporate accountability

Abysmal conditions workers in many poorer countries find themselves in are a direct result of business practices

In countries like ours, the idea of ethical labeling is nascent. The corporate social responsibility (CSR) we mostly see is distractive (or, philanthropic). Corporate philanthropy aims to demonstrate generosity instead of making firms reconsider their harmful production practices or the problems associated with consumption of their products. In many advanced countries, however, businesses have begun focusing on behaving more responsibly, by deflecting the onus of such behaviour onto their consumers, hence creating a new market niche for ‘ethically labeled’ products.

So, in Pakistan, we mostly see a tobacco company funding a forestation drive, a fast food brand paying to rehabilitate a local park, or an international beverage company readily sponsoring musical events. In more advanced economies, however, corporations have begun making consumers pay a higher price for supposedly ethical production practices. Many big and small companies now entice Western consumers to buy their goods because they are apparently produced in a more humane or environmentally friendly manner or based on fairer trade practices.

The notion that consumers can help change the world by the power of their wallet remains problematic for two basic reasons. The first is that ethical consumption is a luxury mostly people with larger disposable incomes can afford given that ‘ethical’ products are often more expensive. Secondly, the fact that a company claims to engage in ethical production does not guarantee that this is in fact what is happening.

A recent study (“Not Fit for Purpose”) has found that many of the world’s leading ethical certification standards are not only failing to improve the ethical conduct of large corporations but are serving to further entrench abusive business practices. This study examines 40 global voluntary initiatives and 10,000 participating companies in 170 countries, covering sectors as diverse as cocoa, sugar, palm oil, minerals, seafood, electronics, jewelry and children’s toys.

This has found much to be desired. It indicates that only 13% of the analysed initiatives include affected populations in their governing bodies. Almost one-third of the examined initiatives offer no grievance mechanism to workers or other affected parties. Moreover, third-party auditors of ethical certification programmes are typically paid by the same corporations they have been tasked to assess, creating a clear conflict of interest that undermines the possibility of objective evaluations.

Setting below-cost prices and other aggressive procurement practices by multinational buyers are deeply problematic phenomenon, due to which a customer may be buying a cup of coffee for $4-5, but the farmers of those coffee beans can hardly make enough money to feed their families. Yet, such problems are not being addressed by ethical labeling mechanisms.

Thus, generic terms such as “fair” and “sustainable” can be misleading as they legitimise abusive behaviours by failing to detect them and suggesting that a wider range of issues are being addressed when deeming a product “ethically produced” than often is the case. Just because there is an ecolabel on a bag of coffee or a clothing item does not guarantee that product has not been produced as a result of child labour, the exploitation of poor men and women, or the destruction of the natural environment, somewhere along the supply chain.

The abysmal conditions workers in many poorer countries find themselves in are a direct result of the business practices of the brands at the top of global supply chains. The idea of CSR was meant to address such abuses by going beyond distracting people by philanthropy while doing business as usual to changing business practices so that harm to people and the natural environment could be minimised. Yet, the emerging evidence indicates that civil society organisations collaborating with industry representatives to create voluntary codes of conduct and oversight mechanisms do not work too well.

Ethical labeling does not seem to be enough to make businesses mend their ways. Whether governments in rich and poor countries can resist the influence of corporate lobbies and the desperate desire for foreign investment and devise effective mechanisms to prevent corporate exploitation of labour and the natural environment thus remains as pressing a question as ever.

Published in The Express Tribune, August 7^th, 2020.

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