Small businesses can lead the way when it comes to ethical trade – here’s how

Small and medium-sized enterprises (SMEs) play a central role in global supply chains and in the economic development of virtually all countries. Ben Rutledge believes that while they typically have fewer resources and less capacity compared to larger businesses, their impact on human rights can be just as significant. 

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According to the UK Federation of Small Businesses, there were a record 5.5 million private sector businesses in the UK in 2016, and small businesses accounted for over 99% of them. SMEs also account for roughly 60% of all private sector employees here.

Like larger enterprises, the UN Guiding Principles on Business and Human Rights (UNGPs) stipulate that SMEs have a direct responsibility to respect human rights. They should act with due diligence to avoid infringing on the rights of others and address the adverse impacts of their activities.

The challenge for small business

We know from our members that SMEs can feel daunted at the prospect of evaluating risks in far flung supply chains, especially when there are deeply ingrained and complex social problems, such as caste or gender discrimination.

SME’s are likely to have much less leverage than multi-national enterprises, and attempting to address difficult or politically sensitive issues, such as the lack of freedom of association, can often feel like a fruitless exercise.  

However, it simply isn’t the case that big companies always lead the way in terms of ethical trade. SMEs are often more flexible than large companies, allowing them to respond better to changes in the context of the supply chain.

They may also benefit from being able to engage in a more direct way with their suppliers, if they have a narrower supply chain for instance, while their impact assessments may be less complex. 

Many of our smaller members are already engaging in innovative and creative ways to implement ethical trading practices.

Stone supplier Hardscape engages in advocacy on business and human rights issues and has developed a Modern Slavery statement outlining its approach to human rights due diligence, despite not legally being required to do so.

Meanwhile, ETI member WGC has moved to ban zero hours contracts among its hospitality and housekeeping staff – a move we hope to see replicated across the sector.  

Help is at hand

At ETI, we support SMEs to start having these sorts of conversations and provide the space for their involvement in advocacy.

Whether we’re engaging with the UK Home Office to strengthen the Modern Slavery Act or calling on the Cambodian government to protect workers’ rights, we use the leverage of all our members, both small and large, to encourage policies that promote workers’ rights and ethical trade.

So what steps can small business take to get to grips with ethical trading?

The UN Working Group on Business and Human Rights recently published a report looking at some of the challenges and opportunities for SMEs, and produced a set of recommendations.

They suggest that SMEs should:

• Seek support from employer and industry associations to find out what standards and tools are available;
• Use existing processes for reporting on business conduct and sustainability;
• Draw on lessons from other compliance mechanisms and programmes, including environmental sustainability, health and safety, anticorruption and anti-trafficking;
• Use peer support systems within and across different sectors to share knowledge and experiences.

At the same time, they suggested that larger companies should: 

• Incentivize respect for human rights in their business relationships with SMEs by integrating the Guiding Principles in supplier codes of conduct and contractual clauses;
• Provide guidance and capacity-building for subsidiaries, partners and other business relationships involving SMEs;
• Provide guidance to SMEs partners on best practices towards the implementation of the Guiding Principles.

Punching above their weight

We recognise that in conducting human rights due diligence, what is reasonable and prudent will often depend in part on company size and the operating context.

Yet the UNGPs shouldn’t be a barrier. As our members are demonstrating, SMEs can and do engage in very effective ethical trade practices, and many play leading roles in organisations like ETI.

When it comes to ethical trade, there’s no reason why a small business can’t punch above its weight, and even show larger multinationals how it’s done.

Read the full report by the UN Working Group here or a summary report here. For information on Human Rights Due Diligence, see ETI’s new Framework which serves as a guide for companies to help manage and mitigate labour rights risks, and understand why engagement, negotiation and collaboration is the best way to succeed.