Uncovering Slavery in Steel
How far up a supply chain should a company be held accountable?
In Carajas in Brazil’s eastern Amazon region, work is scarce and poverty and lawlessness are widespread. Opportunistic hacienda owners lure the desperate and unemployed to distant charcoal camps with promises of work, wages and shelter. Once at the camp, the owners levy illegal charges on the workers for transportation, equipment, lodging and food. Mario Osava, reporting for Inter Press Service last July described the debt as “pretext to keep laborers on the camp under threat and often under armed guard.” Deep in debt, workers succumb to involuntary servitude, a form of modern day slavery.
Charcoal is the cheapest fuel around to feed pig iron plants. Pig iron is gold to steel manufactures, as it gives mills using scrap higher iron content and durability. Over 1,400 charcoal camps dot the Amazon. Laborers collect hardwood and pile it into kilns. They shovel cured charcoal, through smoke and heat, and load it for travel to pig iron plants. The Carajas region alone exports six million tons of pig iron every year, sending nearly all to the thirsty U.S. iron and steel industry.
Over the past decade, government inspectors have worked to eradicate slave labor with moderate success. Local NGOs complain resources are scarce, inspections are sporadic, and fines and orders to pay back wages are minimally effective penalties. Last year, Bloomberg News investigated reports of slave labor and with the help of government inspectors mapped the life cycle of slave made coal (The Secret World of Modern Slavery December 2006). Bloomberg found unpaid laborers at a work camp making charcoal for Cosipar, a major pig iron exporter. Cosipar exports to Nucor, the second largest U.S. steel company, and to National Material Trading (‘NMTC’) and Intermet, two U.S. brokers who contract with Ford, GM, Toyota, Nissan, and Whirlpool. “Brazilian pig iron is part of almost any product in the U.S. that uses steel,” says a NMTC spokesperson.
As Nucor shareholders, we and investor partners contacted the company to learn how it would prevent future incidents of slave and forced labor in their supply chain. The discovery of slave labor was not new to Nucor. The issue came up a few years ago and CEO Daniel DiMicco told Bloomberg “we were hopeful the government would have remedied this situation.” Nucor told me this summer they were talking with Brazilian officials again, using ‘certified’ suppliers, and asking the Brazil government to keep an accurate list of tainted and untainted charcoal camps. When we and investor partners pressed Nucor on specifics of their certification process and policies the company surprised us by declining to talk further.
If a company has the means to prevent egregious violations in its supply chain, we believe that it has the obligation to do so. Companies should build policies, investigate their supply chains, and use their influence to effect government reforms. Those that source from low cost countries often find themselves operating in environments with weakly enforced local laws. If policies are not adequately set and enforced in their supply chains, companies are ultimately exposed to reputational, financial, and legal risks that can erode shareholder value. Supply chain policies should be transparent and available to investors.
Trillium Asset Management Corporation is co-filing a shareholder resolution with a coalition of investors at Nucor led by Domini Social Investments. We are asking the company to review its human rights policy as it relates to supply chain standards. We are requesting a report on the current system and assurances that the company and its suppliers are implementing human rights policies, monitoring them effectively, and engaging local authorities. With the quest for human dignity at stake, Nucor must set and meet higher standards.