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    • News
    • Supply chains

    New venture fund aims to make supply chains more ethical

    A growing number of entrepreneurs are launching new companies seeking technological fixes to make the world's supply chains less vulnerable to forced labor and other abuses. Now, a new venture fund called Working Capital will support these innovations so they can scale up to meet the scope of the problem.

    By Catherine Cheney // 30 January 2018
    A worker at a construction site. Photo by: Byamba-ochir Byambasuren / ILO / CC BY-NC-ND

    SAN FRANCISCO — An early stage venture fund launching Tuesday will back ways to improve global supply chains that potentially exploit workers or use forced labor.

    Working Capital’s investment model aligns funders together with corporates to support entrepreneurial solutions to a key question faced by many multinationals as they source products and components from around the world: How can they leverage technology to make their supply chains more ethical?

    A growing number of entrepreneurs are launching new companies around this issue, but Working Capital aims to fill an important gap, supporting these innovations so they can scale to meet the scope of the problem.

    The fund was founded by Humanity United, a private foundation with a focus on human rights, started by eBay founder Pierre Omidyar and his wife Pam, as one of multiple philanthropic entities under the Omidyar Group.

    See more related topics:

    ► What will move the needle for worker well-being in the fashion industry?

    ► This is how Amnesty International is working with companies to cut supply chain abuses

    ► How technology is taking down human trafficking

    A $23 million fund with a 10-year term, Working Capital is taking outside capital from partner investors including Walmart Foundation, C&A Foundation, the Soros Economic Development Fund, and the Walt Disney Company. And with 2.5 million British pounds ($3.52 million) in grant funding from the United Kingdom’s Department for International Development, the fund is leveraging blended finance for ethical supply chains. This commercially structured fund within a foundation with an impact-first orientation is uncharted territory, said Ed Marcum, managing director at Humanity United, in a call with reporters Monday.

    “There are a variety of different ways that companies and members of the social impact universe — NGOs, foundations, etc., can collaborate — but typically that collaboration hasn’t happened through venture,” he said.

    Of the 40 million people estimated to be in modern slavery, 25 million are victims of forced labor, according to the International Labor Organization. But forced labor also generates $150 billion in profits annually, and the 1.2 billion people living on less than $1.25 a day are particularly vulnerable to exploitation. With growing demands on business to take action, and emerging tools to give companies greater visibility into their supply chains, Humanity United identified a need for a venture fund that brings allies together to take on a problem that is pervasive across industries and geographies.

    “It’s not an easy problem to solve,” Marcum said. “It’s wickedly complex with globally distributed supply chains, multiple tiers, lots of opacity that exists.”

    UK pledges 40M pounds to 'modern slavery' as experts search for common definition

    The U.K. Department for International Development announced an additional 40 million pounds to combat 'modern slavery' ahead of International Day for the Abolition of Slavery on Saturday. The issue has been a focus under Prime Minister Theresa May, but experts pointed out that there is still no consensus on what it means.

    Recently there have been a number of labor abuse revelations, from forced labor in seafood supply chains in Thailand, to forced labor in construction in the Gulf countries, to forced labor in electronics supply chains in Malaysia. In some cases, new regulation has sought to tackle the problem, like with the Transparency and Supply Chain Act in California and the Modern Slavery Act in the United Kingdom. But the Humanity United team and its partners sees the need for increased support for entrepreneurs who are tackling supply chain challenges.

    “Because of this growing demand for supply chains solutions, there are many corporations — very well-intentioned corporations — that want to do more to mitigate risks of forced labor in their supply chains, and when they look at the toolkit available to them they realize it’s relatively limited,” Marcum said.

    Existing options include voluntary supplier codes of conduct, which can be difficult to enforce, or the social audit, a snapshot every one or two years that often does not capture labor conditions in a given setting. But a number of emerging supply chain innovations could make up a suite of tools to allow business to do a better job of addressing labor rights. Cell phones have already provided new ways for companies to make their supply chains more traceable and accountable, but now a range of new technologies may also be leveraged for supply chains, including blockchain, machine learning, the internet of things, sensor technologies, and big data analytics.

    Examples include the two technology platforms that are already in the Working Capital portfolio: Provenance, a U.K.-based company that uses blockchain and open data to trace products from producer to consumer, and Ulula, which provides software and data analytics that allow companies to get feedback from and engage with their workers in real time.

    “By investing in these tools, with for-profit capital, we can scale them and get them to the place where they will be viable options for large scale multinational corporations and they can integrate this into their approach and their practice as they try to identify and then mitigate risk of labor exploitation in their operations,” Marcum said.

    On the call with reporters, Marcum described some of the specific technologies they are interested in exploring moving forward, like sourcing platforms, which use matching algorithms to connect buyers with suppliers who meet their criteria; risk assessment tools, which use big data and machine learning to identify characteristics of supply chains to predict labor rights risks; and digital identity, digital contracts, and digital payments.

    Ultimately, the team hopes to invest in scalable and sustainable solutions that will generate revenue through the marketplace, eventually returning the capital to partner investors, meaning they are investing in companies that already have some traction. But the combination of investment capital and philanthropic capital, through the participation of DFID in what the fund describes as sidecar grant funding, will allow earlier stage companies to demonstrate proof of concept. Additionally, the involvement of corporations provides a direct line between investment by the fund and scale of the solutions they are supporting.

    “If we invest in solutions that in fact prove to be viable, there's a market connection immediately available, and hopefully the adoption of some of the tools we invest in,” Marcum said.

    Update, Jan. 30: Due to an error in the press release, this story was amended to clarify that while Apple is an investor in Humanity United, it is not a partner investor in Working Capital.

    Read more Devex coverage on labor and supply chains.

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    About the author

    • Catherine Cheney

      Catherine Cheneycatherinecheney

      Catherine Cheney is the Senior Editor for Special Coverage at Devex. She leads the editorial vision of Devex’s news events and editorial coverage of key moments on the global development calendar. Catherine joined Devex as a reporter, focusing on technology and innovation in making progress on the Sustainable Development Goals. Prior to joining Devex, Catherine earned her bachelor’s and master’s degrees from Yale University, and worked as a web producer for POLITICO, a reporter for World Politics Review, and special projects editor at NationSwell. She has reported domestically and internationally for outlets including The Atlantic and the Washington Post. Catherine also works for the Solutions Journalism Network, a non profit organization that supports journalists and news organizations to report on responses to problems.

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