Loblaw Companies Ltd. is facing pressure to release supply chain records amid concerns from activist investors that the company could be importing goods from suppliers with ties to forced labor in China.
In a proposal to company shareholders Last month, the British Columbia General Employees’ Union (BCGEU) alleged that Canada’s largest food retailer purchased textiles and cotton products from Xinjiang, the remote area of western China where Uyghurs and other ethnic minorities are subject to mass detention and oppressive working conditions by the government.
While Loblaw pledged to cut off imports from Xinjiang early in 2021, the BCGEU motion points to logistics research conducted by a UK professor who alleges the company has received products from the region within the past year.
The shareholder motion, which asked Loblaw to “publish annually a summary of the results of its supplier audits,” was voted down at the company’s annual general meeting last Thursday after Loblaw’s board of directors recommended shareholders vote against the motion.
But despite Loblaw’s recommendations, the motion was supported by a number of prominent minority shareholders including the Bank of Montreal and Norges Investment Management, Norway’s largest sovereign wealth fund.
Loblaw denies that it is importing products from the Uyghur region.
In a statement to the Star, Loblaw said its code of conduct “prohibits the use of any child labor or forced labor of any kind and we do not import products from the Uyghur region.”
“The shareholder proposal raised important concerns regarding standards of care in our supply chain. We welcome the active engagement and encouragement from our shareholders on this important topic,” the company said.
“The timeline proposed in the shareholder resolutions for further action did not match up with our own implementation timeline and consequently, the board did not feel ready to support the shareholder proposal at this time.”
The union referenced research from Laura Murphy, a professor at Sheffield Hallam University who compiles shipment data from Chinese exporters.
Murphy points to supply chain records collected from Panjivaa global trade data company owned by S&P Global Inc., which indicates that Loblaw acquired products from a supplier called Zhejiang Zhongda Novotex Co., which Murphy says leases and owns a swath of cotton and textile factories in the Xinjiang region.
the data from Panjiva shows that a customer named “Loblaws Inc.” Purchased apparel from Zhejiang Zhongda as recently as February of this year.
In the proposal, the union argued that supply chain connections to the Xinjiang region opened investors to risk.
“Enhanced information on these audits would give investors key information to ensure that Loblaw’s enterprise risks are being managed and mitigated,” the investors wrote.
“Loblaw’s failure to address the gap between its disclosure and that of its global peers leaves investors open to risk.”
Though the motion to release supply chain records received just 34 per cent support from company shareholders, the fight isn’t over.
Among independent shareholders — namely, those that are not members of the Weston family, who hold a controlling 53.5 per cent stake in the company they founded — nearly 88 per cent voted in favor of the BCGEU motion.
The proposal also received the backing of two major shareholder advisory firms: US-based ISS and Glass Lewis.
BCGEU spokesperson Emma Pullman said the vote was only the beginning of a pressure campaign against the company over Xinjiang imports.
“We look to the companies we invest in to manage their human rights risks, address their impacts and provide adequate disclosure. The best outcome is they agree to the disclosure we’ve asked for and begin providing investors with critical information on supplier audits. If not, we will consider following up with the company and refiling the proposal next year if necessary,” Pullman said.
Loblaw is one of several North American companies to face intensified shareholder scrutiny related to China’s treatment of Uyghurs, which many countries have labeled a genocide and — according to the US State Department — amounts to the largest-scale detention of an ethno-religious community since the Second World War.
Minority shareholders at the Walt Disney Company recently sought to have the company produce an annual report demonstrating it was not sourcing materials from Xinjiang, though the motion failed.
Canadian Solar Inc., based in Guelph, Ont., recently promised shareholders it would launch an independent investigation of whether workers in its supply chain are the victims of forced labor after the company built a solar farm in Xinjiang.
In 2020, the US House of Representatives passed a bill that seeks to ban all imports from the Xinjiang region given widespread forced labor in Uyghur internment camps.
The BCGEU, which represents more than 80,000 workers across the province, has a history of shareholder activism aimed at pressing majority-controlled companies to increase transparency on human rights concerns.
The union filed a proposal with Montreal-based dairy company Saputo in 2019 to crack down on food waste, prompting the company to release a comprehensive food waste policy the following year.
Similarly, in April, Thomson Reuters acquiesced to BCGEU demands to conduct an independent, company-wide human rights impact assessment of its products and services — including contracts with US Immigration and Customs Enforcement (ICE) — after the union filed repeated shareholder motions in 2020 , 2021 and 2022.
The union isn’t afraid to try the same tactic with Loblaw, said BCGEU president Stephanie Smith.
“We are still monitoring…Loblaw closely. We intend to follow up with Loblaw and all of his investors, including those who didn’t back our proposal. Forced labor is an issue that cannot wait,” said Smith.
According to Smith, the union initially approached Loblaw in private to negotiate supply chain transparency but took the matter public when the company said it needed at least two years before improving its disclosure of supplier audits.
“Two years is unacceptable. This overwhelming vote in support of the BCGEU’s proposal sends a strong message that investors want to see the company tackle this issue now, not in two years,” said Smith.
In a note distributed to shareholders before Thursday’s vote, the company acknowledged the importance of “increased transparency with regard to its supply chain,” but argued the shareholder motion does not match with the company’s timeline for implementation.
“Loblaw is committed to enforcing the obligations of suppliers in its supply chain. Factories are monitored through various means, including site audits. The corporation’s representatives reinforce workers’ rights and safety by conducting reviews and assessments,” the company wrote.
Loblaw has previously promised to stay away from suppliers with ties to forced labour.
In 2017, the company committed to not source cotton produced in Uzbekistan and Turkmenistan over concerns about child labor in cotton harvests. In July 2021, the company signed onto the Better Cotton Initiative, a non-profit that advocates for sustainable and safe cotton harvesting.
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