On October 1, a revised version of China’s State Secrets Law went into effect.  Although little reported in the West, the revised law has serious implications for information and communications technology companies operating in China.  The update includes an article holding network operators and internet service providers (ISPs) responsible for censoring content and turning violators over to authorities.

China’s definition of “state secrets” continues to encompass citizens’ reporting of government corruption, malfeasance, and labor and environmental abuses. ISPs were already required to hand user data over to authorities if “state secrets” were involved, but now they will be expected to actively search user data for “secret” content. Perhaps in anticipation of the new rules, the Telegraph (UK) reported that state-controlled wireless provider China Mobile had begun monitoring the content of users’ text messages earlier this year.

If publicly-traded firms comply with the new law, will investors be complicit in repression? Human rights observers report that the Chinese government has repeatedly detained ordinary people who pass on “secret” information. Complicating the picture for investors is the fact that some state-controlled Chinese firms, like China Mobile, are also publicly traded.

This week, a New York Times report has added to the discussion of Afghanistan’s fate with a survey of the nation’s potential mineral wealth. As Afghanistan contemplates its possible future as a mining economy, its leaders could learn from other poor – but resource-rich – nations around the world. In too many cases, mineral wealth has done little to improve the well-being of ordinary citizens. Instead, resource extraction has just enabled rent extraction: powerful local interests, including landowners and governments, have tended to cut lopsided deals with foreign customers. Tremendous amounts of wealth may change hands, while most citizens remain poor.

The Extractives Industry Transparency Initiative (EITI), a multi-stakeholder effort to raise standards of disclosure worldwide, has tried to shed light on such unbalanced arrangements. EITI’s eight-year history suggests that Afghanistan faces a difficult journey towards broadly-shared, mining-based prosperity.

A recent Economist feature considered the role of business in managing the world’s water supply. Industrial production of goods – from soft drinks to microchips – consumes far more water than agriculture, and competes with other uses in arid climates worldwide.

Water is a human necessity, but is it a human right? If so, should access to water be guaranteed by governments? This question engages the United Nations, and governments in both poor and wealthy nations. There is growing evidence, though, that even without an “official” declaration of water’s special status, businesses will be compelled to help ensure access to water.

Have we already seen “Peak Oil Sands?”

This is the prospect raised by “Canada’s Oil Sands: Shrinking Window of Opportunity,” a new RiskMetrics ESG Analytics report. Produced for investor coalition Ceres, the study accounts for the present and future costs of extracting usable fuel from the oil sands of Alberta.

While this region is now the site of the world’s largest investment in unconventional oil, research shows that production costs, market shifts and political changes may swallow any future return on that investment.

This provocative conclusion raises serious questions for oil industry shareholders, as the firms they own have sunk $200 billion into oil sands development projects. What does ESG research uncover that the industry doesn’t know? Or rather, what costs are left out of its projections?

Last weekend, Haitian microlender Fonkoze served its customers in a manner worthy of a James Bond movie. While Haiti's commercial banks remained closed after the January 12 earthquake, Fonkoze reopened 34 of its 42 branches, disbursing both deposited funds and remittances from abroad. Last week, to ensure a steady supply of currency in Haiti, Fonkoze transferred $2 million in cash from its US account to a Florida Air Force Base.

On Saturday morning, after a C-17 cargo plane brought the money to Port-au-Prince, helicopters delivered it – hidden in office supply boxes – to ten drop points, from which Fonkoze employees restocked their branch locations.

Reports on the retail sector, including apparel sellers, are a staple of January's post-holiday business news. However the last quarter looks to retailers, it has told a grim story about the retail supply chain. In November 2009, the BBC reported that Uzbekistan's fall cotton harvest was gathered, in large part, by children. Boys and girls as young as 11 were forced out of school and into the fields by the Uzbek government, which depends on cotton sales for most of its revenue.

Child labor is sadly common in much of the world, but Uzbekistan – the third largest producer of cotton in the world – presents an especially egregious case of a national industrial policy founded on the conscription of children.

Environmental Leader, along with most major news outlets, reports that Walmart is preparing to develop a sustainability index for its suppliers and products. The index will try to account for the environmental, social and governance (ESG) performance of Walmart suppliers "in such a way that consumers [can] easily discern the sustainability of one product over another." Marc Gunther at The Big Money writes: "For the [Walmart] index to work, consumer-goods makers will need to understand the origins of everything they put into their products."

Recent news about the global supply chain has made me think about my own origins.

I don't usually refer to myself on the KLD Blog, but on this topic, I'll make an exception. I was fortunate enough to attend Carnegie Mellon University in Pittsburgh, Pennsylvania – an industrial town, and a school founded by an industrialist and a financier. I was able to do so because my father, a manufacturer's representative, had a productive understanding of the 1980s market for truck equipment in the Northeastern US.

College's big ideas and relationships (including my marriage) were, in a sense, brought to me by a stream of dump bodies and liftgates from a plant in Council Bluffs, Iowa.

The power of the industrial supply chain is both personal, and profound. Perhaps this is why I found this New York Times report, on the roots of recent violence between ethnic Uighurs and Han in China, especially painful. Andrew Jacobs describes a hellish brawl, and also the stage for this tragedy:

"During a four-hour melee in a walkway between factory dormitories, Han and Uighur workers bludgeoned one another with fire extinguishers, paving stones and lengths of steel shorn from bed frames. … "Li Qiang, the executive director of China Labor Watch, an advocacy group based in New York that has studied the Shaoguan toy factory, has a different view [of the cause of Uighur/Han violence]. He said the stress of low pay, long hours and numbingly repetitive work exacerbated deeply held mistrust between the Han and the Muslim Uighurs, a Turkic-speaking minority that has long resented Chinese rule."

The setting for this madness was a toy factory. All this suffering is at the front of a supply chain that leads to me, and my kids' allowance money.

Labor activists might scold me for needing to be reminded of this, and a new book will make more Americans less comfortable with all our cheap stuff. In "Cheap: The High Cost of Discount Culture," Ellen Ruppel Shell considers our culture's "insidious human costs," in the words of Salon reviewer Stephanie Zacharek.

Accounting for such costs, Ms. Zacharek writes, is "impossible" without China, but she also points out that "China isn't the source of the 'cheap goods' problem":

"[Author Ellen Ruppel Shell] quotes Mark Barenberg, a professor of law at Columbia University and an expert on international labor law: 'The severe exploitation of China's factory workers and the contraction of the American middle class are two sides of the same coin.'… In other words, employers in the United States can easily use the threat of downsizing and outsourcing to gain more power over, and squeeze more juice out of, their employees -- who, in turn, enjoy increasingly less protection from unions."

"Cheap" author Shell explores the role of retailers like IKEA in maintaining "discount culture." Ms. Zacharek makes an example of IKEA's purchases of timber. While the firm is the third-largest buyer of wood in the world, it employs only 11 forestry experts to monitor its suppliers. Many of them harvest in remote regions where wages are low, working conditions are poor, and "half of all logging is illegal."

Ms. Zacharek asks the question that Walmart is now attempting to answer:

"Would enlightened consumers pay a little more, maybe, to buy products made from wood that had been, unquestionably, legally harvested? Maybe -- but it's not the consumer's choice to make, at least not right now. And if there's one thing that makes reading this eye-opening book an ultimately frustrating experience, it's that Shell can't offer many helpful solutions to this tangle of economic and moral problems, aside from urging us to be more aware as consumers."

I would argue that, rather than becoming "more aware as consumers," we should remember that there is no such animal as a "consumer." Each of us produces, consumes, and benefits from the work of others – past and present. The money I spend at IKEA, like my education and my career, came from the labor of my Dad, and also people in Council Bluffs and Shaoguan.

My life's good fortune was brought to me by a certain sort of economy; the world's supply chain makes our lives, not just our stuff.

The mining and refining of metal is an industry with ancient roots, and it remains essential to the global economy. Even supposedly "clean" industries like electronics depend on mining and smelting, as gold, tin and other metals are found in cell phones, computers and other ubiquitous consumer products.

Industrial mining can have a dramatic impact on the environment, and metals profits also help finance violent unrest in poor nations like the Democratic Republic of Congo (DRC). Developing nations such as Indonesia, Colombia, and the DRC bear the brunt of mining's costs, yet downstream consumers – and investors – share responsibility for industry practices.

To better assess these practices, the Global Reporting Initiative (GRI) recently solicited comments for its Mining and Metals Sector Supplement (MMSS). The MMSS will support better environmental, social and governance (ESG) disclosure by mining companies and metal processors.

GRI recognizes that the global economy's appetite for metal has overwhelmed many efforts to protect workers and the environment, and that the relationship of metal producers and consumers must change.

Even Responsible Mining Scars Land, and People

In a recent sector report, KLD Analyst Lesley Fleischman notes that even relatively well-run mining operations still have an impact:

"There are mining companies who operate some of the most sophisticated environmental and community programs of any of the companies I've researched. Many follow high standards for waste disposal, operate programs to hire indigenous people, and provide education and health service to communities. "But even relatively well-run mining operations can have severe environmental consequences, and many miners' communities see only a fraction of the income from their work."

Congo's "Blood Minerals"

The Democratic Republic of Congo (DRC) is a tragic example of what "blood mineral" wealth can do to a society. KLD Analyst Benson Hyde, who has studied the DRC, writes:

"'Blood minerals' include not only gold for jewelry, but also tin for electronics; tantalum, used to store electricity in cameras, phones, and other devices; and tungsten, which helps make cell phones vibrate. "The same Congolese groups are responsible for both the mineral trade and violence in the DRC. Mining operations generate hundreds of millions of dollars each year. Armed groups profit both from forcibly controlling the mines and by demanding bribes from traders, shippers, and border guards. "The regions where these minerals are mined have the world's highest rate of sexual violence, which is often used to control inhabitants. Children are also forced to work in mines and join the militants."

Mixed Messages from Developed Nations

Sustainable and socially responsible investors (SRI) have sought to hold metals companies accountable for their ESG practices worldwide. This week, Canada's Ethical Funds Company announced that it has secured nearly 20% shareholder support for an independent ESG audit of Barrick Gold. Ethical Funds says that Norway's pension fund has already divested from Barrick, "citing concerns with human rights violations and community unrest at operations."

Developed-world governments are also concerned with mining companies, but they may not share ESG/SRI priorities. Canada's Embassy magazine reports:

"The Conservative government has rejected joint civil society-private sector calls to tie diplomatic and economic support for Canadian oil, gas and mining companies operating in developing countries to socially responsible conduct abroad. "As a result, there are charges the government–allegedly influenced by mining giant Barrick Gold and the Canadian Chamber of Commerce–has given the green light for misbehavior abroad, and killed the temporary peace between NGOs and mining companies."

The article describes how, over the objections of NGOs and activists, the Canadian government reduced the power of a proposed "extractive sector CSR counselor."

Embassy quotes Karyn Keenan, of activist coalition the Halifax Initiative: "The response basically perpetuates the status quo. There's no incentive for corporations to change their behavior."

Rich Nations Buy Gold – and Sell Mercury

Part of the metal supply chain's status quo is for developed-world corporations to source raw material in poorer nations. Trade is not a one-way street, however. Miners in Indonesia import illicit mercury for gold mining use – and the US and Europe are major sources for this toxic material.

The Jakarta Post reports:

"The use of mercury in gold mining is illegal in Indonesia because it is toxic to both human health and the environment. But the price of gold has tripled since 2001, and mercury is the easiest way to extract it… "Despite the hazards, buying mercury at gold mining sites is as easy as purchasing toothpaste. The international trade in mercury is largely unregulated. And most of the 55 countries where small-scale gold mining is rife lack the political will or capacity to prevent the toxic metal from falling into the hands of 10 to 15 million poor miners."

KLD's Lesley Fleischman explains that while large mining companies don't use mercury to extract gold, they do play a role in creating demand for the chemical. "Typically, the small-scale miners who buy mercury illegally are former farmers whose land has been ruined by large-scale mining."

Millions of Miners, Billions of Consumers

To their credit, the GRI does not shy away from the geopolitical complexity of this sector. As defined by their guidelines, three of the sector's "main contextual issues" are explicitly political:

• The control, use, and management of land
• The contribution to national economic and social development
• Community and stakeholder engagement
• Labor relations
• Environmental management
• Relationships with artisanal and small-scale mining
• An integrated approach to minerals use

The last-listed issue may have the broadest implications for investors and consumers in the developed world. Individuals' demand for useful and attractive products is already "integrated" into the world economy; can their concern for human rights and the environment also shape the metals sector?

The Jakarta Post notes that the US, UN, and EU have all committed to banning mercury exports. Sustainable/SRI investors, in concert with independent observers like the GRI, can also help guide the practices of both buyers and sellers of metal.

Resisting the Rare and the Beautiful

Still, the struggle for sustainable use of metals is a struggle against consumerism itself. The difficulty of tempering human appetites – of persuading people to pay more, or use less – is an issue that goes beyond jewelry or iPods.

For a poignant expression of what we're up against, here is a consideration of a consumer good seemingly unrelated to metal: fresh, store-bought food.

Jon Garvie, writing in the Times of London, reviews Susanne Freidberg's Fresh: A Perishable History, a social history of consumers' demand for "permanent global summertime." Mr. Garvie emphasizes the part of Ms. Freidberg's story where a desire for social justice collides with baser appetites:

"…[Companies] envelop their activities within promises of corporate social responsibility and greater self-regulation. But the consequences of this attention are as nothing compared to international consumer demand for 'permanent global summertime' in which all fruits and vegetables are made available all of the time. The universal impulse to fetishize the (increasingly) rare and the beautiful leads back unerringly to inequity and despoliation. [Emphasis added]"

Whether it delivers something permanent as metal or as ephemeral as food, the supply chain's reform must begin with the buyer.

On November 26th, the Secretariat of the United Nations Principles for Responsible Investment (PRI) held a webinar on its Ethical Trading Initiative. The PRI call on investors to incorporate environmental, social and governance (ESG) factors into their investment practices, and to work together for better reporting and disclosure of ESG performance. (KLD is a charter signatory of the PRI. For more information, see the About PRI page at KLD.com.)

The Ethical Trading Initiative is a PRI-led coalition that works for better labor and environmental practices throughout the global supply chain. The Initiative is a recognition that investors alone cannot raise global ESG standards. Real progress demands that manufacturers, distributors and retailers commit to industrywide improvements. Shareholder activists play a vital role in this effort, which requires coordination on a massive global scale.

Speaking to the webinar, Initiative Director Dan Rees explained why companies are willing to participate. "They're driven by the demands of risk management. They're worried about their reputations. But that's not enough. There needs to be a clear business case, and companies need to fully understand the market demand for responsibility on these issues."

Joining Mr. Rees for the webinar were Louise Nichols and Fiona Sadler of British retailer Marks & Spencer, and Lauren Compere of Boston Common Asset Management (BCAM). Each speaker also responded to questions from webinar participants.

The Scope of the Supply Chain

Marks & Spencer is a well-established British retail chain that is a founding ETI member. Louise Nichols and Fiona Sadler described how the company works to sustain an ethical supply chain. It is a dauntingly huge task. Marks & Spencer's supply chain encompasses:

• 35,000 product lines
• 20,000 factories
• 2,000 farms
• 88 source countries
• 55 different languages spoken by suppliers

To manage this vast assemblage, Marks & Spencer has conducted 1,224 supplier audits. The company enforces its supplier code of conduct with on-the-ground support and the sharing of best practices, even among competing suppliers. Marks & Spencer reports to the Ethical Trading Initiative annually. In the spirit of the ETI, the company has also shared its supply chain management expertise, including case studies of key issues, with other retailers.

Globalizing a Local Problem: The Role of the ETI

The Ethical Trading Initiative engages these issues at a systemic level. Mr. Rees explained that the best-run global companies can identify labor issues on their own without intervention from shareholders or customers. However, the complexity of the global supply chain compels a growing number of companies to work together on these issues, Mr. Rees said.

Since its inception ten years ago, the Initiative has grown to include 52 corporate members and 16 non-governmental organizations (NGOs) that focus on labor, environmental and product safety issues. This relatively small number belies the influence that leading corporations can have on the broader global economy. In 2007, 38,000 suppliers were operating under workplace codes of conduct, and suppliers had made 55,000 significant improvements to worker health, safety, wages, and hours, said Mr. Rees.

These codes of conduct have made a tangible impact. Mr. Rees said industries that employ some of the world's poorest workers – such as agriculture and the garment and footwear industries – are now paying better and relying less on forced overtime and child labor.

Mr. Rees added, "We need to define and measure what companies could or should do to drive change in the supply chain. We also need to show evidence of improvement and give credit where it's due." This publicity drives growing global awareness of the need to improve conditions for these workers.

Still, there is much to be done. Along with better pay and conditions, Mr. Rees mentioned other urgent needs:

• Too many workers are still denied freedom of association and the right to organize – rights that would allow workers to better advocate for their own interests.
• While more nations now regulate minimum wages, the minimum is too often less than a living wage.
• Ethnic, racial and gender discrimination persists.
• Too many work without formal contracts, leaving them vulnerable to abuse and summary dismissal.

Lauren Compere of BCAM noted that many larger firms in China, in particular, have made progress over the past five years. Problems persist further down supply chains, at small companies that are difficult to monitor. The Initiative, and activist investors, work to engage large manufacturers in better supervising their subcontractors.

The Tools of Engagement: Confrontation and Collaboration

Ms. Compere, who is also affiliated with the Interfaith Center on Corporate Responsibility (ICCR), said that to have a real impact, shareholder activists must understand the global scope of modern manufacturing. She presented examples of direct confrontation with individual companies as well as activist-led industry-wide initiatives.

In 2007, investors engaged Toyota regarding allegations of abuse in its factories, including reports that it brought guest workers from southeast Asia to Japan to work under sweatshop conditions for far less than minimum wage. Over 20 institutional investors signed on to a letter about this issue, which led to unflattering media coverage and a commitment to reform from Toyota.

BCAM also wrote to Samsung in 2002 about its supply chain, asking them to join the Electronic Industry Citizenship Coalition (EICC). Compere met with Samsung management, and the company established a CSR management process, which includes a committee that reports to the board.

While single-company campaigns have made a difference, multi-stakeholder initiatives can better leverage the strength of activists. For example, in 2008, BCAM and other U.S. social investors wrote to 110 companies concerning the use of child labor in harvesting cotton in Uzbekistan. In their letter, they described the best practices of the most ethical companies. Several major retailers then threatened boycotts of Uzbek cotton, and before the 2008 harvest the Uzbek government announced a plan to prevent children under 15 from participating.

The multi-stakeholder approach works for companies, as well as activists, because it offers economies of scale for costly monitoring and auditing operations. Ms. Compere also emphasized the important role played by Oxfam, Amnesty, Amazon Watch, and other NGOs.

Ms. Compere concluded by saying that shareholder activists need to remember that while labor rights are a global issue, each situation is unique. "Success depends on what's being asked of a company," she said. "Often there are baby steps, and engagement that goes on for years. Sometimes activists decide they're not getting anywhere, and they stop and decide the engagement has been unsuccessful." Indeed, the ultimate success of the Uzbek initiative is still in doubt.

The Business Case for the Ethical Trading Initiative

A webinar participant asked if companies join the Initiative simply to improve their public image. "There's always a risk that companies will join the Initiative to create the appearance that they're actually doing something," Mr. Rees said. "But if they don't do anything, they're asked to leave. The Initiative does its best to hold companies to their commitments. We monitor companies with a tripartite review panel made up of corporate, NGO, and trade union membership."

Participation in the Initiative, which requires third-party oversight and collaboration with other companies throughout the supply chain, is not an act of altruism. Lauren Compere explained why: "The business case for participation is that if companies don't meet high industry standards, they could lose their license to operate." By helping set and maintain these standards, investors and PRI signatories help the global supply chain work for workers, not just employers.

After languishing for most of the 1990s, gold prices have risen steadily, enriching mine owners and some investors. The true cost of metals extraction and refining, however, is often borne by people and places far removed from the mercantile exchanges. Open-pit mines like Argentina's Alumbrera disturb the landscape and pollute surrounding communities, which is tragic; now, in what could be a portent, it may also be a crime.

In June 2008, a provincial court in Tucumán, Argentina charged the vice president of mining company Bajo la Alumbrera with "crimes against the environment." Three multinational corporations jointly own Bajo la Alumbrera: Xstrata, Yamana Gold and Goldcorp, a Canadian company. The Canadian Mining Journal reports that Julian Rooney, Vice President of Bajo La Alumbrera, was "not jailed, but his possessions were impounded."

David Modersbach of the National University of Rosario, Argentina has written a thorough summary of the case against Alumbrera. The charges were ten years in the making:

"The ruling is a product of a complaint filed ten years ago by citizens groups and biologist Juan González, Secretary of Environment for the Province of Tucumán. They discovered that Alumbrera was dumping millions of liters of toxic liquid wastes into DP2, a canal used by animals and farmers alongside the Alumbrera pumping and filtration station in Tucumán. González ordered a series of tests, and the Provincial Health System (SIPROSA) found lead, cadmium, copper, selenium, mercury, cyanide and arsenic above legal health limits. A claim was filed in 1998 against Alumbrera for violating the laws in Argentina's National Constitution which regulate toxic waste emissions."

For its part, mine co-owner Goldcorp says that Alumbrera "has been designed to meet environmental standards equivalent to those of the leading gold and copper producing countries." Goldcorp's comment on the problem:

"Despite the best efforts to ensure minimal impacts and promote positive community initiatives, some tensions inevitably arise as a consequence of the development of a large scale mining industry in its infancy in Argentina. Consequently, Alumbrera works closely with government at the national, provincial and municipal levels to resolve common issues and alleviate community concerns."

It is this "working closely" with government that spurred legal action by the people of Tucumán. While the industry may be in its "infancy," Alumbrera is already in decline, as confirmed by Goldcorp's own production figures. Modersbach explains that, when the mine is depleted, its owners can simply walk away from it: "Due to agreements signed by the government and Alumbrera in 1996, responsibility for cleanup will fall upon local authorities."

The damage done by mining will long outlive any one gold mine. Alumbrera's owners may be the first brought up on charges, but unless the industry renounces the behavior of its "infancy," they will not be the last.

Thanks to Liz Umlas for alerting us to this story.