Brands are not effectively eliminating forced labor from their supply chains, according to research.

• A research organization known as KnowTheChain evaluated 65 companies based on its benchmarks for corporate exposure in the supply chain.
• The organization stated that the average score of 21/100 produced by the companies demonstrates that their policy and practice are not sufficient in addressing the risk of forced labor, which is intensified by conflict, climate crisis, and economic instability.
• The top three sportswear brands were Lululemon from Canada (63/100), Puma from Germany (58/100), and Adidas from Germany (55/100).

A report reveals that several prominent fashion brands, including French luxury giant, are not adequately addressing forced labor in their supply chains.

An analysis by KnowTheChain, which concentrates on forced labor in supply chains, examined 65 companies for potential risks.

According to KnowTheChain's benchmarking methodology based on the U.N. Guiding Principles on Business and Human Rights, companies achieved an average score of 21/100.

The report, released last month, stated that the climate crisis and economic instability are increasing the risk of forced labor, and company policy and practice are not sufficient to address this issue.

They mostly respond to human rights violations instead of having strong, established practices to prevent them.

An "indictment" of the sector was made by KnowTheChain, which stated that over 20% of the companies evaluated scored 5/100 or below, failing to provide and disclose remedies to those whose rights had been violated.

Lululemon, Puma, Adidas the top performers

Canada was ranked as the top performer among 65 companies, receiving a score of 63/100, for its efforts to disclose human rights due diligence to mitigate forced labor risks in its supply chains.

According to KnowTheChain, the company has surpassed the SPDR S&P Retail ETF in performance over the past three years and achieved double-digit growth in net revenue and gross profit in 2023 compared to the previous year.

Embedding human rights due diligence in a corporate strategy does not necessarily hinder long-term sustainable growth or investor returns.

The German sportswear brand was the second-best performer, while the rival came in third.

Puma has spent 20 years investing a "vast amount of time and resources" to maintain high ESG standards, as stated by Veronique Rochet, senior director of sustainability at the company.

PUMA is a member of the Fair Labor Association, which regularly audits and accredits our compliance program to ensure we have the systems and procedures in place to uphold fair labor standards and remediate any violations.

The KnowTheChain report's score for PUMA indicates that we are making progress, but there are still areas for improvement in the future.

Adidas' efforts to ensure fair and safe working conditions for workers across its supply chain have been recognized, according to a spokesperson for the company who spoke to CNBC.

In 2022, the company conducted over 1,200 factory audits of suppliers, with a team of around 50 experts worldwide ensuring workplace standards are maintained.

The KnowTheChain report stated that although Puma and Adidas' equities have underperformed companies in the top six of this year's benchmark over the past three years, their higher scores suggest stronger operational practices and business resilience, which may lead to long-term growth and returns.

While at the bottom of the scale, five companies from India, China, Taiwan, Indonesia, and Japan received a score of 0/100, three others received a score of 1/100.

The world's largest luxury goods company, scored 6/100, while a U.S. retailer received a lower score of 2/100.

Both companies scored 32/100, placing them in the top third of companies overall.

Walmart collaborates with suppliers, NGOs, experts, and others to tackle the root causes of problems, develop creative answers, and quickly implement them on a large scale.

A spokesperson for the company stated that the success of our business relies on our capacity to obtain ethically produced products, the welfare of our supply chain workers, and the trust of our customers.

We are dedicated to obtaining materials ethically and respecting human rights, and we demand our suppliers adhere to our stringent standards.

Lululemon, Foot Locker, and LVMH have also been contacted for comment, but Amazon has not responded to a CNBC request for comment.

Companies ‘ill-prepared’ for legislation

Companies were generally unprepared for existing and future legislation requiring them to identify and disclose their supply chain risks, with a significant difference between the number of companies sourcing high-risk materials and those taking steps to address risks.

The report stated that although 98% of companies manufacture cotton clothing, only 15% reveal any information about their sourcing countries, which puts them at risk of being penalized by forced labor bans such as the Uyghur Forced Labour Prevention Act and upcoming human rights due diligence regulations.

Despite well-documented issues surrounding wage theft and violations to freedom of association in the sector, the theme of "Remedy" received the lowest score on the benchmark, with companies averaging 7/100.

The research found that Lululemon was the only company to disclose a remedy beyond the first tier of its supply chain and to consult with workers about their satisfaction with the remediation provided.

The second-lowest scoring theme in the benchmark was "purchasing practices," with an average score of 12/100 and over half of companies not disclosing the adoption of responsible purchasing practices. This includes activities such as planning, forecasting, or ringfencing labor costs during price negotiations.

This category had Amazon, Walmart, Hermes, and LVMH among its zero-scoring companies.

The research found that companies scored an average of 15/100 on the "worker voice" category, with only 22% disclosing engagement with unions to support freedom of association in their supply chains.

While 42% of benchmarked companies did not provide any relevant supplier or sourcing information, only 20% disclosed details about the sourcing countries or tracing efforts for high-risk materials such as cotton, leather, and rubber.