What makes a company unethical?

Our guide to spotting unethical companies.

Finding out which companies have unethical business practices is our speciality at Ethical Consumer.

There are four key things to look at when assessing if a company is unethical or not:

  • Its commitment to the environment
  • How it treats workers and its human rights record
  • Its policies regarding animals
  • How it acts towards democracy and the state

Here we take you through how we identify unethical companies, brands and products, with reference to a number of well-known brands.

All the information is based on how we rate companies for our ethical shopping guides.

Step 1. Follow the money

grey cat watching money

We research the four broad areas outlined above to determine how ethical a company is, but the process begins by identifying the company behind the brand (so that we can help consumers follow the money).

In many cases a company brand or product may appear to be ‘ethical’, when the company that owns it is not.

Other review sites sometimes research  the top ethical products in a certain market, and base judgements on the product’s specifications and manufacture alone.

We believe you need to dive deeper - even if one product is manufactured with impeccable ethics, if it’s owned by a company involved in unethical activities then its ethical rating should reflect that.

The term 'ultimate holding company' (UHC) is used to refer to the company that has ultimate control over the brand, product or company we are rating. By researching the UHC, you can find out exactly where the money you spend is ultimately going.

The best example is the burgeoning market for vegan products. Here we see a number of vegan products produced by companies that also sell meat and dairy.

Example: Groupe Danone

The popular vegan brands Alpro, Provamel and Soya Soleil are owned by French multinational Groupe Danone. Group Danone has a 24.4% share in the global fresh dairy industry, so when we buy Alpro we’re actually funding one of the world’s largest dairy producers.

Alpro, which is by far the UK's best known vegan brand, is now part of a brand roster that includes Activa yogurt, Cow & Gate baby milk and Actimel.

Danone is also subject to multiple consumer boycotts over their aggressive marketing of baby milk formula.

Other examples include:

  • The brand Pure which is owned by the Kerry Group, that owns other well-known brands include Richmond’s sausages, Wall’s Sausages, Dairygold and Cheesestrings.
  • Linda McCartney, currently owned by Hain Celestial, a company that sells poultry products in the US, as well as owning Ella’s Kitchen baby food, much of which contains meat.

Step 2. Assess their approach to environmental impacts

image: smoke chimney emitting fossil fuels in atmosphere pollution

We research companies against a range of environmental criteria including: environmental reporting, climate change, pollution and toxics, habitats and resources, and palm oil.

Let’s take Environmental Reporting as an example. When Ethical Consumer first began assessing companies’ approaches to the environment, if they discussed the environment at all it was usually through vague statements such as “minimising impacts”.

Today, much more detailed reports and environmental targets are expected from companies - especially those with a large revenue and global operations.

Only those companies with policies and practice that reflect the need to combat climate change and the ecological crisis can really be ethical.

Example: The Walt Disney Company

Disney might be looked upon as a company that warms the hearts of children and adults alike and spreads a little magic in the world. Unfortunately, Disney is failing when it comes to the challenge of global warming and addressing its own environmental impact.

The Walt Disney Company is a member of four corporate lobby groups that were seen to influence policy-makers in favour of market solutions that were potentially detrimental to the environment. These lobby groups include the American Chamber of Commerce, the International Chamber of Commerce, the Coalition of Services Industries and the US Council for International Business.

Disney also received our worst score for the following ratings: Carbon Management and Reporting, Environmental Reporting, Timber Sourcing, Cotton Sourcing, and Toxic Chemicals.

To provide some extra context let’s look at the company’s Environmental Reporting rating from September 2020.

We expect a company like Disney, which operates in a wide range of sectors including film, technology, theme park management and retail, to show a reasonable understanding of its main environmental impacts. These include resource use, the effects of consumption of certain resources (at both extraction and disposal stages), and logistical impacts such as transport.

We would also expect it to have at least two dated, quantifiable environmental reduction targets with a set baseline and to have its environmental data independently verified.

As a company with a turnover of £43 billion, Disney clearly has the necessary resources to develop these practices and up its environmental game and yet no evidence that it was doing this was found. This makes Disney a prime example of an unethical company.

Step 3. Investigate their record on workers' rights and human rights

image: workers in tech factory foxconn rights

When you step into the shop (or click on a website), it probably won’t be immediately obvious if the company is involved in workers' or human rights violations.

However, workers' and human rights violations have the potential to occur at every step of a supply chain. It’s a company’s responsibility to put policies in place to prevent this.

We mark companies down in our shopping guides if they have subsidiaries or operations in countries considered to have oppressive regimes, if its headquarters is not located there. We also conduct a range of searches to identify whether a company has been criticised for human rights abuses - such as discriminating against people based on protected characteristics, sourcing from illegally occupied land, or suppressing freedom of speech.

We also look at whether a company has a supply chain policy that details exactly how they uphold the rights of workers - a vital tool in combating exploitation.

Without properly addressing workers' and human rights through their entire supply chain a company cannot be considered ethical.

Example: Gap Inc

The clothing sector is particularly well-known for being implicated in workers' and human rights issues. We rate companies on several aspects, such as supply chain management, countries they source materials from, and whether they’ve been criticised for issues like discrimination, union-busting or low pay.

Gap Inc owns several clothing brands, including Gap and Banana Republic.

When we last reviewed Gap Inc in July 2019 it lost a whole mark under our Human Rights category.

Gap Inc had operations in six countries considered to be oppressive regimes. Gap was the target of a campaign by the Asia Floor Wage Alliance in 2019, which criticised the company for failing to address alleged gender-based violence in its Asian supply chains. The campaign argued “Brands have shown time and again that they are not invested in creating economic stability and ensuring a workplace that is free from gender-based violence for their workers along their global supply chains”.

Gap Inc has been criticised in other reports too. It scored poorly for workers’ rights in a 2019 ethical fashion report released by Baptist World Australia. This report graded the company D+ for ‘Worker Empowerment’, a criteria which assessed whether the company had a calculated living wage for each region it operated in, and whether workers were trained on their right to freedom of association.

The 2019 Tailored Wages living wage report by Labour Behind the Label also found no evidence that Gap workers were paid a living wage. The report stated “Given that GAP have had a commitment to ensure wages are enough to meet workers basic needs in their policies for over 15 years, it is shocking that they have failed to make any progress whatsoever towards its payment.”

The company was also marked down for having a poor supply chain policy that lacked the detail expected from a large company. For example it did not specify the minimum age of workers and maximum working hours per week for those working in its supply chains.

Step 4. Research company policy on animal rights

Image: milk cows dairy feed trough

We look at three aspects of animal rights.

  1. The first is animal testing, in which companies are marked down in our ratings if they test on animals or have an inadequate policy on animal testing.
  2. Next is factory farming, in which we mark down companies if they sell factory farm produced meat or dairy, or products containing eggs from battery hens.
  3. The final is the broader ‘Animal Rights’. Here we mark companies down if they use any animal-derived ingredients or materials (such as leather or wool). If it’s been criticised for any other animal rights issues, or operates in a sector that’s known to harm animals, it’s marked down here too.

We don't believe that any company that harms animals can be truly ethical.
 

Example: Superdrug

Superdrug has somewhat developed a reputation for being against animal testing, perhaps because it has Leaping Bunny approval for all its own-brand cosmetics and personal care products.

However, Superdrug also manufactures and retails medical products. When we last reviewed Superdrug in June 2020 no information was found in relation to the company’s policy around animal testing for medical products, so it was assumed that Superdrug does in fact test some of its products on animals.

An article by the Telegraph in 2018 also stated that Superdrug was facing criticism from animal rights groups for selling botox injections that were tested on animals.

Superdrug is owned by A.S. Watson Group, which owns the company PARKnSHOP. PARKnSHOP sold a range of meat and dairy products that were not labelled as free range or organic. As such it was marked down under our Factory Farming and Animal Rights categories.

Superdrug is therefore part of a corporate family that retails meat and dairy, and it likely tests on animals.

Step 5. How do they impact our democracy?

The Houses of Parliament

While politics and business are often framed as separate spheres, in reality they are deeply intertwined. Large companies especially have the power to influence major political decisions, and partake in activities that have significant political implications.

We research this area with reference to, Anti-Social Finance, Boycott Calls, Political Activity, and Tax Conduct.

We believe that companies lobbying governments for weaker environmental, tax or labour standards can never be ethical.

Example: Amazon.com

One of the subcategories our readers are most interested in is Tax Conduct. Here, we rate companies on their likely use of tax avoidance strategies.

Amazon, the world’s largest online retailer, is paying very little in corporation tax while raking in revenue. It is the subject of a global boycott call by Ethical Consumer.

When we last reviewed Amazon, it immediately received a worst rating in our Tax Conduct category when it emerged that while the company’s headquarters were in Washington, it was incorporated in Delaware (considered a tax haven by Ethical Consumer). It also had five subsidiaries based in Nevada or Delaware, jurisdictions on Ethical Consumer's list of tax havens at the time of writing.

A Guardian Article dated October 2017 also highlighted how Amazon had been illegally benefiting from a tax deal granted by the Luxembourg authorities, that allowed the company to artificially reduce its tax bill by 250m euros from 2006 to 2014. It was ordered to pay the full amount back plus interest.

Research from the Fair Tax Mark shines further light onto Amazon’s tax activities. Amazon has paid just $3.4bn in income taxes this decade, whilst Microsoft has paid $46.9bn. This is a staggering variance, especially as Amazon’s revenue over this period exceeded that of Microsoft’s by almost $80bn. Fair Tax Mark said this means Amazon’s effective tax rate was just 12.7% over the decade when the headline tax rate in the US has been 35% for seven of the eight years under examination.

Overall, a range of secondary sources criticised Amazon for its tax conduct, the company had no country-by-country financial information or reporting (CBCR), nor a clear public tax statement confirming that it was its policy not to engage in tax avoidance activity or to use tax havens for tax avoidance purposes.

It therefore received a worst rating for the likely use of tax avoidance strategies.

The company has also been criticised for:

  • Sponsorship of a climate denial think tank conference
  • Spending $27.4 million on lobbying and making $13,633,603 in political donations in 2018
  • Excessive directors remuneration - the highest compensation awarded to an individual in 2019 was US $57,796,739.

Step 6: Look deeper - Cross cutting issues

Image: orangutans

There are some divisive issues that cross into several of our ratings categories. Some examples include palm oil, conflict minerals, and cotton sourcing.

Let’s use palm oil as a case study. Palm oil is a major driver of deforestation. It is said that the equivalent of 300 football fields of rainforests are cleared every hour to meet demand. This not only affects the people living in the rainforest, it is also wiping out the habitat of endangered species such as Orangutan and pygmy elephants.

As palm oil production can create problems for people, animals and the environment, a company can be rated down under several Ethical Consumer categories if it does not have clear policies in place to ensure it is sourced responsibly.

Example: Pret a Manger

We searched the Pret a Manger website in October 2018, to find out how it sourced its palm oil.
No information was found. It wasn’t a member of the Roundtable for Sustainable Palm Oil (RSPO), nor did it supply any data about the amount of palm oil in its supply chain.

As a company operating in the food and drink industry Ethical Consumer considered it highly likely that it was selling and purchasing products containing palm oil such as bread, pastries, margarine and cleaning products.

The company therefore lost a whole mark for Palm Oil sourcing.

Step 7: Staying up-to-date with ethical company takeovers

Image: ecover product

Another issue to watch out for is takeovers. On occasion, ethical brands get taken over by unethical companies.

For example in December 2017, ethical brands Ecover and Method were taken over by multinational SC Johnson.

SC Johnson has links to animal testing and so in April 2018 campaign group Naturewatch launched a campaign asking supporters and the general public to contact Ecover and Method, expressing their disappointment at the takeover and pledging to boycott the company and its products until SC Johnson is cruelty-free.

Ecover and Method are themselves cruelty-free and remain Leaping Bunny certified but are no longer endorsed by Naturewatch because of the parent company.

The takeover also led to Ecover and Method both losing marks in our ethical rankings.

Ecover dropped from an Ethiscore of 11.5 points to 7.
Method dropped from an Ethiscore of 12 points to 7.

SC Johnson (and therefore Method and Ecover) now lose marks for scoring a worst rating in many of the Ethical Consumer categories. This includes a worst rating for animal testing, environmental reporting, likely use of tax avoidance strategies, and toxics.

Shining a light on corporate ethics

Here at Ethical Consumer we look into many aspects of a company’s activities so you can find out if it is unethical or not.

In all we have over 120 shopping guides in 9 sectors all containing information on how unethical (or ethical) a company is. A total of 230 categories make up our unique ethical rating system.

In each guide we give companies an ethical score based on our extensive research.

From bread to big banks, we rate companies in a range of sectors in our shopping guides to help revolutionise the way you shop, save and live.