Procurement departments are often on the front line when it comes to managing human rights risks because purchasing decisions and supplier partnerships can impact the rights of workers and local communities.
Companies face a real challenge in ensuring that practices such as modern slavery and child labour don’t find their way into supply chains. Few companies have visibility beyond their first tier of suppliers, and many commodities are sourced from countries where human rights risks are substantial. For example, the countries that export the most shrimp, palm oil and tin are all rated as extreme or high risk in Verisk Maplecroft’s forced labour and child labour indices for 2015.
Nevertheless, purchasing power means that responsible procurement practices can improve ethical conduct among suppliers precisely where the risks are greatest. Rooting purchasing decisions and supplier partnerships in early and proactive due diligence in human rights empowers business to use its influence to increase transparency and oversight of suppliers. The development of a more ethical and sustainable supply chain will reduce its vulnerability to disruption, litigation and negative publicity.
The due diligence toolkit
The catch-all term ‘due diligence’ describes the tools businesses use to identify and manage their direct or indirect impact on the rights of individuals or communities. To be effective, due diligence must be framed by a human rights policy. At its core, human rights due diligence (HRDD) involves:
- Commissioning an independent risk assessment (including public consultation) of actual and potential impacts on human rights;
- Taking action to mitigate impacts and assigning personnel who are accountable;
- Tracking what works and being transparent about efforts undertaken; and
- On an ongoing basis, remedying any human rights violations discovered.
The HRDD framework can be used to embed human rights awareness throughout a company’s operations. Most companies apply HRDD to manage human rights risks associated with a particular project or purchasing decision – but it is far more powerful when integrated across all business activities.
Given the expansion of mandatory reporting requirements and the public spotlight being shone on supply chain traceability, incorporating due diligence into everyday practices will be essential in 2016.
Mandatory reporting of due diligence on the rise
As reporting on human rights shifts from being voluntary and frequently peripheral to a mandatory requirement, due diligence will become a business watchword. Since the adoption of legislation on modern slavery and supply chains (in the US and in EU countries) and on conflict minerals (forthcoming in the EU), companies increasingly have to publicly disclose their due diligence practices. Published statements will be used by NGOs and other stakeholders to compare how businesses perform. As a result, there is a real risk that companies may be seen to take human rights less seriously than their peers. However, the opportunity to be distinguished for commitment and leadership on sustainable sourcing is also there to be grasped. Mandatory reporting is thus sharpening attention on the practice of due diligence.
Due diligence as a facilitator of supply chain transparency
Most businesses have little or no information about suppliers beyond the first tier of their supply chain. Without visibility from source to retail, businesses may be unaware of human rights violations that occur deep in their supply chain. Claiming ignorance is no longer a realistic defence when consumers and stakeholders hold business responsible for all the workers who contribute to producing their end product. A first and important step is for companies to apply the due diligence toolkit to Tier 1 suppliers. If companies then support Tier 1 suppliers in cascading due diligence principles down the supply chain, brands and suppliers can more equitably share the responsibility for increasing transparency and resilience at the same time.
Turning HRDD into a way of life
Given the greater public attention being paid to the due diligence efforts of business, it is worth companies investing the time to get the approach right from the start. Too many companies skim over HRDD at the outset. As a result, they have to devote time and resources to mitigating impacts that could have been avoided with thought and planning.
But the key challenge – and opportunity – for forward-thinking businesses is to transform HRDD from a tool used only by CSR or sustainability departments, into an approach that is integral to all business practices. By embedding human rights due diligence across the company, businesses can be better prepared to meet the tests posed by ever-expanding reporting requirements and the difficult task of extending human rights management into invisible parts of the supply chain. Integrating due diligence into everyday practices can help companies enjoy the benefits of a more resilient and sustainable supply chain.
☛ Alex Channer is principal human rights analyst at Verisk Maplecroft