What new due diligence laws mean for procurement

posted by Colleen Theron
31 March 2021

There is momentum growing among governments worldwide to require companies to undertake mandatory human rights due diligence. 

On 10 March, the European Parliament backed a report on mandatory corporate due diligence and accountability. We are moving away from an era of relying on voluntary due diligence standards, such as the UNGPs, the OECD and self regulation, towards mandatory legislation setting out the requirements for organisations to put effective strategies in place to address potential and actual negative human rights impact.

Dutch Bill for Responsible and Sustainable International Business Conduct has been introduced. It follows the Child Labour Due Diligence Act. In Germany a historic Lieferkettengesetz – meaning “supply chain law” – is expected to be passed the next six months.

There are principles common to all of these proposed pieces of law:

  • The ability to demonstrate effective due diligence to respect actual and potential adverse impacts on human rights and the environment
  • Corporate due diligence obligations defined in law will be derived from the requirements in voluntary frameworks like the UNGPs and the OECD
  • The requirement to have policies in place that capture the organisation’s commitment to ensuring that it will prevent or mitigate negative impacts of human rights
  • The requirement for published statements or a due diligence strategy
  • An understanding of the organisation’s value chain and mapping this out
  • Proportionate and appropriate risk management  
  • An ongoing due diligence management process and the ability to demonstrate action taken in line with their strategy or action plan
  • Effective and informed discussions with stakeholders and trade unions
  • Effective grievance mechanisms with remedy in place for victims of negative human rights abuses.

The proposed regulations will have implications for all functions across a business as addressing human rights impacts is not limited to one department, for example, human resources.

Procurement managers will find themselves at the heart of these developments. Traditionally procurement has been focused on ensuring that businesses obtain value for money in any spend, reducing cost bases and ensuring a resilient supply chain.

Procurement functions will have to identify training they need to understand how to address human rights in their roles and also in managing tenders and monitoring suppliers.

Additional considerations for procurement will be:

1. Achieving the buy in of senior management

2. Determining whether current systems are ‘fit for purpose’- or whether new technology/ data solutions should be implemented

3. Managing time and resources effectively with the additional considerations that will have to be met

4. Developing a risk based approach to supply chain management

5. Creating a unified approach to address human rights in procurement

6. Ensuring that there are systems that track and monitor the effectiveness of measures

7. Being able to communicate critical information to key stakeholders in the business

8. Working effectively alongside other key functions within the business such as the legal and ESG/ Sustainability officers.

The real challenge will be for businesses to start being proactive in developing and strengthening their due diligence systems and not being reactive to issues arising from failure to account for negative human rights impacts, as we have recently seen in relation to Boohoo.

  Colleen Theron is CEO at Ardea International

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