7 steps to prepare for imminent supply chains laws

posted by Sam Eastwood and Jonathan Cohen
14 January 2022

Pressure on the UK and other governments continues to grow to develop, implement, and enforce mandatory human rights and environmental due diligence requirements for businesses headquartered or operating within their own jurisdictions. Or, where appropriate, to further strengthen these regulatory regimes where they already exist.

In October 2021 94 investors, representing over $6.3tn in assets under management, sent a statement to European commissioners and the European Parliament, voicing their support for mandated human rights and environmental due diligence in advance of the long-awaited upcoming European Commission legislative proposal on Sustainable Corporate Governance. The UK will not be bound by such a proposal but some 34 leading businesses, investors, and business associations operating in the UK recently put their names to their own letter calling on the UK government to introduce a new legal requirement for companies and investors to carry out human rights and environmental due diligence (mHRDD).

These statements add to the growing body of support for mHREDD and follow the recent announcement that the Global Reporting Initiative (GRI) has updated its Universal Standards to emphasise and require more transparency in reporting on human rights impacts and due diligence obligations.

The overall message is clear: companies cannot wait for mHREDD laws to act – in order to meet investor (and other stakeholder) expectations, companies should already be designing and implementing policies and procedures to identify and mitigate adverse human rights and environmental impacts.

Legislation will likely align with international frameworks such as UN Guiding Principles and OECD Guidelines, to which many companies are already committed. These frameworks require businesses to identify, prevent, mitigate and account for how they address potential and actual human rights and environmental impacts through an ongoing human rights and environmental due diligence process. Companies will be held accountable for human rights and environmental adverse impacts within their operations, and throughout their global value chains, which they cause or contribute to and will be required to enable and support the provision of adequate and effective remedy.

Businesses can position themselves for the anticipated EU-wide law and any UK equivalent and other mHRDD laws emerging at the domestic level by taking the following action now:

1. Integrating human rights into group policies and strategic planning processes;

2. Disclosing how human rights considerations are integrated into strategies, policies and procedures;

3. Carrying out a human rights impact assessment and taking proportionate counter-measures, as well as communicating internally and externally on what measures have been taken;

4. Reviewing and reinforcing complaints mechanisms and speak-up programmes;

5. Ensuring the business is well equipped to deal with ‘crises’;

6. Reviewing the extent to which their board is equipped to address supply chain risks; and

7. Reviewing the role, resources and expertise of the legal and compliance functions, who should play a key part in addressing these new challenges.

Procurement and supply chain professionals will play a key role in supporting the above. They will need to work closely with the legal and compliance functions, review contractual templates, support their supply chain partners with adjusting to their evolving compliance obligations, review existing social audit programmes which may well not be sufficiently robust to meet emerging standards, explore collective action and revisit their existing strategies in light of identified risks, which would likely include a renewed focus on multi-source supply arrangements.

Some businesses may consider this to be tomorrows problem given that the legislation is still in the development phase. However, the potential reputational damage that a company may suffer if they are shown to have fallen below the minimum standards now expected is very much todays problem and cannot be ignored.

  Sam Eastwood is partner and Jonathan Cohen senior associate at global law firm Mayer Brown

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