November 02, 2022 - 533 views|
Throughout the world, legislation is looming to monitor and mitigate human rights violations in the supply chain.
From consumer goods to fashion and “big food,” many well-known global brands have found themselves suddenly thrust into the spotlight for something no business leader wants to be associated with: human rights violations. In many cases, these scandals are directly related to the organization’s supply chain: unethical purchasing practices, forced labor, excessive working hours, low wages, poor working conditions, gender and ethnic discrimination, sexual abuse and more.
It’s no wonder that more businesses are recognizing supply chain due diligence as a risk management tool to address and alleviate the chance of these violations. And with the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz) coming into effect Jan. 1, 2023, it’s even more relevant. This critical piece of legislation will require companies to identify, monitor, remediate and report on risks related to a range of human-rights issues, such as forced labor, child labor and modern slavery.
But this is not just an issue for German companies. The German Supply Chain Act is a harbinger of what is to come as the rest of the world begins endorsing legislation to protect the human rights of employees—with regional and global implications. The European Commission’s proposed due diligence directive is expected to come into force in 2024, with groundbreaking implications for global supply chains. Some estimates show that in the next three years, more than 50,000 companies will be subject to mandatory supply chain due diligence acts across Europe (Assent, 2022).
Globally, all companies will face the same general challenges as they address supply chain compliance and readiness, regardless of their sector or region. However, according to the Business and Human Rights Resource Center, only 22% of German companies have shown they can adequately meet the requirements of the Supply Chain Act.
Further, a recent briefing from KnowtheChain, which monitors and benchmarks global supply chains, reveals that the world’s largest companies in the highest risk industries—information and communications technology, food and beverage, apparel and footwear—are not ready for legislative compliance. For example:
The challenges many companies face relate to the complexity of collecting and managing data across their global supply chains, many of which reach across multiple markets and legislations, experience supplier volatility and include invisible sub-suppliers. The degree of due diligence required will vary as well, with high-risk profiles warranting a follow-up. Cotton from Xinjiang, for example, will have a different risk profile from steel from Norway. Therefore, businesses need to carefully consider which metrics indicate risks, specific to the sector, geography, operation and transaction.
While human rights and due diligence acts will differ in terms of their details, they will require harmonization around the same four critical risk management steps: identify human rights violation risks in the supply chain, monitor those risks, remediate any violations identified and be transparent with stakeholders.
To that end, here are four simple steps any company can take to implement a robust human rights due diligence process:
Supply chain due diligence is an ongoing journey that will differ depending on region, sector and company size. Depending on the industry, there may be certification bodies, certificates or managed whitelists available, in which it’s a matter of tracking the validity of those certificates.
In other cases, the company might need to perform audits itself or use an auditing company to validate the information gathered. Supply chains are also dynamic—partnerships can be ad hoc or long-lasting.
But by taking action now, businesses can get ahead, and stay ahead, of the supply chain due diligence needs they will inevitably encounter in the months and years to come.