Businesses are facing a new generation of human rights requirements, with regulations like the U.S. Uyghur Forced Labor Prevention Act (UFLPA), the German Supply Chain Due Diligence Act (SCDDA), and a proposed EU ban on goods containing forced labor leading the charge. These regulations mean that due diligence data is of vital importance to business growth, sanctions, and market access, moving human rights due diligence away from corporate social responsibility into the sphere of product compliance.
To keep up, businesses must transform the way they think about supply chains. Approaching human rights in the supply chain with a new mindset will unlock opportunities to become market leaders while reducing the cost of compliance.
Re-Evaluate Current ESG Building Blocks
Many organizations, particularly manufacturers, already have human rights or environmental, social, and governance (ESG) due diligence building blocks in place. These could include a conflict minerals program or a written supplier code of conduct that includes requirements for human rights. These are ideal places to start re-evaluating and growing your due diligence processes.
For example, a conflict minerals program can be upgraded to include cobalt due diligence. Companies can use existing product data to identify other high-risk commodities in their supply chain. If you have systems or solutions in place, investigate how else you can capitalize on those capabilities. Ask: Could your product compliance reporting tool handle human rights data? Could you adapt your supplier outreach program to include human rights data collection? You don’t need to reinvent the wheel, but take the time to evaluate your current strengths and reimagine where they could be applied in a human rights context.
Transform Your Relationship With Suppliers
The new generation of human rights due diligence challenges the status quo of your relationship with suppliers. Under the new model, regulators expect you and your suppliers to be partners in eradicating forced labor from your products, with an emphasis on businesses going deeper than surface-level data. That is why your first step should be to think of more collaborative ways to engage and educate your suppliers so they can be transformed into human rights allies.
The data needed to demonstrate due diligence requires a 360-degree approach, combining direct engagement and screening for human rights risk factors that supplier self-disclosures would not capture. This is a departure from old-school thinking, in which regulators focused on reporting, rather than enforcing a defined due-diligence standard.
For supplier ESG surveys, businesses have better outcomes when they use surveys aligned with industry and legal standards rather than homebrew versions. These include the Slavery and Trafficking Risk Template (STRT), the Conflict Minerals Reporting Template (CMRT), and ESG surveys created and maintained by subject matter experts that align with international standards. Technology presents an opportunity to rethink your survey processes, as automation enables increased data collection and verification without increasing suppliers or internal workloads. A software platform can automate supplier outreach, manage deadline reminders, and even share supplier responses across multiple reports to eliminate silos.
In the traditional model, businesses would select suppliers based on factors like price and on-time delivery; little human rights due diligence was done beyond signing a code of conduct. But now, human rights risks must be considered, or else a supplier could be the reason you lose access to U.S. markets, and face costly remediation fees. A supplier screening program evaluates suppliers for past violations and risks like a sanctioned beneficial owner. It is better to lean on expert support for this process, as it is costly to build and maintain in-house capacity for ongoing screening, and it relies heavily on technology to validate vast amounts of data.
With human rights regulations rolling out at a record pace, paired with different labor norms across the globe, businesses cannot afford to be passive, or they face the risk of supply chain disruption. Instead, businesses should partner with suppliers to introduce human rights due-diligence programs through educational programs and recommended/corrective actions. Education is paramount, as suppliers are more likely to provide the data you need for regulatory compliance, and to drive improvements, if they fully understand the “what” and the “why” of your program. Technology is opening spaces for suppliers and customers be innovative in managing their collaborations, including digital platforms for data sharing, dashboards for tracking shared ESG goals, and access to multi-language virtual training courses.
Seek Out New Perspectives
When it comes to human-rights risk management, executives have historically prioritized supply chain risks directly affecting their brand, paying closer attention to suppliers that can be traced back to the parent company rather than those with the most severe human rights violations. But new human rights regulations undermine this mindset by requiring businesses to apply a defined set of risk criteria and requiring evidence of due diligence on the entire product being placed on the market, not just the pieces featuring a logo.
What this means is that the executive team may need to evolve to include a chief sustainability officer (CSO) or ESG specialist who understands risk through the lens of supply chain sustainability. For some companies, this would be a sea change in priorities. The role of the CSO is to champion a data-driven ESG program that delivers tangible benefits to the organization both by ensuring compliance with international standards and driving efficiencies in how the business manages its ESG risks. By giving ESG a seat at the table, businesses will have a vital perspective on how to remain compliant and profitable, as lawmakers increasingly tap into sustainability at the baseline for regulations.
Rethink the ROI of Due Diligence
When human rights due diligence was a matter of corporate social responsibility, the business case was more straightforward: Showing your goods were not made with forced labor set you apart in the market. However, with laws enforcing human rights in the supply chain, leaders will need to rethink how they are deriving value from their human-rights and supply chain due diligence programs in view of these programs being broadly applied by the market.
One solution is to create greater efficiencies in your due-diligence efforts, reducing spend while getting deeper insights into supply chain risk. The new generation of human rights regulations requires a level of record-keeping that cannot be met through manual data collection, validation, and roll up. Industry leaders are implementing platform solutions that break down silos by combining compliance with ESG risk management.
A platform solution lets organizations keep up with increasing regulatory demands without needing to hire, train, and retain additional staff, and allows suppliers to become ESG allies and provide data digitally.
It improves program outcomes overall and can introduce automation to reduce operational costs even further. Although new human rights regulations will level the compliance playing field, there is still enormous opportunity for innovation in the “how” of due diligence.
Sarah Carpenter is director of corporate responsibility at Assent Inc.
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