Deepening understanding of human rights impacts in the supply chain

31 July 2024

To approach human rights impacts with any significance, companies need a deeper understanding of their value chain structure. Historically companies have largely focused on impacts that occur in the upstream supply chain, including first tier suppliers and priority raw materials. Yet we are now seeing new downstream supply chains emerge, such as waste picking for recycling, that need consideration.

Undertaking a comprehensive risk assessment against the geographies, products and processes, as well as paying special attention to where vulnerable groups may be located, can help identify new and emerging human rights risks. For example, recycled PET plastic sourced from the developing world may have been collected by in unsafe conditions by informal workers or children.

A risk assessment also provides the basis for deeper evaluation, working directly with credible organisations on the ground to engage with affected and potentially affected stakeholders.

This moves away from focusing on compliance efforts alone represents a significant change for many companies. However, taking steps that align with the UN Guiding Principles (UNGPs) on Business and Human Rights can provide a robust platform for meeting existing and future human rights due diligence legislation in a more positive and dynamic way.

1. An absence of impacts is a red flag

Sustainability regulations require a company to disclose and evidence impacts. From a human rights and social impact perspective, the absence of any identified impacts raises a red flag that there may not be sufficient processes in place to identify and act on impacts, particularly when considering the systemic risks for people in global supply chains.

Smaller and privately owned businesses are particularly at risk. While they may not have any current direct obligations, privately owned businesses may be suppliers to big national multinationals or subsidiaries of multinational companies. Increasingly, suppliers will be selected based on their ability to respond immediately to those requirements. An in-depth look across the entire value chain will help provide greater insight into material impacts.

2. Be vigilant to change

Vulnerabilities for people occur, in particular, where there is a low-skilled labour force, high levels of poverty or migrant labour. In these areas, companies are at risk of modern slavery occurring in their value chain. While such risks are ever present in the UK and abroad, they can be exacerbated by demographic changes, unpredicted events including Brexit or catastrophic events like Covid. It means an increasing number of companies now face the risk of breaching modern slavery regulations within their supply chain.

Although this is just one example of how sustainability strategies must remain vigilant to economic and political change, companies that consider the changing economic and business landscape on the broader aspects of human rights and social impacts in the supply chain have a much better chance of putting more effective processes and structures in place. The introduction of national and Pan-European legislation related to supply chain disclosure and due diligence will see a new requirement for companies to pay attention to these macro changes to ensure they respond to potential impacts before they result in real harm.

3. Embed policies

Once you have prioritised impacts, the next step is to develop appropriate human rights and social impact policies and embed them across operations and the value chain. While this involves analysing contracts and management system controls, communication and training delivered to suppliers and service providers should not be overlooked. A review of whether policies are being applied appropriately, focusing on outcomes for people, is vital. It involves moving beyond an annual audit to understanding how policies are applied at any given point and implementing more robust processes to better engage and collaborate with suppliers and affected stakeholders. It is also vital that companies move beyond the Tier 1 visibility barrier, understanding where products are coming from deep into the value chain.

4. Address, measure and engage

Where impacts are identified, companies need to consider how these can be addressed in collaboration with affected stakeholders. This means engaging with stakeholders, local communities, sector peers and even governments to develop programmes that deal with impacts and set measures that enable disclosure of outcomes rather than just effort. For many years, companies have reported on the number of people trained or the number of social audits, rather than the outcomes that interventions have delivered. In the case of an impact such as modern slavery, companies should look at ‘measures of effectiveness’, often a weak area in modern slavery and human rights reporting.

Ultimately, companies need to develop more systematic approaches to human rights management in the supply chain. This will mean identifying impacts, engaging with stakeholders, enabling robust and independent complaints mechanisms and tracking progress more effectively.

Navigating human rights and social impact issues across the supply chain is complex. However, developing a deeper understanding of the broader implications offers a more resilient approach that is increasingly demanded.