Why a data-driven approach to human rights due diligence helps companies mitigate regulatory & reputational risks
10 March 2021 12:30
Operating in emerging economies or in regions with a history of political and social instability can expose organizations to complex societal issues, from worker rights to environmental issues that impact the wider community. .In recent years, many countries have taken steps to make human rights due diligence mandatory to address these concerns. Is your current risk management process up to the challenge? Risk aligned due diligence and ongoing adverse news monitoring can help:
- Mitigate regulatory risk, including strengthened civil and criminal penalties, for human rights due diligence (HRDD) failures.
- Guard against potential reputational fall-out from association with human rights or environmental abuses - directly or via an extended supply chain.
- Assess potential investment targets to determine if the entity meets ESG criteria.
- Make well-informed, data-driven decisions that enable sustainable, long-term growth.
Need for human rights due diligence increases as violations attract the public eye
In February, some of the world’s biggest chocolate companies were named in a lawsuit filed in the United States. According to The Guardian, eight former child slaves claim to have been forced to work on cocoa plantations in Ivory Coast without receiving any form of payment. The lawsuit alleges that the defendants knowingly profited from child slavery in their supply chain, despite not having direct ownership in the cocoa farms where the abuses took place.
Although the case has not yet been heard, the global headlines serve as a reminder that risk aligned due diligence and ongoing adverse media monitoring is critical. It is also not an issue isolated to cocoa fields. High risk industries include:
- Agriculture - From cotton fields in Uzbekistan to tea plantations in India, this labour-intensive industry is considered high risk for forced labour. Many brands are stepping forward to collaborate on improving human rights transparency - from Dutch confectionery company Tony's Chocolonely to Unilever and five other major UK tea brands.
- Manufacturing - Sweat shops churning out fast fashion, child labour in high tech - the multi-tier supply chains of manufacturing operations increase potential risk exposure. Despite efforts to hold suppliers to high standards, big brands like Apple, Google, Microsoft, Dell and Tesla have still faced negative headlines when those standards don’t adequately address labour violations by third parties in their supply chains.
- Mining & Extractives - Whether it’s cobalt for the electronics industry or oil for energy producers, this is another high-risk industry that warrants enhanced due diligence and ongoing monitoring to surface potential regulatory or reputational risks associated with human rights and environmental sustainability.
Widespread human rights violations in Xinjiang, China, have made numerous headlines this past year. A report published by the Australian Strategic Policy Institute, alleges involvement of a variety of high-profile brands, who stood to profit from human rights abuses in their supply chain.
Speaking about these forced labour practices in a recent blog post, Alexis Bateman, Director at the MIT Sustainable Supply Chains, urged governments worldwide to take immediate action against such abuses. . Just last July, U.S. Departments of State Treasury, Commerce, and Homeland Security issued a joint business advisory regarding human rights abuses, including forced labour, in the Xinjiang Uyghur Autonomous Region (Xinjiang) and elsewhere in China, recommending enhanced due diligence to mitigate the risk.
A strong risk management workflow supports ESG efforts too
With consumers and investors paying closer attention to environmental, social and governance factors when considering third parties they do business with, companies can find themselves forced to explain failures to identify misconduct. The resulting reputational damage can prove costly—from consumer boycotts to investor revolts.
Countries across Latin America have also recognized the link between enabling investment opportunities in the region while addressing risks related to social inequality, corruption, and weak governmental oversight, resulting in growing backlash over operations across the region. This will likely lead to regulations similar to the EU’s mandatory human rights and environmental due diligence law.
By implementing a risk-based approach to human rights due diligence and ongoing adverse media monitoring, companies can improve supply chain transparency and accountability and demonstrate their commitment to ESG principles.
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