6.2 Human rights and supply chain management
4 min read•july 30, 2024
in is a critical issue for companies. It involves identifying and addressing risks like , unsafe conditions, and . Companies must navigate complex global supply networks to ensure ethical practices.
Effective management requires due diligence, , and robust . Companies should assess risks, engage stakeholders, and monitor suppliers. and are key to upholding human rights throughout the supply chain.
Human Rights Risks in Supply Chains
Prevalent Risks and Vulnerable Groups
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- Forced labor, child labor, unsafe working conditions, discrimination, excessive working hours, and unfair wages are common human rights risks in global supply chains
- These risks are more prevalent in certain industries (agriculture, garment manufacturing, mining)
- Migrant workers are particularly vulnerable to exploitation and human rights abuses in global supply chains due to factors such as recruitment fees, visa sponsorship, language barriers, and lack of legal protections
- Systemic inequalities, poverty, and lack of alternative economic opportunities in certain regions can lead to increased risks of human rights abuses as workers have less bargaining power with employers
Supply Chain Complexity and Transparency Challenges
- Complex, multi-tier supply chains spanning multiple countries make it challenging for companies to have full visibility into working conditions and potential human rights abuses at all levels of their supply chain
- Differences in labor laws, enforcement, and cultural norms across countries can lead to varying standards of worker protections and challenges in ensuring consistent respect for human rights
- Unauthorized subcontracting by suppliers to undisclosed third parties increases risks of human rights violations going undetected by the contracting company
Due Diligence in Procurement
Establishing Policies and Processes
- is the process of assessing actual and potential human rights impacts throughout a company's operations and supply chain, integrating findings, and acting upon them to prevent, mitigate, and remediate negative impacts
- Developing a human rights policy commitment aligned with international standards () sets the foundation for embedding respect for human rights throughout procurement processes
- Conducting based on country, industry, product, and supplier risk factors allows procurement teams to proactively identify higher-risk suppliers for enhanced due diligence
- Integrating human rights criteria into supplier selection processes, such as assessing suppliers' own human rights policies, due diligence efforts, and disclosure of supply chain risks, supports procurement decisions that mitigate risks
Monitoring and Stakeholder Engagement
- Collaborating with key suppliers to assess their human rights management systems and co-develop improvement plans can build supplier capacity to effectively manage human rights risks
- Partnering with third-party auditors, civil society organizations, and local stakeholders to monitor supplier human rights performance can provide objective insights to complement internal procurement assessments
- Establishing and processes to enable workers in the supply chain to safely report human rights concerns supports detection of issues and targeted follow-up by procurement teams
Supplier Diversity and Inclusion
Policies and Practices
- Supplier diversity and inclusion refers to proactively sourcing from and supporting business relationships with suppliers owned by individuals from underrepresented or disadvantaged groups (minorities, women, LGBTQ+ individuals, veterans, people with disabilities)
- Establishing a supplier diversity policy and program with dedicated resources, goals, and accountability mechanisms demonstrates organizational commitment and drives implementation
- Conducting targeted outreach and engagement with diverse supplier organizations, certifying bodies, and industry groups expands the pool of potential diverse suppliers
- Reviewing procurement processes, criteria, and systems to remove barriers and biases that may disadvantage diverse suppliers supports equitable access to opportunities
- This includes strategies like simplifying request for proposal (RFP) processes, unbundling large contracts, providing feedback to unsuccessful bidders, and ensuring prompt payment
Capacity Building and Collaboration
- Providing mentoring, training, and capacity-building support to diverse suppliers enables their growth and enhances their ability to effectively compete for business
- Collaborating with other companies and stakeholders to support the development of local diverse supplier networks and ecosystems can drive long-term, systemic impact
- Setting clear expectations for Tier 1 suppliers to advance diversity and inclusion in their own supply chains through subcontracting and procurement can multiply impact beyond the company's immediate spend
Effectiveness of Supplier Codes
Code Development and Implementation
- Supplier codes of conduct outline a company's expectations and requirements for supplier environmental, social, and governance (ESG) performance, including respect for human rights and labor standards
- Effective supplier codes of conduct are aligned with relevant international standards and best practices ( (ILO) core conventions, industry-specific standards)
- Supplier codes of conduct should be embedded into legal contracts to create accountability, with clear consequences for non-compliance (termination of business)
Monitoring and Reporting
- Regular supplier self-assessments against the code of conduct requirements, coupled with risk-based validation by the company, can help track supplier performance and identify improvement areas
- On-site audits, both announced and unannounced, involving worker interviews and document review are important for verifying supplier adherence to the code of conduct in practice
- Audits should be conducted by trained and independent auditors, and include visits to lower-tier supplier sites where risks are identified
- Supplier monitoring systems should track corrective actions to address identified non-compliances, with clear timelines and follow-up processes to ensure issues are remediated
- Grievance data, worker feedback, and insight from third parties should be integrated into supplier monitoring systems to augment audit data and proactively detect issues
- Public reporting on supplier code of conduct implementation, monitoring results, and corrective actions supports accountability and enables stakeholders to assess the effectiveness of a company's responsible procurement efforts over time
Key Terms to Review (23)
Accountability: Accountability is the obligation of an organization or individual to report, explain, and be answerable for the results of their actions. It emphasizes transparency and responsibility, making it crucial for building trust among stakeholders and ensuring that sustainability initiatives align with ethical practices and regulatory frameworks.
B Corporation Certification: B Corporation Certification is a designation for companies that meet high standards of social and environmental performance, accountability, and transparency. This certification not only assesses a company's impact on its workers, community, and the environment but also encourages businesses to consider their stakeholders beyond just shareholders, fostering a more sustainable approach to business operations.
Codes of conduct: Codes of conduct are formalized guidelines and principles that outline the expected behaviors and ethical standards for individuals and organizations, particularly in relation to their social responsibilities. These codes serve as a framework for decision-making and accountability, ensuring that human rights are respected and upheld throughout supply chains.
Community Impact Assessments: Community Impact Assessments (CIAs) are systematic evaluations that measure the potential effects of proposed projects or policies on local communities. They focus on various aspects including economic, social, and environmental factors, helping stakeholders understand how changes can affect the well-being of residents and their surroundings. These assessments are crucial for making informed decisions and ensuring sustainable development that aligns with community needs and values.
Dodd-Frank Act: The Dodd-Frank Act is a comprehensive financial reform legislation enacted in 2010 aimed at preventing the excessive risk-taking that led to the financial crisis of 2007-2008. It establishes stricter regulations for financial institutions and aims to promote accountability and transparency in the financial system. The act has significant implications for corporate governance by requiring greater disclosure and oversight, particularly regarding human rights practices in supply chains, ensuring that companies operate ethically and responsibly.
Fair trade: Fair trade is a social and economic movement aimed at promoting equitable trading relationships, ensuring that producers in developing countries receive fair prices for their goods and work under safe conditions. The movement emphasizes transparency, sustainability, and community empowerment, allowing consumers to make informed choices that support ethical production practices and uphold human rights.
Forced labor: Forced labor refers to situations where individuals are compelled to work against their will, often under threat of punishment or coercion. This practice is a severe violation of human rights and is prevalent in various industries, impacting supply chains worldwide. Understanding forced labor is crucial for companies striving to ensure ethical sourcing and labor practices within their supply chains, as it highlights the importance of transparency and accountability in human rights considerations.
Grievance mechanisms: Grievance mechanisms are processes established by organizations to address complaints and disputes raised by stakeholders, particularly affected communities and individuals. These mechanisms aim to provide a means for stakeholders to voice their concerns, seek redress for grievances, and facilitate dialogue between parties. Effective grievance mechanisms are essential for promoting transparency, accountability, and trust between organizations and their stakeholders, especially in contexts related to community engagement and human rights.
Human rights: Human rights are the basic rights and freedoms that belong to every person in the world, regardless of nationality, sex, ethnicity, religion, or any other status. They are inherent to all human beings and are often enshrined in international law, aiming to protect individuals' dignity and ensure equality and justice. In relation to supply chain management and sustainability reporting, understanding human rights is essential as it guides businesses in identifying, preventing, and addressing human rights abuses within their operations and those of their suppliers.
Human rights due diligence: Human rights due diligence refers to the process that businesses and organizations undertake to identify, prevent, mitigate, and account for human rights impacts within their operations and supply chains. This involves assessing potential human rights risks, integrating findings into business practices, and taking appropriate actions to address any identified issues. By engaging in due diligence, companies can ensure they are respecting human rights throughout their operations and supply chain management.
Human rights risk assessments: Human rights risk assessments are systematic evaluations conducted by organizations to identify, analyze, and address potential human rights impacts within their operations and supply chains. These assessments are essential for understanding the risks associated with labor practices, community impacts, and stakeholder relations, and they help companies mitigate negative effects on human rights while fostering accountability and transparency.
ILO Core Conventions: The ILO Core Conventions are a set of eight fundamental international labor standards established by the International Labour Organization (ILO) that aim to promote and protect basic human rights at work. These conventions cover issues such as the elimination of forced labor, abolition of child labor, and the right to freedom of association, ensuring fair treatment of workers globally. They serve as a benchmark for countries to assess their labor practices and encourage compliance with internationally recognized human rights standards in the workplace.
International Labour Organization: The International Labour Organization (ILO) is a specialized agency of the United Nations that sets international labor standards and promotes social justice and fair labor practices globally. Established in 1919, its mission is to ensure that all workers enjoy their rights, which directly relates to safeguarding human rights within supply chains by establishing guidelines for fair working conditions, eliminating forced labor, and preventing child labor across industries.
Just Transition: Just Transition refers to a framework that aims to ensure a fair and equitable shift towards a sustainable economy, balancing environmental goals with social justice. This approach emphasizes the need for inclusive policies that protect the rights and livelihoods of workers and communities, particularly those dependent on fossil fuels or industries that may be adversely affected by environmental regulations.
Remediation processes: Remediation processes refer to the methods and actions taken to address and rectify issues related to human rights violations, particularly within supply chains. These processes involve assessing the harm caused, implementing corrective measures, and providing support to affected individuals or communities to restore their rights and dignity. Effective remediation is crucial in fostering accountability and ensuring that businesses operate ethically and responsibly.
Responsibility to respect: Responsibility to respect refers to the obligation of businesses and organizations to avoid infringing on the human rights of individuals and communities. This means that companies must ensure their operations, policies, and practices do not negatively impact human rights throughout their value chains, including in their supply chain management. Respecting human rights also involves taking proactive steps to assess and address potential human rights risks associated with their activities and relationships.
Stakeholder engagement: Stakeholder engagement is the process of involving individuals, groups, or organizations that have an interest or stake in a company's activities and decisions. It plays a critical role in sustainability reporting as it helps identify stakeholder expectations and concerns, which can influence the company's strategy and reporting practices.
Supplier diversity: Supplier diversity refers to a business strategy that encourages the use of a diverse range of suppliers, including those owned by minorities, women, veterans, and other underrepresented groups. This approach not only fosters economic growth within these communities but also enhances innovation, competitiveness, and social responsibility within the supply chain.
Supply Chains: Supply chains refer to the interconnected network of organizations, people, activities, information, and resources involved in delivering a product or service from suppliers to consumers. They encompass all steps in the production and distribution process, including sourcing raw materials, manufacturing, logistics, and retail. A well-managed supply chain can lead to improved efficiency, reduced costs, and enhanced customer satisfaction.
Sustainability Reporting: Sustainability reporting is the practice of disclosing an organization’s economic, environmental, and social impacts, aiming to promote transparency and accountability. This process allows stakeholders to understand how the organization performs regarding sustainability issues, including human rights, corporate social responsibility, and alignment with global goals. Through this reporting, companies can communicate their strategies and performance in creating shared value while also evaluating how sustainability initiatives influence financial outcomes.
Transparency: Transparency refers to the openness and clarity with which organizations share information about their operations, decisions, and impacts. It fosters trust among stakeholders and is crucial for informed decision-making, accountability, and effective communication within various frameworks such as governance, sustainability reporting, and stakeholder engagement.
UN Guiding Principles on Business and Human Rights: The UN Guiding Principles on Business and Human Rights are a set of international standards aimed at ensuring that businesses respect human rights throughout their operations. They provide a framework for companies to avoid infringing on the rights of individuals and communities, while also addressing the impacts that their activities may have on human rights in various contexts. These principles connect to labor practices, supply chain management, and relevant reporting frameworks by emphasizing the responsibility of businesses to uphold human rights across all areas of their operations.
Unfair wages: Unfair wages refer to compensation that is below the acceptable or legal standards for a particular job, often reflecting exploitation or discrimination against workers. This concept is particularly relevant in the context of supply chain management, where companies may rely on low-cost labor in developing countries, leading to wage disparities and violations of human rights.