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Increased attention to social impacts in supply chains

Human rights in supply chains is a complex topic because of the extent of activities and issues. Negative human rights impacts can occur at every level in any company supply chain. It can occur from tier one suppliers (also called direct suppliers) to several layers of suppliers and subcontractors that supply products, services and raw materials to direct suppliers.

Traditionally, human rights issues in supply chains focused on labor rights abuses, such as child labor, forced labor, trafficking, or poor work conditions. However, all human rights issues must be closely looked at, including resettlement rights, indigenous peoples’ rights, rights to safety and security, rights to safe environmental conditions (safe and clean water, unpolluted area). That is why the term “Supply chain sustainability ” is also used to speak about “human rights in supply chain” because human rights are related to social responsibility, environmental protection and economic considerations.

Many industrial disasters – the Rana Plaza building collapse in Bangladesh, the Bhopal gas leak in India, the Erika oil tank disaster, the oil spills in Gulf of Mexico – demonstrated that voluntary due diligence is not efficient. That is why global regulation bodies such as G7, OECD, EU (the new EU Accounting Directive 2014/95/EU) or the United Nations (UN Guiding Principles on Business and Human Rights – UNGPs) are dealing with the issue of respect for human rights by businesses, and made it a top priority. Their main objective is to ensure the responsibility of corporations to prevent or mitigate negative impacts linked to their operations, products or services by their business relationships including their supply chains. This means undertaking human rights due diligence in the operation of their entire supply chain, including subsidiaries, subcontractors and suppliers worldwide.

These regulations, initially voluntary, are getting more restrictive, complex and more binding.

In 2017, the French Parliament adopted a new law that imposes due diligence on multinationals’ human rights abuses in supply chains. This new law will affect companies with 5,000+ employees, which will have to adhere to a vigilance plan to prevent violations of human rights and environmental damage throughout their production chains. There is no legal obligation for results, just diligence.

The UK has introduced the Modern Slavery Act legislation requiring companies to perform due diligence on their supply chains. Other countries such as Germany are expected to soon step in.

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Many corporations lacking expertise to deal with these regulatory demands are exposed to significant reputational risks.       

How corporations are dealing with these issues today?

All industry sectors are facing challenging human rights issues within their supply chains. Some companies have adopted codes of conduct and have set up contractual clauses in their general terms and conditions to cascade the responsibility of human rights to their primary suppliers in their own supply chains. Unfortunately, these actions are too weak and do not reduce the exposure risk.

Codes of conduct, charters and policies show commitment and goodwill of a company from the very top, but do not demonstrate that implementation that really happens in the field. Human rights in supply chains are all about doing, monitoring, controlling, measuring and fixing targets, and ultimately auditing on-site. All these are weaknesses of most corporations. It rarely happens that a company audits its suppliers even once every two years, which is already very infrequent.

For large international corporations, the number of suppliers could sometimes amount to hundreds of thousands just for level one. Even if this number could be significantly reduced, thanks to the risk-prioritization process, the total number is still very high. Therefore, it is impossible for a corporation alone to bear the costs associated to properly conduct human rights due diligence measures.

It is why collaboration among competitors through sectorial initiatives in some complex industries, such as chemical, electronics, consumer goods and pharmaceutical industries, is the only realistic and pragmatic answer.