Intertek's Assurance in Action Podcast Network

Human Rights Due Diligence

April 21, 2022 Intertek Season 5 Episode 10
Intertek's Assurance in Action Podcast Network
Human Rights Due Diligence
Show Notes Transcript

Corporate human rights due diligence is slowly becoming a normal part of business. Governments from around the world are starting to address human rights due diligence through mandatory regulations and disclosure laws. These laws require businesses to report their policies and practices concerning the identification and mitigation of human rights impacts within their supply chains. Join Catherine Beare, VP, Supply Chain Assurance and Jenna Pires, Senior Manager, Supplier Management, Business Assurance Innovation, as they discuss human rights due diligence and what companies should do to mitigate these risks in their supply chain.

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Speaker 1:

Hello again, and welcome to assurance and action. The podcast that covers key assurance topics brought to you by Intertech. My name is Jessica Damico and, and today we are joined by Catherine, be vice president of supply chain assurance and Jenna P senior manager of supplier management for business assurance innovation as they discuss human rights due diligence in the supply chain. Would you too like to introduce yourself?

Speaker 2:

Hi. Sure, sure. Yeah, I'm Jenna P and I'm, uh, my background is in social, uh, corporate social responsibility and human rights. And I've been with Intertech, uh, going on 16 years now. And, um, this is one of my favorite topics.

Speaker 3:

Great. And I am Catherine beer, um, based in London, been with Intertech for almost 14 years. Uh, my background started in, um, CSR as well, focusing more specifically on supply chain and supply chain, resilience, risks and management, um, for the last, um, 10 years. And yeah, very interested to get into this today.

Speaker 2:

Okay. All right. Yeah. So thank you everyone for joining us on this podcast cast on human rights, due diligence in the supply chain. Um, you know, I know that this topic is on the mind of many companies who are now being tasked with the phrase of knowing and showing their due diligence. So let's start off with discussing this, um, increasing interest and support for mandatory human rights, due diligence among both individual company, these and even the many business associations out there. I know many see it as having the potential to level the playing ground for companies that are already carrying out human rights, due diligence in their supply chains, and to provide greater leverage with business partners and seeking to address, um, risks. Cuz we know that success is more easily, its achievable in volume in your in standardized expectations.

Speaker 3:

And I guess, you know, at the same time Janet meeting a new legal standard is a source of both concern and confusion. Um, and of course there is several new regulations across Europe asking for supply chain due diligence as well.

Speaker 2:

Yeah, true. You know, and it is confusing, but on a positive note, you know, the legislations they are, you know, increasingly becoming uniform as they're following common international frameworks, such as the United nations guiding principles on business and human rights and the O E C D due diligence for responsible business conduct. So something that great about these structures is that it's, it's adaptable, you know, for any company of any side is our scope. You know, they can adopt those principles and make it work for them. But at the same time, this framework, it's a common enough thread that allows the ability to recognize the efforts of those businesses that are demonstrating, that they are taking meaningful steps towards meeting their commitments versus those that are not. And this also gives the ability to, you know, apply consequences for companies that do fail to act. So we decided, you know, to frame today's discussion around those six measures that are outlined in the O E C D due diligence process, cuz it's important that companies, um, shift start to mobilize themselves around this type of structure.

Speaker 3:

Yeah, absolutely. And you know, I guess conducting appropriate human rights due diligence could help companies, um, you know, to address the risk of legal claims against them because it gives them a framework to show that they, you know, they took every reasonable step to avoid involvement with an alleged abuse. You, but however, I think business enterprise is conducting such a due diligence. Um, they shouldn't assume that just by itself, this is actually automatically and will fully absolve them from any, you know, liability or causing or contributing to human rights abuses. And I think that that's really key.

Speaker 2:

Yeah, yeah. That it is very true cuz the risk for human rights abuses there's, they're numerous, you know, you know, and it's preparation is key. You know, we can think about why and in what situation is it useful to have a human rights due diligence framework embedded and be a true part of your, how you operate? You know, course, you know, first and foremost, it's now it's coming legal required by legislation for increasing number of companies and Itel being asked by, um, investors as well, but foundationally and it's just great to have a solid kind of inter internal structure in place. So that with business partners have been involved in human rights abuses you have a process, you have a plan in place for how you're gonna manage this and you're not just rambling and your reaction, you know, cause this can apply with like when the NGO or other whistleblower raises concerns about human rights impacts arising from your business activities. So it can be a direct supplier who is found polluting a nearby river, or it could be a small little farmer. That's like five tier, you know, down near supply chain, you know, and maybe they're taking kids out of school to pick cotton at pick season. And those bails of cotton end up in the 5,000 promotional asserts. You just recently gave away at a, let's see a university human resources recruitment event. And so now those students found out about it and now they're, you know, out picketing outside your company headquarters. And then on top of all that, now you could have a court case filed against you. So, you know, these becomes part of your overall risk management when you're start sourcing from a new country with known human rights issues. Um, you know, cuz there are examples of validated reports to forced labor or restrictions on freedom of expression or the workforce, you know, that are producing your products or providing the service. They can come from vulnerable populations such as, you know, refugees or migrant workers. And then we can't, you know, exclude environmental risks as well. You know, the, you know, the use of hazards chemicals, you know, that can at that, at that risk for contamination or the use of scarce resources such as groundwater. So with these drivers in mind, you know, let's discuss how we can implement measures to mitigate such risk. So Catherine, do you wanna kick us off with discussing the first few steps of the O E C D guidelines?

Speaker 3:

Sure, absolutely. Yeah. Let me kick off with number one. So where do we start embed responsible business conduct into policies and management systems. Um, you know, and just to take us back a second. So we understand the magnitude of what we're looking at here. The concept of less is more, it, it does not so easily apply to supply chain management, an organization, you know, looks to increase revenues by expanding their product and service portfolios. And they're also, you know, introducing complexity and risk to the supply chain when they do that. So what does it really mean when looking at policies and management systems, will organizations need to deploy, you know, how are they gonna deploy that right through the supply chain? So it's imperative that an organization has a very clear, documented process and policy for managing risk responsible business conduct. That's, that's so important, but we first suggest that you start by looking at the company culture organization, cultural, you know, it, it refers to the personality of an organization. It relates to the day to day beliefs and endeavors of a set of employees within the same work environment. And that relates to high well employees under company's vision, their mission and their goals. Now that will of course mean that every employee in the organization should know what the company wants to achieve. And that's why it's so important to clearly communicate. And this will help to ensure that, you know, the employees will then be able to adhere to the responsible business policy forth because they get as part of the culture they get as part of, of the over core value of the company and it's being communicated to them. So this in turn, you know, that message is then pushed down to the supply team by those employees. And, and that's done through the structured, you know, policy deployment process that you need to put in place. The, the culture is therefore I would say very much so embedded into the policies and management system practices that are created and deployed. And the aim of formulating guidelines for suppliers is that they will then eed the development of responsible corporate activities among suppliers, by helping them to understand more deeply about the company's sustainable management process is clarifying the need, um, you know, of corporate activities, which they would like their suppliers to put into practice and the items which they want them to manage monitor. And of course disseminate amongst their own supply chains. Because of course let's not forget this trickle effect down the supply chain. So that comes from both the per of reducing business risk and generating new opportunities that, that real good engagement and supply chain. So what do we need to do for this particular section, Jenna? Well, look, I guess what we need to do is we need to ensure you create a responsible business conduct policy, which is in line with your company's culture and your vision and mission. You know, you need to make sure that you've got ownership of that. And this is where we say the ownership, you know, the buck stops at the top. So this needs to be owned by senior management level board level. It needs to have their blessing and be disseminated and deployed across the company, both in internally and externally. And then you need to annually review and ensure that, you know, it's fit for purpose that you've trained and educated both internally and externally. And of course seek guidance for improvement. What else include conditions and expectations on, um, responsible business conduct issues in supplier or business relationship contract to make sure it's actually written down and develop and implement a prequalification process, um, on due diligence for suppliers and other business relationships.

Speaker 2:

That sounds like a lot.<laugh> what, what can the company, if they don't have anything in place, you know, where do they even start?

Speaker 3:

Yeah, well look, there is no, you know, there's so much Jenna, that is, that is publicized by some companies that have done some fantastic work already. And we can maybe mention a few of those later on. So start there don't reinvent the wheel. I would say that's really, really important. Um, let's look at number two, let's move on and, and, and, and get some more ideas, identify and assess adverse impacts and operate supply chains and business relationships. So I talked about, you know, how complex the supply chain is and the more nodes and links that exist in the network, then clearly the more complex it's gonna get. So as a result of both outsourcing core and non-core activities, we become more reliant on external suppliers and goods. So that's a fact, and of course, you know, we're dependent upon a web of second, third, fourth, tier suppliers, nothing new. I hear you say it. And of course it's not. But the reality is that the top of the chain is now mandated to understand what is going on down there. And therefore the potential of unexpected, you know, disruptions further down the, the chain is something that the top of the chain has to be aware of and manage. And we've seen many regulations, you know, I'm not gonna mention them, you know, UK, Netherlands, Norway, France, us, you name it tons of different legislations in place. So there's nothing new here. Um, but not being able to show of visibility will become a problem. And when you've got a good supplier details at all levels, you're then able to really look into potential risks that they pose in your company. So you can better actually assess what you're going to do next. So this is all about mapping as my point. You need to map the supply chain and then map the potential risks that they can pose to your company so that you can better assess what to do next, this, this, ultimately, you know, if you're starting on your human rights journey, you know, human rights due diligence and the supply chain, frankly begins with the mapping exercise to identify suppliers. Um, and usually looking at country is a good starting point. So depending on the sector you're in or the compliance topics, you're most interested in it, it of course determines what other risk sources you could look at. So maybe as well as, as, as country, you can look at other things, um, for example, think about mean commodity risks that could affect your business. Um, you know, the commodities that are part of your business. And there's also a lot of public data sources available that you can actually tap into and plug it into your inherent risk model to help you to better weight the overall risk to the supplier, but think of an internal, um, did available to you as well. So, you know, you've got lots of information on how much you spend with the supplier volumes that go through with the supplier, if they're strategic or a core supplier. And of course put a weight next to those because, you know, it's always the 80, 20 rule a little bit. You, you need to, you know, really think where you spend most of your time with your suppliers and where the most production comes from. So you can then with that, that better.

Speaker 2:

Yeah. I mean, these companies that have, you know, a huge number of suppliers and their value chain, you know, it's like completely unreasonable, you know, to conduct due diligence, uh, for adverse human rights impacts across all of them. You know, of course the nature of supply chain is very so widely. So, you know, some multinational companies there actually main suppliers, um, you know, they are themselves a multinational. Yeah. You know, and then on other side of the spectrum, you know, some supply chains consist mostly of like small and, and medium enterprises. So, you know, regardless you, you have to choose to focus on those suppliers where there's, of course the greatest risk for negative impacts, but on left side, I think it's important that, um, to think about those where you can make the most progressive steps, you know, with good practices to improve, you know, social, environmental impacts.

Speaker 3:

Absolutely. And that's why the, the segmentations to important gen a hundred percent. So let's look at number three to see prevent or mitigate impacts so vital for a company, you know, to put proper risk mitigation systems in place. Um, and, and of course that's important. It helps you to embrace the revelation of, of the potential risks so that you can actually manage them, um, rather than hide away from them. Um, and what organizations need are risk assessments, where the analysis of financial health is actually complimented by the assessment of business performance and sustainability performance of suppliers, especially the critical ones, um, which could be at any level, you know, within the supply chain, as, as you've just mentioned. Uh, and that of course is going to help to identify risk signals ahead of time and get that greater visibility we've been talking about, you know, an internet. Like we, we tend to talk a lot about the four essential elements of, of managing human rights due diligence. And I used to summarize it with clients this way, Jenna visibility, we've talked about this. You have to get the visibility into all partners, all suppliers that will then allow you to achieve a, a full data set of what you're looking at. You can put it together, you know, setting a strategy where your suppliers know that visibilities a requirement. And of course in some countries it's even a legal obligation. I, and that's a good starting point accountability today. You know, your company is being held accountable for the actions of your supply team. So letting your suppliers know that is very important, and it means that it's no longer an option as to whether they disclose compliance information to you, but assess your requirements. So, you know, make sure the accountability to and them is very clear there. And then we, we need to engage, um, you know, risk exists. That's normal. So engaging with your supplier, educating them on how to mitigate it and managing it when it is identified, because it's a good likelihood it could be, um, so that you, you know, you need to measure up those risks and then you then learn to control and mitigate the ones that you can tackle straight away. Others will take a much longer time, but the engagement journey will mean that everyone's in the same journey together. And finally, it's about the control. Um, so, so, you know, it's not last<laugh>, but, but this process needs to start, um, with putting you and control of how you source manage supplier contracts, how you make business decisions and how you set yourself, I guess, apart from your competitors. Cause we all have to be competitive in this world. So we all know, you know, legislation, isn't there to know us. It's all about getting us to improve, not just make the world a better place, but make all of our business practices better and more robust and sustainable go for the future.

Speaker 2:

Yeah. Kevin are really, yeah, really great insights, insight into, uh, how to get visibility and, and weigh the risk. Uh, but what tools should companies consider when, when trying to mitigate this?

Speaker 3:

Yeah, well, like there's tons of them and I, I don't wanna go to too many here because I, I think let's, let's move on to the other three, but there's lots of key ones we used. So screw onboarding and auditing supplier. So embedding, embedding compliance, and sustainability criteria and zero tolerance standards into your sourcing process ensures that you start with your expect expectations with suppliers from the very beginning and make it clear that you're going to screen them. You're gonna have some form of due diligence that you follow up with them on. And that, you know, outlining termination clauses for major non-compliance is if, if that's a needed step, you need to, you know, addressing buying and procurement practices. I think this is really important as well, integrating scorecards with suppliers, you know, covering key compliance and sustainability goals, maybe not just, you know, the human rights piece, but other things so that you, you can better, you know, uh, train your procurement staff on the key risks that they need to reach out for and what they need to proactively manage. Um, the suppliers on engaging capacity, building, allocating time and effort to engaging your suppliers and, and developing capacity to augment audit and compliance activities. So that you've got that information to then, you know, finally address recurrent audit findings. Um, I think that's really important. And last I'd just say, I guess, you know, using incentives is good. So use those score cards and make sure that you incentivize those for doing really good practices. Um, so yeah, Jenna, you know, take us through steps four, five, and six, please let, let's hear a bit more as to what we do next,

Speaker 2:

Right? Yep. So the next, the step four for the O E CT guidelines is about track implementation and results. So this is, uh, all about having a plan in place for measurement and evaluating your supply chain. You know, you, you wanna have end caters and targets in place to determine, you know, where, where, where you started with your supply chain, you know, where are you at and where do you wanna be? And, and in what timeframe, you know, and I like to think of this as a kinda like a maturity journey that a company goes through. Cause we all know the easy route is kind of to set the minimum standards required and, and hope for the best, but you know, the, we can all agree that that's not really an option anymore. You really need to look holistically of what risks could affect your business and how to ensure your suppliers are remaining compliant with your expectations. And this will require some, some due diligence on your behalf and some auditing to verify that information. So companies are beginning to understand the need to look at supply chain risk in more detail and have a process to screen and, and actively manage the risk. And this is what we kind of call the established phase in the maturity journey. So you have a process, you know, to work with suppliers, to remove and fix issues. And you are maybe reporting on key, uh, KPIs, but maybe kind of internally. And then the mature stage is, is really when the company, you know, they have a clear global policy on compliance and sustainability requirements, and that is communicated both internally and externally with their suppliers. And there's clear expectations. Uh, you have a very strong monitoring program in place with leading edge standards and, and even certification programs and mature companies. They monitor not just tier one final manufacturer, but beyond, as beyond that, cuz this is where those lower tiers is where the real risk can lie. And when issues are identified, the company works together with that supplier to train and improve on these issues. And then this KPI monitoring that's also moves from internally, but also now communi externally. And then the final stage is what I to call leading the way, you know, and this is taking all the above point points, you know, but looking at what, what else can they do to improve the res of their supply chain? But companies really look at their suppliers, you know, as, as partners, you know, they're not just commodities that they use, they work together to look for sustainable growth of a company and more long term risks, you know, and, and plan for a competitive innovation to lead the way and this real transparency and the success it comes in, comes through when they're reporting against these green metrics.

Speaker 3:

Yeah. Yeah. So Jenna, you know, what are some examples of how companies utilize self-assessments and audits in this journey?

Speaker 2:

Yeah, I mean, self-assessments, they are a great initial step to kind of segment your suppliers into different levels of risk, especially when your supply chain is quite large. So an example of a, of a high risk supplier that you can identify from a self-assessment that could be, you know, a company in a high risk country, or maybe they're unable to provide evidence of, of the policies and procedures for how they manage their age documentation, which makes them at risk for child labor. And let's say maybe they're foreign workers, and maybe that makes up about 20% of the, of the workforce. You know, so this supplier, I would say, oh, this is a high priority candidate for further analysis in onsite visits. And then meanwhile, those are at the lower end of the risk scale that you, as the results of your self-assessments, you know, you can mitigate via other means. So, you know, onsite audits, um, for the purpose of human rights due diligence, they really take place at, at uh, one or both of two stages. So first audits may be used before a company even enters into a contractual relationship with a supplier, or secondly, it can be part of an ongoing relationship. Once a supplier is established, you know, regular audits, they're commonly used for monitoring compliance with human rights standards, and most companies use a combination of these two, but you really need a process to review the outcomes of the audits and how you'll be communicating the results to your, uh, relevant stakeholders and keep in mind the auditors, they can be internal or external, you know, regardless you wanna use an auditor who are specialists in the areas of environmental health and safety and labor rights and the auditors. You know, they, they go to the premises for say one to three days, depending on the size of the site. And they meet with management, they engage with the work with trade unions or other worker representatives, and they ask questions, you know, and there are also a number of really great multi stakeholder industry initiatives out there that you can join, which support suppliers with sharing of audit results, capacity building and training, and, you know, suppliers for those consumer facing goods. They're used to being audited. You know, so you're may not find much objections to kind of opening their sites and sharing this kind of information. But for those smaller suppliers are those that are providing a good or service for business to business transactions. You know, they, um, these reg these new regulations, these are requiring them to become now part within the scope, but you'll find this, they will need a lot more engagement and handholding through the auditing process simply because they have never been asked to do this kind of thing before. So, and it's important to include feedback of the lessons learned in this monitoring process in order to improve, you know, the outcomes of the future and allows you to know what works and what does it.

Speaker 3:

Yeah.

Speaker 2:

So the fifth step is about communication, you know, and this is about ex communicating externally on your actions, including the findings and outcomes of your activities. It's helpful to publicly disclose your policies, you know, informational measures taken to implement those policies. Were you aware your areas of risks that you've identified? You know, what did you prioritize and how did you come to that decision? So this, you know, you can kinda showcase what actions you are taking to mitigate those risks. So progressive companies, they list timelines and benchmarks for improvement, and keep in mind that, you know, many of these public benchmarks that are being published, they're, they, they use this to evaluate companies on their human rights due diligence, and they base this entirely on publicly disclosed information. So if you don't share it, you won't get credit for it. So this is about disclosing both the good and the bad, you know, it's fine to state your challenge. So what you are still approving on, if you say everything is perfect, no one is gonna believe you. No. So the information itself can be on your company website can be on your annual report, um, a sustainability or corporate responsibility report or other appropriate form of disclosure that works for you as long as it's accessible.

Speaker 3:

Yeah. And you know, I've got some good examples. Um, you know, of companies that have been commended for their transpiring communication, you know, marks and Spencers Nestle, Coca-Cola, they've done some really, really fantastic stuff, but I'll just touch upon the Nestle one, which is a great example of a company that is, I think very good at communicating their accomplishments, milestones and their upcoming actions. If you just go to their website, you know, nestle.com/sustainability/human rights, you know, they have identified what's scaling issues. They've outlined what are the actions that they're taking. And as you said, that all important timeline, so you can very easily track their maturity growth. You know, as, as the company is tackling really, really, really, you know, uncomfortable issues like child enforce labor in their Coco supply chains. And by working with the international Coco initiative to set up a robust and comprehensive internal monitoring and remediation system, which is fantastic.

Speaker 2:

Yeah, yeah, yeah. You're, right's a great, um, example. All right. So let's come to our last and six step in the O E C D guidelines, which is provide or cooperate in remediation where appropriate. So when you discover that something is wrong or that your actions have caused adverse impacts, then I said before, it's not something you need to hide, you know, as long as you have a plan and, and you're providing a sort of re remediation to address the issue, the sharing and this information and what you, what steps you took, you know, it's a, it's a virtuous cycle. You know, it allows companies to learn from each other and be able to apply good practices for similar situations. So unless it's a very egregious issue, most companies will choose to engage with the supplier to put in place action plans for, for remediating issues and improving policies, you know, in each action plan. You know, it has be completed with an a certain period of time, usually anywhere from a few weeks to even as much as six months. And then you can review their action plans, you know, and undertake another follow up visit, you know, to verify if the supplier adhere to their action plan. So examples of remediation could be, you know, reinstatement of dismissed workers of financial compensation for lost wages or fees paid, you know, recognition of a trade union for the purpose of collective bargaining. Um, but really important that suppliers establish processes and systems to prevent future incidences. Otherwise it's just gonna be, you know, a continued, um, issue. So, and I really think it's important to point out that, you know, auditing itself is not gonna solve all issues at a supplier, you know, and audit is just a snapshot in time to verify levels of compliance against legal law and industry standards, you know, continuous improvement through education and training. That is where it's really gonna rate the most positive impact.

Speaker 3:

Yeah, absolutely look amazing. Jenna, thanks for that. Um, wow. A lot to take in there. I can, I can imagine, you know, hopefully it's not too overwhelming, um, for anyone listening in, but, but more helpful<laugh> as it shows how you can actually break this down into very, very manageable that, and I think we can all agree that it really is the time to act. I mean, it, it's, it's a disgrace that this is still happening in this day and age, but actually it's getting worse in some cases, because it is so much more transparent in terms of people that, that are finding out what all is happening in the supply chain. So, so much helpful guidance there, great examples of what others are doing, and hopefully much, much more senior management and board commitment to tackle human rights and due diligence. NAI is the time to act. And of course, here at Intertech, we would love to discuss this topic with you. And as you can see, Jen and I are certainly very passionate about it. So come and speak to the, of our very passionate team and let us help you on your journey in terms of potential tools and resources that we can pinpoint you to. Um, and of course we're happy to share any best practices that we experience as well. So thank you all so much for listening in today.

Speaker 1:

Thank you both for your time. If you're interested in learning more, please check out the links in our a podcast and don't forget to subscribe and rate us. You can also follow us on LinkedIn and Twitter.