Human Rights Due Diligence in Supply Chains: Where to Start?

New regulations, such as the Corporate Sustainability Reporting Directive (CSRD), the German Supply Chain Act, and the forthcoming EU Corporate Sustainability Due Diligence Directive (CSDDD), mandate that companies conduct human rights due diligence (HRDD) in their supply chains. For many businesses, this presents uncharted territory. While they may have a grasp on managing human rights issues within their own operations, they may find it intimidating to delve into their supply chains, not knowing where to start and fearing the unknown challenges that may surface.

Human rights challenges within supply chains vary depending on the sector in which an organisation operates, the nature and geography of its supply chain, and the goods and services it purchases and provides. For instance, the supply chains of a typical food manufacturer include agricultural commodities (sugar, grains, cocoa, coffee) and packaging materials (glass, corrugate and cartons, aluminium, plastic), while a construction company will heavily rely on the supply of concrete, steel and lumber. The supply chains of many companies will also include transportation and facilities management – two categories that traditionally rely on subcontracting, which carries additional risks from a human rights perspective. The geographies of sourcing will also play a role; for example, some facilities management services procured in Europe and North America may be inherently less risky than those procured in other parts of the world.

Although some human rights issues like occupational health and safety, wages and working hours are relevant for all these categories, others, such as modern slavery, child labour, land rights, water and sanitation, vary in relevance based on the nature of the category and the sourcing region. How can then an organisation navigate this complexity? We've outlined some considerations to guide businesses embarking on their human rights due diligence journey in supply chains.

Many businesses lack comprehensive data on their Tier 1 suppliers, let alone those further upstream.  This is no surprise as this level of data has not been a historic requirement for many procurement functions. While traceability solutions are increasingly offering greater visibility and enabling better data across the upstream value chain, those solutions can be as diverse as the supply chains they’re serving and can also create timeline and efficiency challenges for some businesses. Nevertheless, a better understanding of your supply chains is essential for pinpointing where human rights impacts are most pronounced.

Starting with Tier 1 is a logical first step. Collaborate with your Procurement department to identify strategic and direct procurement categories as high priorities for human rights due diligence. This may include raw materials, packaging, contract manufacturing, facilities management and logistics. In contrast, depending on the industry, professional services and marketing may not be classified as strategic and direct procurement categories, despite significant spend.

Then, unpack your high priority categories beyond Tier 1 by conducting industry research, engaging with peers, industry associations and NGOs. You will be surprised how much you can learn about your categories and where things are likely to come from without investing into sophisticated traceability solutions. For many categories, this step will be crucial as the most significant risks often lie at the beginning of supply chains. 

When conducting human rights due diligence, the key concept to remember is that it’s about assessing impacts on people and not about reputational risks for businesses. Human rights risks in supply chains are potential adverse impacts on people affected by the activities within those supply chains. These adverse impacts encompass workplace issues such as discrimination, abuse and harassment, health and safety concerns, freedom of association, wages and working hours, as well as illegal working practices like forced labour and child labour. Beyond the workplace, issues like land rights, food security, water and sanitation are also significant for many people in global supply chains. The right to a healthy and sustainable environment is also a human right on its own. Even climate change is increasingly viewed as a human rights issue, directly or indirectly affecting the livelihoods of millions within global supply chains.

With myriad categories and diverse human rights issues to address, the task of human rights due diligence in supply chains may seem daunting. Budget constraints necessitate making choices. But how can companies make a choice between a programme to address child labour in agricultural supply chains and another programme to tackle poor working conditions of truck drivers in the transportation category?

The UN Guiding Principles on Business and Human Rights (UNGPs) provide a useful framework to guide these decisions. The UNGPs define four key criteria for prioritising human rights issues: scope (the number of people likely to be affected), scale (the significance of the impacts), irremediability (the ease of remedying harm), and likelihood (the certainty of impacts occurring). These criteria, while technically sounding, are straightforward. Those issues that have the most significant impact on people with the greatest certainty should be prioritised first. If some potential adverse impacts occur far upstream, companies can also consider attribution and leverage: Is our company contributing to these impacts, and can we practically address them? If the answer is yes, prioritise these issues.

The KPMG Sustainable Supply Chain team is equipped to support your journey in human rights due diligence within supply chains. We have the technical human rights expertise and tested methodologies to demystify this field, assisting you in designing processes that seamlessly integrate into your existing procurement and supplier management programmes.