A key question at the beginning of the human rights due diligence process is prioritization. Where should a company focus its attention first? The reality is that most companies face numerous potential impacts and, due to limited resources, must decide which ones to tackle first.
International standards like the UN Guiding Principles on Business and Human Rights provide companies with clear guidance: efforts should focus on areas where the most severe impacts on people are likely. This is mirrored in the EU Corporate Sustainability Due Diligence Directive (CSDDD) but also in other current and upcoming corporate responsibility legislation, such as the German Supply Chain Act (LkSG) and in the concept of impact in the double materiality assessment necessary for the Corporate Sustainability Reporting Directive (CSRD).
Human rights and environmental due diligence requirements apply to both a company’s value chain including own operations, supply chains and downstream activities.[1] Many companies have started to implement processes for identifying their most salient human rights risk topics on a regular basis. However, it is a learning process on many levels, and there is currently no one-size-fits-all approach.
So, what do common practices reveal? What are the learnings we can take away?
Here are my three key observations on how to avoid strategic shortcomings and instead strengthen strategic human rights risk prioritization:
1. Bridge Gaps: Connect Human Rights to Existing Risk Management Processes
Many human rights and environmental risks in a company’s own operations are already addressed by specific risk management systems, such as those for health and safety, product quality or environmental impacts. However, these risks are not always treated as human rights issues but are instead managed through independent processes. As a result, many companies struggle to provide the necessary data when asked to report on their prioritized human rights risks in their own operations, e.g., as required by the reporting questionnaire for LkSG[2]. For example, a company may have comprehensive environmental assessment protocols but may not link these to human rights impacts, making it challenging to consolidate data for reporting purposes.
2. Distinguish Leverage and Responsibility When Assessing Risks in Supply Chains
Discussions and efforts to identify human rights risks in supply chains often focus heavily on supply chain visibility and transparency. While this is undeniably important, it should not prevent companies from looking beyond Tier 1 suppliers. In many sectors, it is well known that the highest risks to people lie upstream and can feel quite distant, e.g., from a downstream retailer. For instance, in the garment industry, the most significant human rights violations often occur at the raw material extraction or initial processing stages, far removed from the final retail point. While influencing the entity responsible for risks can aid in identifying effective mitigation measures, the level of influence should not determine whether human rights risks in the deeper supply chain are identified. In short: Lack of influence over risks should not hinder efforts to uncover human rights risks throughout the supply chain. Companies should not shy away from addressing these complexities in their upper value chain simply because the direct link to their suppliers is challenging to trace. Only awareness of these risks enables companies to develop strategies to enhance their leverage. Multi-stakeholder initiatives using a landscape approach that targets root causes rather than individual actors exemplify proactive approaches. Furthermore, this awareness equips companies to respond effectively to critical stakeholders and reduces costs and resources spent on ad-hoc assessments.
3. Incorporate Indirect Spend Supply Chains in Human Rights Due Diligence
Numerous service providers enable companies’ day-to-day operations. These services range from call centers and tech support to construction, security, property management, and waste disposal. In some instances, businesses focus on identifying human rights risks related to the sourcing of goods and services directly associated with the production of products and services that a company provides, leading to cases where supply chains linked to indirect spend fall outside the scope of supply chain sustainability activities. This approach aligns with recommendations from international standards, but the process of risk identification should evolve over time. For example, last year, truck drivers were striking for unpaid wages, and the allegations targeted Mazur Transport GmbH, a significant player in the transport business that supplies some of the best-known companies in the world. The BAFA found 58 companies involved with the supplier that fall under the LkSG and started investigations. This incident highlights the importance of including indirect spend supply chains in human rights due diligence.[3]
My observations outlined here are informed by working with businesses from various sectors, exchanging with different stakeholders from civil society, policymakers, and consulting peers. It all comes down to preparedness. Companies are best prepared to implement human rights due diligence when they see the process of identifying risks to people not as a compliance exercise but as a strategy-informing procedure. This approach helps navigate the developing legal landscape, plan resources strategically, respond to critical requests, and, most importantly, respect human rights by addressing risks proactively with appropriate measures.
If you are looking for a holistic human rights risk assessment and need support to develop appropriate measures to address identified risks to people, get in touch. My colleagues at CORE and I work with companies to develop robust human rights strategies that align with corporate sustainability regulations and international standards, supporting businesses to become more resilient.
Theresa for the CORE Team
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Read the other articles in the “3 Tips for CSDDD Success” series below:
- Tip #1: Approach Risk Prioritization Strategically.
- Tip #2: Engage with Stakeholders Meaningfully.
- Tip #3: Build Human Rights Confidence Adequately.
[1] While the LkSG uses the term supply chain for all activities starting from the extraction of the raw materials to the delivery to the end customer, the CSDDD refers to a “chain of activities” covering the upstream supply chains of companies as well as activities in connection with the distribution, transportation and storage of products.
[2] Find more information on the LkSG reporting obligation here. Disclaimer: In light of the developments regarding the Corporate Sustainability Reporting Directive (CSRD) the responsible German authority BAFA recently moved the deadline for mandatory reporting from the end of May 2024 to the end of December 2024. Additionally, there are discussions about suspending the LkSG entirely until the CSDDD must be implemented. The consequences of this are uncertain and worth exploring in another blog post.
