Beyond compliance and audit: A deeply embedded governance: Our interviews demonstrate that companies are increasingly noting the shortcomings of traditional code of conduct and audit processes and are exploring more innovative approaches.
“We know our supply chain better than anyone else.” – Interviewee
Finding solutions beyond the first tier: It is apparent that there are limited practices in place for HRDD beyond the first tier. Any leverage exercised tends to be through the first tier supplier or collective engagement with peers or other stakeholders.
Overview of affected rights: Whilst the interviewees highlighted a range of human rights which are at risk of adverse impacts in supply chains, forced labour and child labour came up most frequently across sectors.
Small and medium-sized enterprises: SMEs can find implementing HRDD challenging, but they can nonetheless have an impact through their own processes, and larger businesses can help by engaging in capacity building.
The role of collective action initiatives: Collective action, including through sectoral, cross-sectoral and multi-stakeholder initiatives, is particularly beneficial where the nature of the supply chain is more opaque, and when seeking to exercise leverage beyond the first tier.
“It is important for the whole industry to develop something that really works” - Interviewee
The supplier’s perspective: Without effective collaboration between industry peers in carrying out HRDD, and alignment of purchasing practices with human rights expectations, suppliers may be subject to unnecessary cost and time burdens in connection with their efforts to comply with audits, training and screening exercises carried out by their customers.
The role of states and regulation: Interviewees were generally supportive of clear regulation, given a desire for legal certainty. There is also a broad expectation that regulations incorporating HRDD elements will evolve in terms of scope of application and rigour of requirements.
“We would like to see more regulation. It would force our tier two, three and four suppliers to improve their processes – and our competitors. We rely on the whole industry” – Interviewee
Remedy to impacted people: In addition to the developing case law around the recognition of a legal duty of care based on principles of control, other mechanisms for financial and non-compensatory redress continue to develop. Examples include state-based procedures (e.g. OECD National Contact Points) and industry initiatives (e.g. the Bangladesh Accord on Fire and Building Safety arbitral procedure).
The drivers for supply chain-related HRDD: Interviewees confirmed the avoidance of legal risks and reputational risks as two of the key incentives for conducting HRDD. Other notable drivers included meeting investor expectations and the need to achieve sustainable supply chains – a commercial necessity.
Internal challenges and opportunities: A number of organisational challenges and opportunities were observed. In particular, interviewees reported efforts to simplify internal rules and processes, in part through the development of new and centralised tools, and the need for ever closer inter-departmental coordination between key functions such as procurement, legal and CSR.
Beyond compliance and audit: A deeply embedded governance
Our interviews demonstrate that companies are increasingly noting the shortcomings of traditional code of conduct and audit processes and are exploring more innovative approaches.
“We know our supply chain better than anyone else.” - Interviewee
It has been suggested that, due to the influence of the UNGPs, companies are beginning to change their approach to managing adverse human rights impacts from reliance on codes of conduct and social auditing towards more comprehensive and embedded governance of HRDD, including proactive stakeholder partnerships. One interview described this as a “change in the mind set”.
Another interviewee argued that companies should always “have a blend of activity”, including the compliance approach, based on audits and certifications, as well as a more “interdependent approach”, which recognises the realities of supply chain relationships and encourages open dialogues. They added that “we cannot do any of this very quickly”.
Interviewees also noted that by ensuring that human rights impacts within the supply chain were addressed, the company is able to improve the sustainability of the supply chain. One interviewee highlighted that HRDD ensures that the company “has the right supply chain to get the quality and quantity to deliver for the goals of the business”. Another interviewee stated that “if you stop scoring suppliers on symptoms and look at root causes, you will deliver better outcomes for people and product quality, which helps to deliver a better business.”
Those companies which have done the most work on their supply chain HRDD indicated that this is a deeply embedded and comprehensive approach. One interviewee stated: “We know our supply chain better than anyone else.” Another interviewee stated:
To drive real impact does not happen from one day to another. It requires commitment and money, financing to pay for protection and better working conditions, new schools that prevent child labour, and mines that are better built.
Overview of affected rights
Whilst the interviewees highlighted a range of human rights which are at risk of adverse impacts in supply chains, forced labour and child labour came up most frequently across sectors.
The UNGPs highlight that companies “can have an impact on virtually the entire spectrum of internationally recognized human rights”. Interviewees highlighted a range of human rights which are at risk of adverse impacts in supply chains. Some issues which have been encountered by companies we interviewed include migrant rights, the right to life, the right to physical integrity (such as through violations by security services), freedom of religion, land rights, cultural heritage, and the right to health. However, most of our interviewees drew attention to labour rights risks in their supply chains, including forced labour, child labour and slavery.
In several instances where labour issues were the focus of supply chain HRDD, companies had undertaken HRIAs in order to identify what their salient supply chain human rights risks are. This approach should be distinguished from one where it is simply assumed that labour-related risks are the only human rights risks present in the supply chain. One interviewee even indicated that through their HRIA they are “actively looking” for other human rights impacts not restricted to labour rights, such as land rights, “but they just don’t come up”. Another interviewee indicated in order to “demystify human rights in procurement” they “have to start somewhere”, and “forced labour is easy to sell” as an issue worthy of attention.
Forced labour and child labour were particular issues that came up most frequently across sectors. Many references were made to the risks involved with labour recruiters, particularly with outsourced low-skilled services such as cleaning, catering and construction. One interviewee remarked that whereas “most companies have policies in place” against using labour brokers, the practice is “so embedded culturally [that] rooting it out is a huge challenge”. In some instances, local laws or practices conflict with the companies’ global commitment to international human rights standards, such as regarding withholding of passports and requiring permission to exit the country. These practices pose risks to freedom of movement of migrant workers, and are often red flags for forced labour or slavery conditions.
Small and medium-sized enterprises
There appears to be a lack of knowledge about the UNGPs within companies which do not form part of the handful of “leaders” (i.e. those generally perceived as having the most sophisticated programmes) particularly smaller companies in the supply chain.
Although most of our interviewees were from large multinational companies, their supply chains comprise of many small- and medium-sized companies. Moreover, our interviewees were selected based on their knowledge and experience in developing supply chain HRDD, and accordingly represent those who are leading in this area. Interviewees highlighted the lack of knowledge about the UNGPs within companies which do not form part of the handful of leaders, particularly smaller companies in the supply chain.
One interviewee noted the challenges accompanied by “local content” requirements, which require transnational companies to work with local business partners which may be less familiar with human rights standards. This requires the company to have “a capacity-building approach”, which involves ongoing engagement, including training and improvement of operating conditions. Another interviewee indicated that HRDD in supply chains is “really important work, but 99.9% of people in companies have no idea what we are talking about”. They added: “Forget about US companies, try local companies where they don’t have electricity.”
SMEs can find the complexity, extent and resource intensive nature of HRDD quite overwhelming, but as yet there is little guidance dedicated to how SMEs address these issues. Some interviewees recognised that they bear some responsibility with respect to suppliers who are SMEs, with whom they either contract directly or who are present in their supply chains beyond tier one. Interviewees have expressed the view that they are, to a degree, responsible for “bringing along” their suppliers on the journey to responsible sourcing and working with them to gradually improve. For example, one interviewee from the retail sector highlighted that small suppliers often face huge costs to implement improvements in their infrastructure, such as sprinkler systems and new fire safety doors. The interviewee referred to the usefulness of collective efforts such as the Bangladesh Accord on Fire and Building Safety, to address these challenges, by providing suppliers with “some sort of financial support” to improve conditions on the ground.
It was highlighted by several interviews that with some suppliers with limited knowledge, capacity and infrastructure for HRDD, it is more effective to engage openly and honestly than introducing and monitoring code of conduct compliance. One interviewee stated:
Our dilemma is that in order to prove that things are improving, you need to set up certain monitoring systems, which cost a lot of money. So far, we have chosen the impact side, spending the only budget that we have on equipment and improving the [suppliers’ facilities].
One interviewee from a small company highlighted that SMEs can have “real impact through changing the behaviour of big players.” Their small company has developed a model of “controlled supply chains” to source raw materials from selected sustainable suppliers, and is actively engaging with large peers with the aim of leading by example.
Solutions beyond the first tier
It is apparent that there are limited practices in place for HRDD beyond the first tier. Any leverage exercised tends to be through the first tier supplier or collective engagement with peers or other stakeholders.
All interviewees highlighted the challenges of undertaking HRDD beyond the first tier. Most (though not all) interviewees currently focus their supply chain HRDD on first tier suppliers, and indicated that they currently have limited practices in place for HRDD beyond the first tier. One interviewee indicated that it has “taken us a while to figure out how we are going to deal with [our first tier suppliers] in a meaningful way”.
However, many interviewees recognised the importance of going beyond the first tier, and highlighted this as their next priority. One interviewee from the retail sector has indicated that their tier two, three and further suppliers are “certainly an area that we are starting to focus on” and that they are currently “doing quite a lot of work in that space”. However, they added that there is “a lot more work that the retail industry has to do on this; we are certainly not at a level where we are comfortable”.
In contrast, an interviewee from the extractives sector stated that when it comes to engagement beyond the first tier, the extractives industry has “done far less than other industries” and that they were following the developments undertaken beyond the first tier in other sectors, such as the garment and retail sectors. However, this approach is not borne out by the steps which have been taken by some companies with respect to their extractive supply chains. For example, Apple has introduced a pilot program which seeks to buy cobalt directly from artisinal miners. By extending their supply chain HRDD to beyond the smelter points, they are exceeding the expectations set out in the relevant OECD Guidelines.
In cases where leverage is exercised beyond the first tier, it is usually done in one of two ways: either indirectly through the first tier supplier, for example through codes of conduct which require a first tier supplier to impose similar standards on those in the next tier and so on, or through collective engagement with peers or other stakeholders. Other mechanisms used with first tier suppliers, such as training or grievance mechanisms, are very rarely used beyond the first tier.
The approach of engaging with further suppliers indirectly requires the first tier supplier to undertake ongoing and effective HRDD for its own supply chain. One interviewee described this commonly used approach as: “When we do our own HRDD, understanding how our [suppliers] manage their supply chain risks would be part of our due diligence.” Another explained that: “We have not mapped our second tier suppliers, [but] we encourage our [first tier] suppliers to engage with their own business partners.” Some interviewees indicated that inadequate supply chain HRDD mechanisms implemented by a potential first tier supplier has led to a refusal to contract with that supplier. One interviewee indicated that their first tier suppliers are contractually expected to train their own suppliers on human rights. Another interviewee recalled that they have in the past approached a second tier supplier responsible for a human rights impact together with the first tier supplier in question.
In theory, this “passing forward” of HRDD obligations should create a trickle-down effect through the entire supply chain. Interviewees indicated that where a company has a high degree of control over direct suppliers, and the power to switch suppliers, it can more easily influence behaviour and apply pressure down the chain. This enables the “multiplier effect” whereby the influence on a supplier can influence the behaviour of sub-suppliers. A few interviewees indicated that first tier suppliers are indeed scrutinised and monitored with respect to their own supply chain HRDD. One interviewee indicated that these checks are mostly done through “soft engagement” rather than formal audits: “We sit down with [our first tier suppliers] and ask them to show their version of supplier human rights policies.”
In contrast, some interviewees acknowledged that this kind of leverage is rarely used. One interviewee indicated that they expect that their suppliers are “probably not as strong” on monitoring these clauses, and that they are “not sure” whether their first tier suppliers’ contractual provisions on human rights are enforceable in practice. An interviewee from a company which uses agricultural sourcing agents indicated that in reality it is “optimistic to ask them to do HRDD in their suppliers.” Another interviewee indicated that whereas they have mapped their further suppliers, they only audit tier one suppliers for HRDD. Particularly, if a company is “locked in” to a supplier arrangement or lacks purchasing power, the company has less leverage to influence sub-supplier behaviours.
Collective action, including through sectoral, cross-sectoral and multi-stakeholder initiatives, is particularly beneficial where the nature of the supply chain is more opaque, and when seeking to exercise leverage beyond the first tier.
‘It is important for the whole industry to develop something that really works’ - Interviewee
When dealing with the challenging context of opaque supply chains which stretch over multiple jurisdictions with widely different legal environments, companies often find that they need to act collectively. Our interviews consistently suggested that collaboration offers the potential for increased leverage, particularly with respect to challenges which a single company is unable to address. One interviewee indicated:
It is not for you to solve on your own. The fact that we know about it means we can start to create coalitions to address it. This is our solution. If we can get half a dozen others, including NGOs, government departments and the UN, then we can have the conversation.
Another interviewee indicated that they find “the best way to [engage successfully with governments on supply chain issues] are through organisations”, adding that “organisations have the power of hundreds of members behind them.” An interviewee highlighted that they are able to exercise considerably more leverage if they “go as the face of the member organisation”. This is particularly important when engaging with governments in jurisdictions where the individual company may not have a large market share, but many suppliers. It was also indicated that “the further down the supply chain you are seeking to exercise leverage, the more you need to work with other actors.”
Collective engagement takes many forms, and could include industry or cross-sectoral business initiatives, as well as multi-stakeholder initiatives with governmental bodies, civil society organisations, trade unions and international organisations. Forms of intervention range from initiatives on the softer end which provide a platform for dialogue among stakeholders, to those which intervene with more force, whether through auditing and certification, mediation, standard setting and sanction, and those which a specific focus on governance. One interviewee highlighted that collective engagement is also important for business to “show the public and governments what you are doing” and that sometimes government initiatives “can be misguided as they don’t know what industry is already doing.”
Some argue that industry-specific MSIs are more effective at implementing and enforcing human rights standards than cross-sectoral or non-industry specific collective initiatives. Non-sectoral initiatives often focus on dialogue and sharing of information and good practice, but frequently lack accompanying accountability mechanisms. One interviewee emphasised that “it is important for the whole industry to develop something that really works.” Another interviewee from the extractives sector indicated that, through IPIECA, an oil and gas sector initiative, they are connecting with peers working on the same issues. They stated that are “happy to have human rights counterparts in other companies, and have a safe place to talk”, adding that it is “very effective, and helps me internally, to learn, but also to see if others are doing better.”
Even so, the benefits of engaging collectively across sectors were highlighted by more than one interviewee. For example, an interviewee from the extractive sector highlighted that other sectors are more advanced on supply chain HRDD than the extractive sector, but that other sectors could learn from extractives on health, safety and environment issues. Another interviewee stated: “I do believe that big businesses have to engage collectively across industry segments.”
Another benefit of collective engagement which was repeatedly mentioned is the development of third party vetting mechanisms. One interviewee from the extractive sector indicated that their CEO is impressed by the IT sector’s “creation of their own clubs for sharing audits.” There is a concern about supplier fatigue as a result of being audited on the same human rights standards by each company for which they supply. The interviewee indicated that such a “club” for third party vetting would be cost efficient and “avoid the fatigue effect”.
Even when no official collective organisation exists, interviewees highlighted the benefits of approaching suppliers together with peers which are also sourcing from that supplier. One interviewee in the retail sector indicated that it was helpful to “visit the factory and have the meeting together” with two other well-known brands, in order for the supplier to “see that we work together”.
It has been argued that most issues faced by companies today are no longer owned nor solved by individual stakeholders, and that “[w]ith growing interdependence comes a growing need to search for collaborative approaches.” However, in doing so, MSIs serve a global governance function by seeking to regulate what governments have left unregulated. This raises questions around whether private initiatives should be required and expected to discharge a public function.
The supplier’s perspective
Without effective collaboration between industry peers in carrying out HRDD, suppliers may be subject to unnecessary cost and time burdens in connection with their efforts to comply with audits, training and screening exercises carried out by their customers.
Suppliers are often subject to HRDD requirements from several companies which buy from them. This can lead to a proliferation of efforts, particularly where each buyer requires its own audit. Suppliers are also usually expected to pay for their own audits, as well as for human rights training and other supply chain code of conduct requirements.
Collaboration between industry peers, or across industries, which allow suppliers to streamline these processes and share information, potentially enables a more efficient process for everyone. One interviewee referred to the Sedex and AIM-progress models discussed above, asking “why should suppliers pay for multiple auditors?” and argued that with these models “one audit works for everybody.” They indicated that their company “insists our tier ones use Sedex, and they push it down to their suppliers.” They added that for HRDD purposes these models have evolved, but have to evolve further.
However, evidence shows that buyer companies should also ensure that their purchasing practices are aligned with their human rights expectations. A recent survey of over 1500 suppliers suggests that buyers often contradict their own HRDD requirements with their purchasing practices, such as lead times, prices and technical specifications. It showed that suppliers frequently accept orders below production costs, which in turns leaves them unable to pay living wages, or even minimum wages. Where suppliers are required to spend money on compliance with human rights codes of conduct, such as participating in training or increasing wages, then these commitments need to be reflected in buyers’ prices. An interviewee from the retail sector confirmed this, indicating that purchasers often “buy wine one week and trousers the next”, and always incentivise price without an “understanding of what they are buying and what is feasible”.
There are a few examples of HRDD which includes financial and resources support for suppliers. One company interviewed, which sources raw materials from the agricultural sector, provides mechanisation support to smallholder farmers within its supply chain. Using the company’s leverage as a large multinational, it negotiated a preferential rental rate with a farming equipment and services provider. This helps farmers to increase their turnover substantially through access to seeds and state of the art equipment most suitable to their crops at reduced rates. In one example, this mechanisation support increased the crops of a farmer whose children formerly worked on the farm to a level which enabled her to send her children to school. Another example of resource allocation to enable HRDD is the Bangladesh Accord, which provides for financial support for the improvement of facilities.
The role of states and regulation
Interviewees were generally supportive of clear regulation, given a desire for legal certainty. There is also a broad expectation that regulations incorporating HRDD elements will evolve in terms of scope of application and rigour of requirements.
‘We would like to see more regulation. It would force our tier two, three and four suppliers to improve their processes – and our competitors. We rely on the whole industry’ - Interviewee
Pillar I of the UNGPs confirms the international law obligations of states to protect the human rights of those within their territory and jurisdiction, including against abuses by business enterprises. This includes the state duty to take steps to prevent and redress corporate human rights violations. However, there is currently an increasingly well-documented lack of adequate state-level accountability and enforcement mechanisms for corporate human rights impacts. This is not only a developing world problem: a recent study which examined labour standards in the US found that “an employer would have to operate for 1,000 years to have even a 1 percent chance of being audited by Department of Labor inspectors”. An interviewee indicated:
We are all doing this which is not traditionally done by business. If governments would implement labour policies, we [in corporate HRDD-related roles] would all be out of a job.
Domestic and international law has been slow to catch up with the realities of global business activities and their human rights impacts. Where it has done so, it has taken a piecemeal and fragmented approach. While efforts to address particular issues such as modern slavery, conflict minerals or illegal logging have resulted in the development of some legislative and regulatory measures, there remains a lack of mandatory regulation with respect to a company’s obligations over its supply chain. Those legislative measures which incorporate HRDD take a range of forms, ranging from the imposition of reporting requirements, positive due diligence obligations, import restrictions and public procurement measures.
There has been the most movement in the area of modern slavery. However, the UK MSA and similar proposed legislation currently contain few consequences for failure to comply with this requirement, beyond pressure from civil society. Other jurisdictions have looked to impose more stringent positive due diligence requirements, such as those included in the French Duty of Vigilance Law and a similar proposal in Switzerland, as well as stronger sanctions for non-compliance, including causes of action available to those impacted by a company’s failure to comply.
In many cases, the absence of regulation has been a significant challenge for companies, particularly for those with operations and supply chains spanning multiple jurisdictions. The above-mentioned proliferation of regulatory approaches has resulted in a patchwork of regulation across jurisdictions. The partial and targeted nature of existing and proposed regulatory measures, their difference in scope, sanction and jurisdictional reach has created not only a mosaic of obligations that a company may be required to adhere to, but also significant governance gaps. John Ruggie has confirmed that:
Governments should not assume they are helping business by failing to provide adequate guidance for, or regulation of, the human rights impact of corporate activities. On the contrary, the less governments do, the more they increase reputational and other risks to business.
The general approach of interviewees is that clear regulation would be welcomed, as it would provide legal certainty. With reference to the example of labour brokers, one interviewee stated that “states are not regulating as much as they should.” Another interviewee stated:
We would like to see more regulation. It would force our tier two, three and four suppliers to improve their processes – and our competitors. We rely on the whole industry.
They added that for this purpose, regulation should not just be directed at large organisations. In their supply chains, one of the main challenges relates to labour recruitment brokers, which are not covered by legislation which only applies to large multinationals. They emphasised that “there is no reason why it has to be limited to large companies; there are risks in all companies.”
One interviewee indicated that the reason why companies need to pay so much attention to HRDD is because “of a lack of confidence in state institutions: all of these things are substitutes for Pillar I” of the UN Guiding Principles. In this context, another interviewee indicated that a business and human rights treaty would be welcomed as it would provide a “level playing field and base standard for all companies”. They stated that a treaty would benefit companies like theirs which are “already trying to take the high road in this space”, and added that “companies who are advanced on the issue don’t want others getting a cost advantage from taking the low road”.
Whilst emphasising the need for regulation, interviewees also noted that there are different types of regulatory approaches, and expressed views on what kind of legislation is effective. One interviewee highlighted the significance of regulation, such as the French law requiring HRDD, which goes further than mere reporting obligations, such as those contained in the UK Modern Slavery Act. Another interviewee described the UK Modern Slavery Act requirement that a board member (or, as is often seen as good practice, the CEO) should sign the company’s modern slavery statement as “a good aspect of that law” as it “brings these issues before the board”. More than one interviewee referred favourably to the approach taken by Canada allows the Canadian government and export credit agency to take into account a company’s compliance with international standards and its participation in the OECD NCP process. It was highlighted that these kinds of procurement rules, as well as those being used in the US around forced labour, are “more modern”.
One interviewee emphasised that “a standard is helpful” but that legislation should be “logical and flexible” and based on the recognition that “there is no one size fits all solution”. Moreover, it should provide for the reality that the company does not have sole responsibility for these issues. They used the example of forced labour to explain that human rights issues in supply chains are “not just business’ problem”, in that there needs to be cooperation between business, NGOs and states to effectively tackle these issues.
There seems to be an acknowledgement amongst companies that regulation in this area is expected to evolve, both in terms of scope of application as well as rigour of requirements. For example, one interviewee indicated that there is currently “not a lot of helpful guidance” on the specific components of the French law on mandatory diligence, but that this will become clearer once the legislation is interpreted and enforced. They also added that the court’s limitation of the civil penalty applicable is helpful as it “gives companies more time to understand what they need to do”.
Remedy to impacted people
In addition to the developing case law around the recognition of a legal duty of care based on principles of control, other mechanisms for financial and non-compensatory redress continue to develop. Examples include state-based procedures (e.g. OECD National Contact Points) and industry initiatives (e.g. the Bangladesh Accord arbitral procedure).
The UNGPs describe remedy as mechanisms “to counteract or make good any human rights harms that have occurred.” Remedies may take many forms, such as:
[A]pologies, restitution, rehabilitation, financial or non-financial compensation and punitive sanctions (whether criminal or administrative, such as fines), as well as the prevention of harm through, for example, injunctions or guarantees of non-repetition.
Acceptance of the corporate responsibility to respect human rights enshrined in Pillar II of the UNGPs and the need for access to effective remedy in Pillar III have developed alongside an escalating trend in case law toward the recognition of a legal duty of care based on control. Claimants in different jurisdictions have attempted, with varied success, to explore avenues for remedy for corporate violations of human rights, including under tort, consumer law, misleading and deceptive conduct, and specialist statutory claims. Further, the use of international law standards in domestic courts mean that legal sanction against a company as a result of activities in its supply chain is no longer a remote possibility.
In addition to judicial mechanisms, other complementary processes have developed by which aggrieved parties may seek redress from companies for actions arising from their supply chain activities. The OECD NCP process has facilitated settlements and made findings with respect to failures to exercise HRDD over supply chains. Arbitral processes such as the Bangladesh Accord arbitrations at the Permanent Court of Arbitration have also enabled substantial settlements to be made which include not only financial damages, but non-compensatory remedies such as agreements to provide safer working conditions.
There is growing evidence that prolonged civil litigation which ends in monetary damages is not seen as the most effective form of remedy by either human rights victims or companies. Instead, companies indicate that operational-level grievance mechanisms implemented in terms of the UNGPs “are actually effective”. One company interviewed indicated that it is important to have “principles at headquarters that are as high-level as possible, so that they can be tailor-fit for the local context”. Local teams need to be supported by group level teams in adapting and fitting solutions to the local context. Examples of remedies which victims sought instead of monetary compensation include return of access to land, cleaning up of pollution, and restitution of property. These remedies frequently require preventative measures similar to traditional injunctions, in that companies are expected to cease from continuing with the harmful activity in question. It was, however, highlighted that “money sometimes is the right remedy”, such as when wages need to be back paid.
Access to remedy remains a challenge for those whose human rights have been adversely affected within the supply chain. However, the developments in global jurisprudence and complementary processes mean that a company with active control over its suppliers is increasingly less likely to be in a position to exclude liability through complex corporate structures and reliance on separate corporate personality.
The drivers for supply chain-related HRDD
Interviewees confirmed the avoidance of legal risks and reputational risks as two of the key incentives for conducting HRDD. Other notable drivers included meeting investor expectations and the need to achieve sustainable supply chains – a commercial necessity.
Our previous study on HRDD highlighted that legal-related drivers were three out of the four top incentives for undertaking HRDD; the other top incentive being “reputation”.
Interviewees again confirmed the importance of reputational risks as a driver for supply chain HRDD. One interviewee indicated that they started to introduce human rights in their auditing process in response to “publicity around issues in supply chains” well before there was any legislation which required it. They stated that this was “part of a growing push towards business responsibility for supply chains”, including by the UN Global Compact of which they are a signatory. They added that “all of this came together to make [the company] realise it should act”. Another interviewee indicated that although their company was not implicated in the Rana Plaza factory collapse, this was a “big wake-up call” for them. It drove them to adopt an ethical sourcing policy, in and to take steps towards more transparency in their supply chains.
Similarly, our interviews again confirmed that legal requirements, and in particular reporting requirements, are an important driver of supply chain HRDD. However, one interviewee noted that “having the law there is helpful, but it is still a baseline. If you only do it because the law says so, you approach it in a certain way”. However, it was highlighted that states are currently providing very little incentive for HRDD through procurement requirements and other mechanisms. An interviewee indicated that with respect to legal developments “there is very little carrot along with that stick.”
The powerful influence of investors was highlighted as a strong motivator which is currently underutilised. One interviewee indicated that they are being “kept accountable by investors and shareholders”. On the other hand, another interviewee indicated that “investors are not asking us about it” indicating that investors have the ability to exercise “a pressure which we are not feeling.” One interviewee from the financial sector confirmed this by indicating that “the questions may end at: do you have a human rights policy.” It was highlighted that an analogy could be drawn to how banks treat financial crime risks, both with respect to new customers as well as reviewing existing customers.
Interviewees frequently referred to the importance of sustainable supply chains as a driver for supply chain HRDD. One interviewee indicated that supply chain HRDD is core to the concept of “good business” as it is “just about knowing your suppliers.” Another interviewee indicated that it is helpful to communicate the importance of supply chain HRDD internally if one emphasises that it is important for “greater continuity of supply and reduced failure of products.” An interviewee from the agriculture sector highlighted that “the delivery of a contract on time and in full” has an impact on the business. Accordingly, the importance of supply chain HRDD can be conveyed internally with such questions as:
Who is going to grow our products? Do they have the right conditions to grow it? Can they get it to the airport in time?
They demonstrated the unhelpfulness of the compliance approach of “if we have signed a contract and they don’t comply, it’s their problem not ours”, by pointing out that “we don’t have to contract with them, but do need to make sure they can produce.”
Internal challenges and opportunities
A number of organisational challenges and opportunities were observed. In particular, interviewees reported efforts to simplify internal rules and processes, in part through the development of new and centralised tools, and the need for ever closer inter-departmental coordination between key functions such as procurement, legal and CSR.
Interviewees highlighted a few internal challenges to the implementation of supply chain HRDD. One interviewee mentioned the need to simplify internal rules. Supply chain HRDD should be integrated into relevant operating systems, such as procurement processes. In their company, they are building “new and centralised tools” for this purpose. Before they centralised their process, escalation of human rights impacts identified with suppliers could have taken place randomly through various channels. The interviewee stated that “it could have been through compliance, security or HSE. It was a mess.”
Most of our interviewees referred at some point to the role of the procurement team or specialist in their supply chain HRDD. Other functions, such as the legal team and the ethics and compliance team, frequently work alongside the procurement team for the purposes of supply chain HRDD. One interviewee from the legal department referred to a two-week long conversation they had with a potential supplier about a human rights issue which was flagged during an initial screening process. They indicated that they had to satisfy themselves that the supplier had the necessary procedures in place before entering into a relationship with the supplier, but that their colleagues in the procurement team was “not very happy” about the delay. In other instances, the procurement teams are referred to as “very engaged and supportive” of HRDD. Other functions which are often involved include security and community teams at the site, for example if there is a resettlement.
The prominent role of the procurement specialist in supply chain HRDD is unsurprising, as it is indeed their role to engage directly with suppliers in most companies. However, our previous study showed that other functions, such as compliance, CSR, human resources and legal and often taking the lead on the company’s HRDD for its own operations. Companies should ensure that these functions are in communication, preferably through a cross-functional steering committee of working group with ties to the Board. This is important to avoid a duplication of efforts where knowledge and processes around HRDD for the company’s own operations develop in parallel and in isolation from its supply chain HRDD.
Moreover, an interviewee from a corporate group which provides retail and consumer services indicated that those with experience in sectors of the business with more sophisticated supply chain management processes, such as the food sector, can transfer knowledge to other sectors of the business which may not be as well developed. Learnings can thus be “transmitted across the group”. On the other hand, an interviewee highlighted that “people do not want to use cross-sectoral toolkits, but something on: this is what you do in this sector”. As a result, there is “not a lot of shared learning”, which is a missed opportunity.
 Shift, “From Audit to Innovation: Advancing Human Rights in Global Supply Chains” Report, August 2013.
 Martin Boersma “Changing approaches to child labour in global supply chains: Exploring the influence of multi-stakeholder partnerships and the United Nations Guiding Principles on Business and Human Rights” 40(3) University of New South Wales Law Journal 1249 at p1251.
 Commentary to Guiding Principle 12.
 Our previous study on HRDD, above, suggested that companies which tend to focus only on labour rights are likely to miss other human rights impacts.
 Outside the human rights context, the International Chamber of Commerce has prepared third party due diligence guidance for SMEs with respect to anti-corruption. International Chamber of Commerce, Anti-Corruption Third Party Due Diligence: A guide for small to medium size enterprises, 2015.
 Bangladesh Accord on Fire and Building Safety, see https://bangladeshaccord.org/.
 See Thomas Wilson, “Apple Cobalt Supplier Seeking Ethical Supply With Industry Pilot” Bloomberg, 26 March 2018 https://www.bloomberg.com/news/articles/2018-03-26/apple-cobalt-supplier-seeking-ethical-supply-with-industry-pilot See above at [ ] for a discussion of the OECD Guidelines which require that downstream companies undertake HRDD to the smelter level.
 Galit A Safarty “Shining A Light on Global Supply Chains” 56 Harvard International Law Journal 419 at p434.
 Galit A Safarty “Shining A Light on Global Supply Chains” 56 Harvard International Law Journal 419 at p432.
 Galit A Safarty “Shining A Light on Global Supply Chains” 56 Harvard International Law Journal 419 at p433.
 Martin Boersma “Changing approaches to child labour in global supply chains: Exploring the influence of multi-stakeholder partnerships and the United Nations Guiding Principles on Business and Human Rights” 40(3) University of New South Wales Law Journal 1249 at p1254.
 Such as the Global Business Initiative on Human Rights (“GBI”), a cross-sectoral initiative aimed at providing a forum for business to share information and learning, including around supply chain relationships. See: https://gbihr.org/.
 See for example, the Responsible Business Alliance (formerly the Electronic Industry Citizenship Coalition) (“RBA”) which requires that RBA members commit and are held accountable to a common Code of Conduct which sets standards on social, environmental and ethical issues in the electronics industry supply chain. See: https://www.responsiblebusiness.org/.
 See for example, the Ethical Trading Initiative (“ETI”) which requires its members to adopt a Code of Practice and has developed a HRDD framework as guidance. It does not itself sanction members for non-compliance, but has intervened as a third party to create a “safe space” in which workers, trade unions, firms and NGOs may mediate violations of worker rights in the supply chain. For example, see https://www.ethicaltrade.org/about-eti/what-we-do/resolving-violations.
 Such as ICoCA above.
 Such as the Global Network Initiative (GNI) which sets standards, engages in independent assessments of compliance and collectively lobbies governments in the telecommunications sector, and the FLA (above) which accredits the management systems of participants and verifies remedial efforts of suppliers. See also Steven Bernstein and Benjamin Cashore “Can non-state global governance be legitimate? An analytical framework” 1 Regulation and Government 347 at 348.
 Dorothée Baumann-Pauly, Justine Nolan, Auret van Heerden and Michael Samway “Industry Specific Multi-Stakeholder Initiatives that Govern Corporate Human Rights Standards: Legitimacy assessments of the Fair Labor Association and the Global Network Initiative”143 Journal of Business Ethics 771.
 Dorothée Baumann-Pauly, Justine Nolan, Auret van Heerden and Michael Samway “Industry Specific Multi-Stakeholder Initiatives that Govern Corporate Human Rights Standards: Legitimacy assessments of the Fair Labor Association and the Global Network Initiative”143 Journal of Business Ethics 771 at 773.
 Justine Nolan “The United Nations’ compact with business: Hindering or helping the protection of human rights?” 24 University of Queensland Law Journal 445; Surya Deva “The UN Global Compact for responsible corporate citizenship: Is it still too compact to be global? 145(2) Corporate Governance Law Review 145.
 Dorothée Baumann-Pauly, Justine Nolan, Auret van Heerden and Michael Samway “Industry Specific Multi-Stakeholder Initiatives that Govern Corporate Human Rights Standards: Legitimacy assessments of the Fair Labor Association and the Global Network Initiative”143 Journal of Business Ethics 771 at p772.
 Rob Van Tulder, “Foreword – The necessity of multi-stakeholder initiatives” in Mariette van Hujistee (Ed) Multi-stakeholder initiatives: A strategic guide for civil society organisations, SOMO, March 2012 at p8.
 Justine Nolan and Auret van Herdeen “Engaging business in the business of human rights” in Morten B Pedersen and David Kinley (Eds) Principled Engagement: Negotiating human rights in repressive states, 2013, Farnham, UK: Ashgate. Some describe MSIs as embodying a kind of “networked governance” that places the activity of a business under the scrutiny of multiple actors. Lucio Baccaro and Valentina Mele “For Lack of Anything Better? International Organizations and Global Corporate Codes” 89(2) Public Administration 451.
 MSIs frequently lack transparency with respect to their accountability mechanisms, which makes assessing their effectiveness difficult to ascertain. MSI Integrity and Duke Human Rights Center at the Kenan Institute for Ethics, The New Regulators? Assessing the Landscape of Multi-stakeholder Initiatives: Findings from a database of transnational standard-setting multi-stakeholder initiatives, June 2017.
 The Joint Ethical Trading Initiatives’ Guide to buying responsibly, September 2017, available at https://www.ethicaltrade.org/resources/guide-buying-responsibly, p. 7.
 The Joint Ethical Trading Initiatives’ Guide to buying responsibly, September 2017, available at https://www.ethicaltrade.org/resources/guide-buying-responsibly.
 The Accord on Fire and Building Safety in Bangladesh, 13 May 2013
 For example, in its General comment No. 24 (2017) on State obligations under the International Covenant on Economic, Social and Cultural Rights in the context of business activities the UN Committee on Economic Social and Cultural Rights’ accepts that there is a duty on states to take steps to prevent and redress infringements of Covenant rights that occur outside their territories due to the activities of business entities over which they can exercise control: “Corporations domiciled in the territory and/or jurisdiction of States parties should be required to act with due diligence to identify, prevent and address abuses to Covenant rights by such subsidiaries and business partners, wherever they may be located.” See Committee on Economic Social and Cultural Rights, General comment No. 24 (2017) on State obligations under the International Covenant on Economic, Social and Cultural Rights in the context of business activities at .
 See, for example, Robert McCorquodale, Gwynne Skinner and Olivier De Schutter The Third Pillar: Access to Judicial Remedies for Human Rights by Transnational Business, 6 May 2016; Jennifer Zerk, “Corporate Liability for Gross Human Rights Abuses: Towards a fairer and more effective system of domestic law remedies. A report prepared for the Office of the UN High Commissioner for Human Rights” 2012; Jennifer Zerk, “Extraterritorial jurisdiction: lessons for the business and human rights sphere from six regulatory areas.” Corporate Social Responsibility Initiative Working Paper No. 59. Cambridge, MA: John F. Kennedy School of Government, Harvard University 2010; Amnesty International, Injustice Incorporated: Corporate Abuses and the Human Right to Remedy, POL 30/001/2014, 7 March 2014.
 G. Lafer (2013) “The Legislative Attack on American Wages and Labor Standards, 2011-2012”, Washington DC: Economic Policy Institute, 29.
 Galit A Safarty “Shining A Light on Global Supply Chains” 56 Harvard International Law Journal 419 at pp419-420.
 Dorothée Baumann-Pauly, Justine Nolan, Auret van Heerden and Michael Samway “Industry Specific Multi-Stakeholder Initiatives that Govern Corporate Human Rights Standards: Legitimacy assessments of the Fair Labor Association and the Global Network Initiative”143 Journal of Business Ethics 771 at p771.
 UNHRC, Protect, Respect and Remedy: A Framework for Business and Human Rights: Report of the Special Representative of the Secretary-General on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises, John Ruggie (2008) UN Doc A/HRC/8/5 at para 22.
 Doing Business the Canadian Way: A Strategy to Advance Corporate Social Responsibility in Canada’s Extractive Sector Abroadhttps://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/other-autre/csr-strat-rse.aspx?lang=eng
 Commentary to Guiding Principle 25.
 Commentary to Guiding Principle 25.
 Such as the US Trafficking Victims Protection Act or the Alien Tort Statute.
 See for example, Araya v. Nevsun Resources Ltd. 2017 BCCA 401.