**London**: As global regulatory pressures mount, companies are urged to adopt rigorous due diligence practices to mitigate risks in their supply chains, particularly regarding human rights and environmental protections, with significant new directives coming into force across Europe and beyond.
Thorough third-party due diligence and ongoing monitoring have become vital aspects of compliance programmes, helping to shield organisations from potential legal repercussions, reputational harm, and significant operational disturbances associated with supply chain issues. A key focus is preventing human rights abuses and violations within global supply chains, a critical measure in mitigating third-party risk.
As regulatory pressures mount, companies worldwide are urged to rigorously and consistently evaluate their supply chains. Heightened scrutiny from regulators, coupled with increased attention from stakeholders—including investors and consumers—underscores the necessity for companies to address potential human rights abuses. The prospect of adverse media coverage also serves to intensify the urgency surrounding this issue.
The regulatory landscape is notably evolving in Europe, which continues to spearhead supply chain-related due diligence requirements with a focus on human rights and environmental protections. Notable regulations include the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD), both of which are set to implement stringent requirements for large corporations.
The CSDDD, which comes into force on 25 July 2024, mandates that large companies identify and mitigate adverse impacts on human rights and the environment throughout their operations and supply chains. This includes addressing issues such as child labour and pollution. Furthermore, companies will be required to formulate a transition plan for climate change mitigation in alignment with the Paris Agreement’s goal to limit global warming.
Additionally, the CSRD, effective from 5 January 2023, obliges designated large companies, including those outside the EU generating significant revenue from the EU market, to disclose risks and opportunities associated with social and environmental matters. The initial reporting requirements will apply to the 2024 financial year, with disclosures expected in 2025.
In Germany, the Supply Chain Due Diligence Act took effect on 1 January 2023, establishing requirements for companies with over 1,000 employees to address human rights and environmental due diligence obligations. This includes conducting risk assessments for potential violations and ensuring mechanisms are in place for reporting risks or violations.
Other countries such as the United Kingdom, Canada, France, and the United States have also enacted their own due diligence requirements focused on human rights and environmental protections, reflecting a global movement toward heightened regulatory scrutiny in this area.
Experts suggest that companies should proactively adopt best practices to manage and mitigate such risks within their global supply chains effectively. Key recommendations include using frameworks such as the Universal Declaration of Human Rights as a guiding principle, taking a cross-functional approach to compliance, and implementing robust risk assessment procedures to identify and address vulnerabilities within supply chains.
Organisations are further advised to establish clear escalation processes to address any potential violations and ensure consistent documentation and remediation of compliance gaps. The use of technology for automated monitoring of suppliers and adherence to compliance standards is also recommended to facilitate ongoing oversight of supply chain practices.
As obligations pertaining to human rights and environmental due diligence continue to evolve, it is anticipated that regulatory demands on compliance programmes will likewise grow. Experts predict an increasing emphasis on transparency in due diligence efforts and escalating expectations for stakeholders within supply chains to engage in rigorous oversight measures.
The evolving regulatory environment suggests that companies must remain vigilant and adaptable in their approaches to supply chain management in order to sustain compliance and foster ethical practices within their operations.
Source: Noah Wire Services
Subscribe to Industry Updates
