15.4 Emerging Regulations on Supply Chain Due Diligence

Supply chain due diligence is a crucial process for identifying and mitigating risks in supply chains. It ensures suppliers meet social, environmental, and ethical standards, promoting responsible sourcing and sustainable practices. This process brings benefits like improved reputation, reduced risks, and increased stakeholder trust.

Regulations like the UN Guiding Principles and EU Conflict Minerals Regulation guide companies in implementing due diligence. Frameworks for supplier compliance include establishing policies, mapping supply chains, conducting risk assessments, and developing corrective action plans. While this process can increase costs, it ultimately enhances transparency and sustainability in supply chains.

Understanding Supply Chain Due Diligence

Concept of supply chain due diligence

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• Process of identifying, assessing, and mitigating risks in the supply chain (human rights violations, environmental damage, unethical business practices)
• Helps ensure suppliers adhere to social, environmental, and ethical standards promotes responsible sourcing and sustainable supply chain management
• Benefits include improved reputation and brand value, reduced legal and financial risks, enhanced stakeholder trust and investor confidence, increased supply chain resilience and long-term sustainability (Patagonia, Unilever)

Regulations for due diligence

• United Nations Guiding Principles on Business and Human Rights (UNGPs) provides a framework for companies to respect human rights in their operations and supply chains
• Organisation for Economic Co-operation and Development (OECD) Due Diligence Guidance offers sector-specific guidance on responsible business conduct and due diligence (conflict minerals, garment and footwear)
• European Union (EU) Conflict Minerals Regulation requires EU importers of 3TG (tin, tantalum, tungsten, and gold) to conduct due diligence on their supply chains
• UK Modern Slavery Act mandates companies to report on steps taken to address modern slavery in their supply chains (Marks & Spencer)
• California Transparency in Supply Chains Act requires companies to disclose efforts to eradicate slavery and human trafficking from their supply chains (Apple, Gap)

Implementing Supply Chain Due Diligence

Framework for supplier compliance

• Establish a supply chain due diligence policy and communicate it to suppliers
• Map the supply chain to identify high-risk suppliers and regions (conflict zones, developing countries)
• Conduct supplier risk assessments using self-assessment questionnaires, audits, and on-site visits assess suppliers' compliance with social, environmental, and ethical standards
• Develop corrective action plans for non-compliant suppliers set clear expectations and timelines for improvement, provide training and support to help suppliers meet requirements (capacity building)
• Monitor supplier performance and conduct regular follow-up assessments
• Engage with stakeholders, including NGOs and local communities, to gather feedback and improve due diligence processes (multi-stakeholder initiatives)

Impact of due diligence regulations

• Increased compliance costs and resource requirements need for dedicated due diligence teams and enhanced data management systems (blockchain technology)
• Potential supply chain disruptions due to supplier non-compliance or disengagement may require finding alternative suppliers or investing in supplier development
• Enhanced supply chain transparency and traceability improved ability to identify and address risks in the supply chain (product labeling, consumer awareness)
• Increased collaboration and knowledge sharing among industry peers development of industry-wide standards and best practices for due diligence (Responsible Business Alliance)
• Long-term benefits for supply chain sustainability and resilience reduced reputational, legal, and financial risks, improved relationships with suppliers, stakeholders, and customers (Nestlé, Coca-Cola)