One of the characteristics of an international supply chain is creating jobs in developing countries; for example, textiles from India, electronic components from China and wood from Indonesia. It may be obvious to have products manufactured in Far East countries, but do we know the supply chain well enough? Do we know how and under what conditions the products are manufactured? Are workers treated fairly and according to (inter)national law?
When trading internationally, it is vital to understand the hidden negative side effects that may occur in the supply chain, starting from raw materials to the end product. For example, what is the product impact on the environment, what are the working conditions and the policy on human rights? What position and power do the government have in the producing countries? And how can a company contribute positively to the supply chain?
At a European level, there are visible developments in making due diligence in the supply chain obligatory. Companies will be held accountable and liable when they harm or contribute to harming human and labour rights and the environment. So far, a voluntary approach to conducting due diligence has appeared to be insufficient.
For international commerce, companies are encouraged to look beyond just trade and acknowledge their duties by recognising the corporate social responsibility (CSR) risks and, where necessary, anticipate and minimise them. A CSR risk results from a business practice that may adversely affect people, planet and local activities.
Introducing a legislative framework means companies operating in the EU market will have to deal with identical rules and consequences, regardless of the business size. This way, firms cannot avoid liabilities in case of harmful events occurring in the supply chain.
Of course, it does not mean the local impact of companies is always harmful. However, the COVID-19 pandemic has triggered a call for businesses to step up for change and get actively involved in preventing, mitigating and remedying negative influences that occur anywhere along the entire supply chain.
Engaging in CSR activity is a business strategy that is accepted and shared but must be driven top-down. The first step is to look internally at the role CSR plays and the extent of ownership a company is prepared to take. The second step is to determine which departments and processes are already a match with desired CSR activities and assign responsibilities.
Moving the proposals for binding legislation on due diligence obligations from the European Parliament to the European Commission is expected soon. The question is: are you prepared to understand the CSR risks and meet a mandatory standard on the impact on human rights and the environment in the supply chain?
Anita Gunther-Singh is Product and Social Compliance Consultant at Précon.
The Précon Quickscan provides insight into current business processes and activities and presents an overview of the CSR risks of the supply chain transparency and the social and environmental aspects.