Key Concepts: Due Diligence and Traceability
In business, conducting due diligence before entering into significant deals or partnerships is essential to mitigate risk. It involves thoroughly researching and evaluating the background, integrity, and financial stability of the parties involved. Without proper due diligence, there is a risk of encountering problems such as partnering with companies who have misrepresented their true financial position.
Brands also face growing due diligence pressures across their extended supply chains – they are increasingly beholden to regulatory and ethical requirements while managing complex supply chains that expose them to numerous risks. Countries like Germany, the United States, and the United Kingdom have recently enacted stricter import regulations designed to safeguard human rights and the environment. And it’s not just government regulation; brands face consumer pressure as well. Recent research indicates that consumer interest in brands that do good – whether cutting emissions or enforcing ethical labor practices – will continue to grow. To attract this growing subset of consumers and avoid being the target of hashtag-fueled boycotts companies need to showcase their commitment to more than just profit.
Companies bear responsibility for the actions of their suppliers and partners. Since they engage these entities for services and benefit from their contributions, it is crucial not to do so blindly. Engaging suppliers without proper consideration can inadvertently contribute to activities like human trafficking or child labor in upstream segments of a supply chain. Companies that are aware of unethical and illegal practices can be held liable for their lack of knowledge about their extended supply chain. Sourcing raw materials from suppliers or sub-suppliers engaged in illegal or unethical practices can lead to legal and reputational risks. Similarly, companies employing workers in hazardous or abusive conditions may face similar risks.
Due Diligence vs. Traceability
For business owners and brands, there is only one way to address supply chain risks: prioritize due diligence management systems. Within the complex process of creating a product, supply chain due diligence plays a vital role. The Global Trace Protocol project has developed a glossary and a Context Analysis Report to clarify and differentiate between some of these terms and to give an overview of best practices.
- Supply Chain Due Diligence is an ongoing, proactive, and reactive process through which enterprises can prevent and mitigate adverse impacts related to human rights, labor rights, environmental protection, and bribery and corruption in their own operations and in their supply chains. Supply chain due diligence assesses both direct and indirect impacts occurring through various business relationships. The complexity of due diligence varies based on the size of the enterprise, the risk of severe labor and other human rights impacts, and the nature and context of the business operations.
- Traceability is the ability to identify and trace the history, distribution, location and application of products, parts, and materials, to ensure the reliability of sustainability claims, in the areas of human rights, labor (including health and safety), the environment and anti-corruption.
The importance of due diligence in acting against forced labor
By conducting due diligence in general, and ensuring traceability specifically, companies can identify and mitigate these risks within their supply chains by planning, implementing, and ensuring appropriate controls, such as monitoring suppliers and partners, conducting audits, and implementing corrective actions. Such measures help companies achieve regulatory compliance, prevent legal and reputational damage, promote responsible business practices throughout the supply chain, and provide consumers with assurance of compliant supply chains. Robust due diligence processes, such as traceability, can help identify risks of forced labor in a supply chain, which in turn can help safeguard vulnerable individuals from being trapped in situations that violate their human rights.
Elevate, an LRQA company, under the Global Trace Protocol Project (GTP) is piloting trace protocols in two supply chains: cotton in Pakistan and cobalt in the Democratic Republic of Congo. This pilot is to support the development of a commodity agnostic publicly available tool with a supporting due diligence guideline. Learn more about each sector here: cotton, cobalt.