By Alma Angotti, Alexandra Will
On September 15, 2021, European Union (EU) Commission President Ursula von der Leyen announced the Commission’s intent to ban products made with forced labor from entering the EU market. This announcement comes on the heels of guidance issued in July 2021 by the Commission and the European External Action Service on how to effectively implement supply chain due diligence. Von der Leyen’s statement, “[D]oing business around the world is good … but can never be done at the expense of people’s freedom and dignity,” reflects a growing public sentiment that inexpensive supply chains cannot supersede human rights. Over the past few years, numerous companies in a wide range of industries, including technology giants, global fashion brands, and consumer goods conglomerates, have faced significant backlash for failing to identify and/or address such abuses taking place within their value chains. These issues are also relevant to financial institutions and other members of the investment community, who should take care to ensure that the companies in which they invest are cognizant of the human rights risks associated with their value chains.
Companies are facing pressure to protect human rights in their supply chains from a range of stakeholders, including consumers, shareholders, and business partners. In addition to public pressure to address upstream and downstream human rights impacts, companies are also facing increased scrutiny from governments. As attention to human rights violations—and interest in Environmental, Social, and Governance (ESG) concerns, generally—has increased, so too has the willingness of governments to pass regulations relating to supply chain human rights due diligence. These laws generally come in two different forms: supply chain due diligence reporting requirements, which governments hope will lead to voluntary due diligence screening; and affirmative obligations on the part of companies to conduct due diligence on their supply chains.
Organizations that ignore these developments risk running afoul of both government regulators and the public at large. This can result in both regulatory sanctions and significant reputational risks. Indeed, according to a 2018 study conducted by the British Institute of International & Comparative Law and Norton Rose Fulbright, companies conducting supply chain due diligence cited legal and reputational risks and meeting investor expectations as the primary driving factors.
This paper will provide an overview of the state of international, US, and European supply chain due diligence laws that companies should take into consideration to avoid the risks associated with inadequate supply chain due diligence. It will also provide guidance on measures companies can implement to comply with applicable laws, including how they can incorporate supply chain due diligence into their existing risk management frameworks.