Addressing respect for human rights in manufacturing industries

Companies in the manufacturing industry that want to address the “S” in ESG can start by addressing respect for human rights in their supply chains. While some companies are far along on this journey, many are just getting started. For those in the latter category, we recommend that you take these initial steps: (1) conduct a human rights risk assessment of the supply chain, (2) conduct due diligence on of human rights compliance on high-risk suppliers, (3) add an appropriate human rights compliance clause to your supply agreements, and (4) develop a program for monitoring and auditing human rights. It is all the more important to take these steps proactively now, given the current pressure on supply chains due to global events, component shortages and regulatory review and enforcement. more and more rigorous.

1. Risk assessment

To get started, make a list of the top 20 suppliers to your business and organize them by location, type of goods they supply to you, and cost. Then create a basic, yet reasonable risk heatmap that assesses the likelihood of a human rights violation and the negative impact such a violation could have on the business. This allows you to identify suppliers who could expose your business to legal liability or reputational damage associated with human rights abuses. The factors outlined below are a good starting point, although others may be relevant depending on the nature of your business.

Start with a jurisdictional analysis. Countries that are at a higher risk of tolerating child labor or forced labor can be fairly easily identified using publicly available information:

Next, look at the industry in which your supplier operates. What kind of products do you buy from them, and what is the history and risks of human rights violations historically associated with this industry?

To visualize this data in the form of a risk heatmap, we combined these two criteria and blended the data with data from the Global Slavery Index on the prevalence of modern slavery. The resulting map is below:

2. Due Diligence

Once high-risk suppliers have been identified, you should perform compliance-focused due diligence on them to further probe the risk of human rights abuses in your supply chain. Here, many manufacturing companies will already have a usable model from which to start: the process used to assess third-party intermediaries for the purpose of complying with anti-corruption laws, such as the Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act (2010). The process of identifying forced labor and child labor risks in a company’s supply chain can be similar, even if the substance and context are different. Basic due diligence tools include:

Human Rights Compliance Questionnaires: Requiring suppliers to complete a detailed questionnaire is one way to obtain useful information to assess the likelihood of human rights risks in your supply chain. Some model questions that can be used for most vendors are included such as:

• Do you have a human rights policy?

• What specific policies or practices are in place to address human rights risks (including modern slavery, illegal child labor and human trafficking)?

• How do you assess and/or manage risks associated with human rights issues?

• Who or what function is responsible for monitoring compliance, with policies addressing human rights issues?

• What procedures do you use to verify the age and confirm the identity of your employees?

• Have you been the subject of a government investigation or audit regarding your work practices?

• Have you been subject to any fines or penalties from any governmental authority related to your work practices?

• What due diligence do you exercise, if any, on your suppliers or third parties to address human rights issues?

• Are your facilities located in countries notorious for human rights abuses?

• Do you outsource manufacturing to entities located in countries notorious for human rights violations?

• Do you purchase product components from entities located in countries notorious for human rights violations?

• When you contract with third parties, do you include terms and conditions and other standard contractual provisions that address human rights compliance?

• How are instances of non-compliance with your compliance policies handled?

Reputation Report: Commissioning a background report on high-risk vendors can allow you to verify responses provided in response to questionnaires as well as identify past associations with human rights violations (or offenders), government enforcement actions or other issues or reports that negatively impact the supplier. reputation.

Red Flag Tracking: It is essential to investigate the red flags identified in the responses to the questionnaire or in the background report. For example, a supplier may, without exercising due diligence, purchase product components from manufacturers located in countries notorious for human rights abuses. Such red flags do not mean that you cannot work with the supplier; investigate issues to determine the appropriate course of action. Flags come in different shades of red, and determining the appropriate response requires follow-up to better understand the facts and circumstances and possibly engage in specific corrective action.

3. Contract clauses

Much of compliance begins and ends with contractual clauses, as these are sometimes the best (or only) leverage companies have with their suppliers. We consider proactive risk mitigation through thoughtful contracts to be obviously necessary (but clearly not sufficient). Good contracts will solve the following problems:

• The inclusion of appropriate representations and warranties that the supplier complies with all applicable human rights laws;

• Obligation for suppliers to maintain or adopt reasonable and appropriate measures to respect human rights; and

• In appropriate circumstances, a requirement that the supplier authorize periodic audits of relevant documents, records, obligations and the creation of audit rights.

The Business Law Section of the American Bar Association has drafted a set of Model Contractual Clauses to guard against human rights abuses in international supply chains. Manufacturers should review these provisions and consider including them when renewing contracts with suppliers or when establishing relationships with new suppliers.

4. Monitoring and audit program

The last step is the most difficult. For a human rights compliance program to be taken seriously, it must include some form of ongoing monitoring, backed up by periodic audits. At a minimum, manufacturers should require high-risk suppliers to regularly certify compliance, periodically re-engage supplier due diligence, subject selected suppliers to periodic audits, and include training on relevant laws or company policies. company. Some characteristics of a monitoring and evaluation program are detailed in the UN Guidance on Supply Chain Sustainability:

• Supplier self-assessment: Self-assessments, which may involve questions similar to those detailed in the questionnaire described in Section 2, can identify suppliers that have improved their human rights compliance practices, as well as those that may require further review. thorough. At the very least, self-assessments can reinforce a company’s human rights expectations for suppliers.

• Visit of the facilities: A visual inspection of a supplier’s factory can identify instances of non-compliance.

• File review: This should involve reviewing compliance policies, health and safety records and any subcontracts with suppliers.

• Management interview: Understanding senior management’s commitment to respecting human rights is key to understanding any risk posed by a supplier.

• Workforce interviews: While management is in the best position to talk about the supplier’s approach to compliance, boots in the field are often the best source for understanding how that theory translates into practice (if at all).

Effective audits are expensive and time consuming. But here, too, companies can turn to suppliers for help, as many now carry out ethical trade audits. Together, the previous four steps will jump-start your company’s supply chain compliance program and enable you to properly manage and mitigate risk. The earliest would be best.