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Imagine a supply chain where everyone is treated with dignity and respect. Where workers are paid fairly and have safe working conditions. This is the vision of an ethical supply chain.
When businesses prioritize humane practices in their supply chains, they create a ripple effect of positive impact for everyone involved. Workers can support their families and live healthy lives. And in turn, consumers can feel good about the products they buy, knowing that they are ethically made.
New research shows that companies with strong environmental, social and governance (ESG) supply chain risk management tend to perform better on the stock market. This is likely due to three main factors: improved supply chain stability, responsible sourcing attracting socially conscious customers and investors, and a strong ESG program hedging regulatory and legal exposures.
In this article, we'll discuss how your company can maintain the utmost respect for human rights throughout your supply chain.
Supply Chain Mapping Enhances Due Diligence
Supply chains can span multiple tiers, often involving third or even fifth parties. This complexity can obscure the visibility of working conditions and human rights further down the chain, potentially leading to issues like labor exploitation or modern slavery.
CFOs must push for in-depth supply chain mapping, reaching down to raw materials, to mitigate these risks. By having a clear picture of each tier, companies can scrutinize suppliers, ensure human rights standards, identify weak spots and actively uphold human rights throughout their operations.
Perfecting the Art of ESG Risk Assessment
Every stage of the supply chain can either be an opportunity for ethical practices or a risk for human rights violations. It's vital to identify these risks to ensure both the ethical treatment of workers and a business's reputation and sustainability.
CFOs should partner with procurement and sustainability departments to establish a methodical risk assessment. Key considerations include the supplier's location, their industry and size. By assessing suppliers on these aspects, companies can focus on the highest-risk areas, ensuring their human rights initiatives are both efficient and effective.
According to a report by Shift, a nonprofit expert on UN Business and Human Rights guidelines, when evaluating supply chain tiers, consider:
- The supplier's location and operational regions
- The identity and history of the supplier, including reliability of their systems
- The business activity type and its associated common human rights risks
Proactive Steps to Support Human Rights Throughout Global Supply Chains
In line with the UN Guiding Principles on Business and Human Rights, companies must undertake thorough human rights due diligence throughout their operations and supply chains. This goes beyond audits; it demands a comprehensive strategy to prevent human rights violations.
Though there's no universal solution, companies can adapt strategies based on their industry and unique supply chain complexities. The UN Global Impact offers these risk mitigation strategies:
- Streamlining the supply chain for reduced vulnerability
- Factoring corporate responsibility into supplier selection
- Prioritizing training over just audits to enhance suppliers’ responsible conduct
- Harnessing technology for data management
- Encouraging suppliers to embrace industry standards, like the UN Global Compact's Ten Principles
- Collaborating with stakeholders through multistakeholder initiatives
For a proactive approach to support human rights, CFOs can:
- Formulate a Human Rights Policy: Collaborate with teams to draft a policy detailing the company's human rights stance, including supplier standards.
- Schedule Regular Audits: Regularly assess suppliers for adherence to your human rights policy and spot areas needing enhancement.
- Provide Training: Assist suppliers in elevating their human rights standards with training on labor rights and safety protocols.
- Set Up Grievance Channels: Offer clear methods for workers and stakeholders to report potential violations, ensuring timely and effective resolutions.
- Share Updates: Consistently update stakeholders on human rights performance. Openness is key to building trust and showcasing ethical commitment.
By integrating these ESG risk management measures, CFOs can help ensure ethical operations while achieving financial objectives.
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