Human rights risks mount with supply chain due diligence not fit for purpose: Maplecroft

Human rights risks are surfacing closer to home for western companies at the very time that legislation to clamp down on abuses strengthens and increases scrutiny on business practices, warns a new report from Verisk Maplecroft. The report also says that supply chain due diligence to track and prevent human right violations is not fit for purpose.

Verisk Maplecroft’s Human Rights Outlook 2017 draws on the firm’s global human rights data and interactions with multinational companies to assess the top 10 issues that will impact business in the year ahead.

A US migrant clampdown, land grabs and slavery blind spots are among the leading risks in 2017, it says.

Crucially the report warns that human rights risks are now prevalent in countries closer to home for western firms. For example, hardening immigration policy in the US is increasing the risk of labour abuses against undocumented workers.

The report identifies agriculture, construction, manufacturing and hospitality as the sectors facing the highest threat from this risk due to their dependence on migrants for informal, low-paid work. For companies sourcing within the US, a revision of auditing priorities, which have traditionally concentrated on less mature markets, may now be needed, the report says.

However, risks further down the supply chain for multinational companies are still pressing. Modern slavery remains an overriding concern at home and abroad, the report notes. Supply chain blind spots are prevalent where modern slavery risks are high, it adds.

For example, workers who transport and distribute goods are invisible on supply chain maps but are highly vulnerable to labour exploitation, the report warns. Subcontractors providing support services ‒ such as cleaning, catering and security ‒ for headquarters are rarely subject to the same oversight applied to tier one suppliers, it adds. The report also notes that since the production of promotional materials, such as leaflets or free gifts, is not a core business activity, it may be outsourced to subcontractors without the attention it deserves.

The report goes on to warn that measures to assess and manage human rights supply chain risk are not up to scratch with companies not carrying out appropriate due diligence or acting on audits.

“The ability of business to conduct effective human rights due diligence is fundamentally flawed because safeguards designed to identify and prevent violations in supply chains are too weak,” says the report. “Our number one issue across the board in 2017 is the limitations of the social audit. We highlight an initiative led by major auditing firms to improve trust in audits by accrediting auditors; but since many companies do not analyse or act on their audits, brands are highly exposed to violations, even among the suppliers they assess.”

The report adds that this exposure will “deepen” because mandatory disclosure laws are set to increase the demand for cheaper social audits, while also tightening public scrutiny.

Developments in mandatory reporting legislation, which has spread to France and the Netherlands from the UK and US, mean an increasing number of large companies will be obliged to take steps to limit their human rights impacts and disclose this information to the public.

New EU legislation signals a shift towards legal requirements for business to conduct human rights due diligence, explains the report. In response, companies will need to make human rights due diligence a standard procedure. Failure to disclose information to the public may deter investors and damage brand reputation, the report warns.

It explains that companies covered by the French Duty of Care law – Le Devoir de Vigilance, the Dutch Due Diligence Child Labour Law and the pending Swiss Responsible Business Initiative, will have to implement human rights due diligence in their supply chain.

The move from voluntary to mandatory reporting means the costs of non-compliance are increasing, but Maplecroft believes making human rights due diligence a standard business practice will create commercial opportunities for early adopters of best practice.

“Expanding legislation across western markets means mandatory human rights due diligence on supply chains could soon become the norm for multinational companies. Failure to get it right will now come with a hefty price tag in key jurisdictions since the passing of new laws in France and the Netherlands. More countries are set to follow suit, with legislation likely to emerge in Switzerland next,” says the report.

“Mandatory disclosure makes it more likely that consumers, shareholders and investors will vote with their wallets for ethical companies who can prove their respect for human rights,” said Dr Alexandra Channer, principal human rights analyst at Verisk Maplecroft.

New anti-bribery laws are also making things more complicated for business.

NGOs are turning to anti-corruption laws in the US, UK, Canada and now France to hold companies to account for supply chain violations.

The new French Sapin II law and earlier US Foreign Corrupt Practices Act, Canada Corruption of Foreign Public Officials Act and UK Bribery Act all allow prosecutions for offences committed abroad.

Verisk Maplecroft’s top 10 human rights issues for business in 2017 are as follows.

Migration and modern slavery: Increasing risk for migrant workers in US

• Mandatory reporting: Disclosure and due diligence laws
• Supply chain blind spots: Hidden workers at risk of modern slavery
• Land rights: Rising scrutiny of land grabs’ money trail
• Social audits: Strengthening trust in auditing
• Corrupt recruitment: Strategic litigation with anti-bribery laws
• Privacy: The surveillance–national security dilemma
• Worker voice: Partnering with workers to prevent violations
• New technology: Transforming human rights management
• UN Sustainable Development Goals and UN Guiding Principles: Increasing the reporting burden on business to change the lives of 81% of all workers.