Thursday, June 23 2022

UK: 7 steps to prepare for impending supply chain laws

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Pressure on the UK and other governments continues to grow to develop, implement and enforce mandatory human rights and environmental due diligence requirements for companies headquartered or operating in their own jurisdiction. Or, where appropriate, to further strengthen these regulatory regimes where they already exist.

In October 2021, 94 investors, representing over $6.3 billion in assets under management, sent a statement to EU Commissioners and the European Parliament, expressing their support for human rights due diligence and before the long-awaited next legislative proposal from the European Commission on Sustainable Corporate Governance. The UK will not be bound by any such proposal, but some 34 leading companies, investors and trade associations operating in the UK recently put their names to their own letter calling on the UK government to introduce a new legal obligation for companies and investors to carry out Human Rights and Environmental Due Diligence (mHRDD).

These statements add to the growing number of support for mHREDD and follow the recent announcement that the Global Reporting Initiative (GRI) has updated its universal standards to emphasize and require more transparency in reporting on human rights impacts and due diligence obligations.

The overall message is clear: companies cannot wait for mHREDD laws to act – in order to meet the expectations of investors (and other stakeholders), companies should already be designing and implementing policies and procedures to identify and mitigate negative impacts on human rights and the environment.

The legislation will likely align with international frameworks such as the UN Guiding Principles and OECD Guidelines, to which many companies have already committed. These frameworks require companies to identify, prevent, mitigate and report on how they address potential and actual impacts on human rights and the environment through an ongoing process of due diligence in matters of human rights and the environment. Businesses will be held accountable for adverse human rights and environmental impacts within their operations and along their global value chains, whether they cause or contribute, and will be required to enable and support the provision of adequate and effective remedies.

Businesses can position themselves for the expected EU legislation and any UK equivalent and other mHRDD laws emerging nationally by taking the following steps now:

1. Integrate human rights into group policies and strategic planning processes;

2. Disclose how human rights considerations are integrated into strategies, policies and procedures;

3. Carry out a human rights impact assessment and take proportionate countermeasures, as well as communicate internally and externally on the measures that have been taken;

4. Review and strengthen complaints mechanisms and speaking out programs;

5. Ensure that the company is well equipped to deal with “crises”;

6. Review how well equipped their board is to deal with supply chain risks; and

seven. Review the role, resources and expertise of the legal and compliance functions, which must play a key role in meeting these new challenges.

Procurement and supply chain professionals will play a key role in supporting the above. They will need to work closely with legal and compliance functions, review contract templates, help their supply chain partners adapt to their changing compliance obligations, review existing social audit programs which may well not be robust enough to meet emerging standards, explore collective action and review their existing strategies in light of identified risks, which would likely include a renewed emphasis on multi-source supply agreements.

Some companies may consider this to be the “problem of tomorrow” as the legislation is still in the development phase. However, the potential reputational damage that a business can suffer if it is found not to meet the minimum standards now expected is indeed a problem of today and cannot be ignored.

Originally posted by Supply Management (cips.org)the 14thand from January 2022.

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This article by Mayer Brown provides information and commentary on interesting legal issues and developments. The foregoing is not a complete treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action regarding the matters discussed here.

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