Guide
Integrating due diligence
Due diligence should be integrated into your company’s policies and processes. In this section, we elaborate on concrete actions you can take to accomplish this, with a primary focus on procurement.
At the end of this section:
- You understand how you can strengthen your internal capacity to carry out due diligence;
- You understand how you can integrate due diligence in your procurement function;
- You have carried out a basic risk assessment of (some of) your suppliers.
Internal capacity building
Risks for human rights and the environment along global supply chains are uncharted territory for many companies. Moreover, SMEs in particular rarely command the resources to invest in external expertise. Therefore, it is important to build a minimum of internal capacity.
First, it is vital to gain insight into existing policies and processes that can help you to effectively understand and reduce risks in your supply chain. For instance, many companies already have systems of supplier screening, or procedures to ensure product safety or quality along the supply chain.
Secondly, you need to assign internal responsibility for implementing due diligence processes. This responsibility can be assigned to an individual, but (depending on the size of your company) you could also opt to create a small working group made up of representatives of different departments (e.g. procurement, sustainability, HR, compliance).
Thirdly, you need to ensure that those responsible have a certain degree of expertise. This is particularly important for the procurement team, which is generally the first line of contact for suppliers. However, procurers are trained to be mindful of human rights or environmental risks. This guide is a first step in the right direction, but additional training may be necessary.
Integrating due diligence in procurement
The supplier code of conduct
When due diligence is discussed in relation to procurement, a supplier code of conduct is usually the first thing that comes to mind. A supplier code of conduct has important awareness-raising value, and helps you to communicate expectations to suppliers and to other external stakeholders. For large companies, a supplier code of conduct is becoming standard practice, and may soon become legally obliged. For SMEs, while a supplier code of conduct often remains optional, there may be good reasons to use one, for instance because clients are asking you to. If you decide to develop a supplier code of conduct, it is important to make sure that it contains a number of basic elements (see table below).
Crucially, a supplier code by itself offers no guarantees whatsoever that suppliers will actually live up to the standards it contains. It should at all times be combined with concrete measures to verify compliance, but also with credible actions for cases of non-compliance. As a rule of thumb, disengaging from a supplier should always be seen as a very last resort, when all other options for mitigating risks through joint cooperation have been exhausted (see ‘mitigating risks’).
| Building blocks | What? | Tips |
|---|---|---|
|
Engagement | Why do you find it important that suppliers pay attention to risks? | Rely on the written commitment you developed earlier |
| Scope | Is the code only applicable to direct suppliers, or should these suppliers expect the same from their suppliers? | The second option is increasingly commonplace, and is also one of the techniques referred to in the CSDD proposal ('cascading'). |
| Standards | Which criteria in the domain of human rights and the environment should suppliers adhere to? | Rely on so-called 'model codes' (see below) |
| Monitoring | How will compliance be checked? | Large companies typically use social/environmental audits. Alternatively, you could ask suppliers to provide you with the necessary evidence yourself. |
| Non-compliance | What happens in instances of non-compliance? | Collaboration with suppliers to ensure genuine improvement should always take precedence over disengagement |
Supplier risk assessment
To be able to take more targeted actions to mitigate risks in your supply chains, it can be helpful to assess the risk profile of your suppliers. Large companies are increasingly turning to specialized companies offering ‘one-stop-shop’ supply chain solutions that include detailed supplier assessment and supplier rating systems. While these systems can certainly help you to assess the ‘sustainability credentials’ of (prospective) suppliers, they also have shortcomings. Moreover, these systems are usually not cheap, making them less accessible to SMEs.
Responsible procurement
In an earlier section (‘Understanding risk’), it was already mentioned that your procurement decisions can create risks for human rights and for the environment. To understand if this is indeed the case, a dialogue with suppliers is indispensable. Below, we formulate some general principles to guide you towards more responsible procurement practices.
- Treat suppliers as equal partners. This means aiming for win-win solutions, but also sharing the responsibility to mitigate risks.
- Avoid setting unrealistic and inconsistent demands on suppliers. You cannot increase price pressures while at the same time expecting suppliers to invest in environmental management or in higher wages for employees.
- Plan and monitor production with suppliers to avoid unnecessary pressures, but also to avoid unpleasant surprises for yourself.
- Ensure that colleagues responsible for purchasing decisions understand and endorse the importance of responsible procurement.
- Avoid perverse incentives for buyers, for example in the form of bonus systems that reward them for negotiating lower prices.
- Ensure fair and transparent payment terms. Make sure payments are made according to agreed deadlines.
- Ensure fair prices that can support sustainable production.
Further inspiration for responsible procurement practices can be found in the 'Common framework for responsible purchasing practices' developed by (among others) Fair Wear Foundation, Ethical Trading Initiative, and the Dutch Clothing Covenant. Other interesting resources are the 'Responsible Buyer Code' that was developed by the American Bar Association; and Ethical Trading Initiative’s 'Guide to Buying Responsibly'.
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