The Role of Traceability in Human Rights Due Diligence
How a targeted and risk-based approach to traceability maximizes positive impact
In today's global business landscape, companies are increasingly expected to conduct human rights due diligence (HRDD) throughout their own operations and value chains. The question of traceability often arises, and discussions emerge around its role in identifying and addressing human rights risks and impacts. This blog post explores the concept of traceability, its relevance to HRDD, and how companies can effectively use it to better manage human rights in their upstream value chains.
Understanding Traceability
Traceability refers to the ability of a company to identify and trace the movement of products, components, and materials throughout its value chain – for instance, from the manufacturing of product components to the sourcing of raw materials. It is important to note that traceability itself does not inherently relate to sustainability or human rights. However, when used strategically to inform HRDD efforts, it can become a powerful tool for supporting effective human rights practices.
The Business Case for Traceability
In recent years, traceability has become increasingly important for companies due to several factors:
Regulatory compliance: New laws are mandating traceability of high-risk value chains or raw materials, such as the Swiss due diligence requirements that are part of the Code of Obligations and the Ordinance on Conflict Minerals and Child Labour Due Diligence or the EU Deforestation Regulation.
Business requirements: More and more companies require traceability information from suppliers as a prerequisite for doing business. For example, Nestlé's Responsible Sourcing approach makes traceability to the origin of raw materials a non-negotiable requirement for suppliers.
Targeted risk mitigation: Traceability allows for more precise measures to address human rights risks beyond tier 1 suppliers. When a company knows the exact source of its raw materials or the location where materials were processed and products manufactured, it can implement targeted measures to address identified issues right where they arise.
Taking a Risk-based Approach to Traceability
From an HRDD perspective, improving traceability is most effective when it is used to better identify and address prioritized human rights risks. Taking a risk-based approach to traceability means increasing the traceability and transparency of selected value chains in a targeted, intentional manner, focusing on areas where negative impacts are most likely or severe.
To implement this approach effectively, your company can follow these steps:
Conduct a high-level human rights risk assessment (“saliency assessment”) to identify which human rights risks are most likely or severe at different stages of your value chain, informing where to focus your efforts.
Prioritize high-risk value chains or raw materials based on the insights from the risk assessment, selecting the value chains or raw materials with the highest human rights risks.
Conduct research and / or engage with suppliers to gather more information on the prioritized value chains and narrow down the likely origin of the raw materials or location of the activities in question. Both desk research and supplier dialogue can help you understand your shared upstream value chains and identify opportunities for collaboration.
Implement targeted risk mitigation measures based on the information gathered, to address risks in the likely origin of raw materials or the likely location of processing, manufacturing or assembly.
Digital Traceability Tools: Challenges and Best Practices
A large variety of digital tools are available and used by companies to collect traceability (often combined with sustainability) information from suppliers and to assess their ESG performance. However, the use of such tools comes with challenges:
Data Overload: Excessive supplier data collection can lead to a “data graveyard” if the information is not used effectively.
Supplier Burden: Frequent information requests can overburden suppliers and shift costs to them.
Data Disclosure: Intermediaries might be reluctant to share information about their own value chain and business partners for fear of being “skipped” in favor of direct procurement from producers.
Data Quality: Sustainability information shared by suppliers may be inaccurate due to lack of knowledge or capacity.
Conflict of Interest: Suppliers might be reluctant to disclose “negative” sustainability information (e.g., about human rights risks or impacts) to customers for fear of losing business.
To avoid these and other pitfalls, it is important for companies to reflect on a targeted use of these tools before sending out their information requests and to ensure that resources are available to use the collected traceability information as a basis for action. To make effective use of digital value chain tools, we recommend that you consider the following guiding questions first:
What is our strategic objective in using a digital traceability / supplier management tool?
Which suppliers or value chains should be prioritized for traceability, and why?
Who bears the cost of the administrative burden on suppliers, and is support needed?
What is our capacity to use the collected information for further action, such as engaging suppliers on sustainability topics and taking measures beyond tier 1 to address impacts?
Addressing Human Rights Risks Without Full Traceability
It is important to note that full traceability is not a prerequisite for identifying and addressing human rights risks. While working to improve traceability of prioritized value chains, your company can already address human rights risks and employ several complementary approaches to traceability:
Research-based action: Conduct research on the likely origin of raw materials or location of intermediary activities in the value chain and develop measures to address the identified risks in these locations.
Collaborative action: Participate in sector or industry-level initiatives in the likely locations, as identified through research, to address risks locally. If the locations are unknown or there are multiple locations potentially relevant, join sectoral multi-stakeholder initiatives (MSIs) at the international level.
Supplier collaboration: Establish dialogues with tier 1 suppliers to jointly identify and address risks occurring at tier 2 and beyond. This can include joint visits to tier 2 suppliers and risk assessments to inform mitigation measures.
Adopt responsible purchasing practices: Discuss the impact of your own purchasing practices, such as pricing and order timing, on suppliers' ability to meet human rights expectations, and make the necessary changes to adopt more responsible practices.
Conclusion
Traceability is a valuable tool in companies’ HRDD toolkit, but it is most effective when used strategically and in combination with other measures. By adopting a risk-based approach to traceability, companies can focus their efforts where they are most needed to maximize impact. Remember that the goal of traceability is not simply to collect a lot of data, but to use that information to drive meaningful improvements in human rights practices in the value chain. By combining traceability efforts with complementary measures, such as collaboration with industry peers and suppliers or reviewing purchasing practices, companies can enable significant improvements in mitigating human rights risks in their value chains.